<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
FOREST OIL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
FOREST OIL CORPORATION
1600 BROADWAY, SUITE 2200
DENVER, CO 80202
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 16, 1998
------------------------
To the Shareholders of
FOREST OIL CORPORATION:
As a shareholder of Forest Oil Corporation, a New York corporation (the
"Company"), you are invited to be present in person or to be represented by
proxy at the Annual Meeting of Shareholders, to be held at 1600 Broadway, Suite
590, Denver, Colorado, on Tuesday, June 16, 1998, at 10:00 a.m., M.D.T., for the
following purposes:
1. To elect two (2) Class IV Directors;
2. To approve the transaction between the Company and The Anschutz
Corporation ("Anschutz") contemplated by an agreement between the Company
and Anschutz;
3. To authorize the Company to adjourn the meeting to solicit additional
proxies in the event that the number of proxies sufficient to approve any
of the proposals has not been received by the date of the meeting;
4. To consider and vote upon the ratification of the appointment of KPMG
Peat Marwick LLP as independent auditors for the Company for the fiscal
year ending December 31, 1998; and
5. To transact such other business as may be properly brought before the
meeting and any adjournments thereof.
Shareholders of the Company of record at the close of business on Friday,
May 1, 1998 are entitled to vote at the meeting and all adjournments thereof.
A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE COMPANY MUST BE
REPRESENTED AT THE MEETING TO CONSTITUTE A QUORUM. THE SHARES HELD BY ANSCHUTZ
WILL BE INCLUDED IN DETERMINING WHETHER A MAJORITY IS PRESENT. THEREFORE, ALL
SHAREHOLDERS ARE URGED EITHER TO ATTEND THE MEETING OR TO BE REPRESENTED BY
PROXY. IF A QUORUM IS NOT PRESENT AT THE MEETING, A VOTE FOR ADJOURNMENT WILL BE
TAKEN AMONG THE SHAREHOLDERS PRESENT OR REPRESENTED BY PROXY. IF A MAJORITY OF
THE SHAREHOLDERS PRESENT OR REPRESENTED BY PROXY VOTE FOR ADJOURNMENT, IT IS THE
COMPANY'S INTENTION TO ADJOURN THE MEETING UNTIL A LATER DATE AND TO VOTE
PROXIES RECEIVED AT SUCH ADJOURNED MEETING(S).
IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. If you later find that you can be present or for any other reason
desire to revoke your proxy, you may do so at any time before the voting.
By order of the Board of Directors
DANIEL L. McNAMARA
SECRETARY
June 5, 1998
<PAGE>
PROXY STATEMENT
OF
FOREST OIL CORPORATION
1600 BROADWAY, SUITE 2200
DENVER, COLORADO 80202
June 5, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board of Directors") of Forest Oil Corporation (the
"Company") of proxies to be voted at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held on Tuesday, June 16, 1998, at 1600 Broadway, Suite
590, Denver, Colorado, at 10:00 a.m., M.D.T., and at any adjournment thereof.
Each holder of record at the close of business on May 1, 1998 of shares of the
Company's Common Stock, Par Value $.10 Per Share (the "Common Stock"), will be
entitled to one vote for each share so held. As of April 30, 1998, there were
37,320,644 shares of Common Stock issued and outstanding.
Shares represented by properly executed proxy cards received by the Company
at or prior to the Annual Meeting will be voted according to the instructions
indicated on the proxy card. Unless contrary instructions are given, the persons
named on the proxy card intend to vote the shares so represented for (i) the
election of the nominees for directors, (ii) the approval of the transaction
between the Company and The Anschutz Corporation ("Anschutz") contemplated by an
agreement between the Company and Anschutz (the "1998 Anschutz Transaction"),
(iii) the authorization of the Company to adjourn the Annual Meeting to solicit
additional proxies in the event that the number of proxies sufficient to approve
any of the proposals has not been received by the date of the Annual Meeting,
and (iv) the ratification of the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998. As
to any other business which may properly come before the meeting, the persons
named on the proxy card will vote according to their judgment. The enclosed
proxy may be revoked prior to the meeting by written notice to the Secretary of
the Company at 1600 Broadway, Suite 2200, Denver, Colorado 80202, or by written
or oral notice to the Secretary at the Annual Meeting at any time prior to being
voted. This Proxy Statement and the Proxy Card enclosed herewith are expected to
be first sent to shareholders of the Company on or about June 5, 1998.
If a quorum is not present at the meeting, a vote for adjournment will be
taken among the shareholders present or represented by proxy. If a majority of
the shareholders present or represented by proxy vote for adjournment, it is the
Company's intention to adjourn the meeting until a later date and to vote
proxies received at such adjourned meeting(s).
Under the law of New York, the Company's state of incorporation, "votes
cast" at a meeting of shareholders by the holders of shares entitled to vote are
determinative of the outcome of the matter subject to vote. Abstentions will be
considered "votes cast" and broker non-votes will not be considered "votes cast"
based on the Company's understanding of state law and New York Stock Exchange
requirements. A "broker non-vote" occurs if a broker or other nominee does not
have discretionary authority and has not received instructions with respect to a
particular item. Shareholders may not cumulate their votes.
THE 1998 ANSCHUTZ TRANSACTION
At the Annual Meeting, the Company's shareholders will be asked to approve
the 1998 Anschutz Transaction described under "The Anschutz Transaction." The
Company's Board of Directors has determined that the transaction is fair to and
in the best interests of shareholders other than Anschutz and its affiliates.
Several important factors should be considered by the shareholders with respect
to the Transaction:
1
<PAGE>
Pursuant to the 1998 Anschutz Transaction, the Company will issue to
Anschutz an aggregate of 5,950,000 shares of Common Stock in exchange for
certain oil and gas assets. These assets include Anschutz' interests in the
Anschutz Ranch East Field, certain Canadian properties and other international
projects (the "Anschutz Properties"). See "The Anschutz Transaction."
Based on the number of shares outstanding on April 30, 1998, and as a result
of the consummation of the 1998 Anschutz Transaction, Anschutz will increase its
ownership from 29.8% to approximately 39.5% of the Common Stock. Anschutz is
subject to a 40% ownership limitation that terminates on July 27, 2000. See "The
Anschutz Transaction--Shareholders Agreement". The last reported sales price of
the Common Stock on the New York Stock Exchange Composite Tape was $13.00 on
January 9, 1998, the last trading day prior to the public announcement of the
agreement in principle between the Company and Anschutz with respect to the 1998
Anschutz Transaction, and was $14 1/16 on June 1, 1998. Between such dates the
price ranged from a high of $16 to a low of $13.
A majority of the votes represented at the Annual Meeting by shares of
Common Stock entitled to vote (and held by persons other than Anschutz) is
required for approval of the transactions contemplated by the 1998 Anschutz
Agreements as described in this Proxy Statement.
Anschutz will continue to be subject to voting restrictions on the shares it
currently owns and the shares it would acquire in the 1998 Anschutz Transaction.
Pursuant to these restrictions, Anschutz will be required to vote all equity
securities of the Company owned by Anschutz having voting power in excess of an
amount equal to 19.99% of the aggregate voting power of the equity securities of
the Company then outstanding in the same proportion as all other equity
securities of the Company voted with respect to the matter (other than equity
securities owned by Anschutz) are voted. Such limitations are not applicable in
all situations. For example, Anschutz is allowed to vote its shares with respect
to all matters with respect to which Anschutz may have liability under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
As a result of this exception to the restrictions, Anschutz may have a veto
power over certain transactions between the Company and third parties such as a
merger which requires the approval of the holders of two-thirds of the
outstanding Common Stock. See "The Anschutz Transaction-- Shareholders
Agreement".
ELECTION OF DIRECTORS
The Company's By-laws currently provide that the Board of Directors shall be
divided into four classes as nearly equal in number as possible whose terms of
office expire at different times in annual succession. Currently the number of
directors is fixed at 11.
Each class of directors is elected for a term expiring at the Annual Meeting
to be held four years after the date of their election. The Class I Directors
with the exception of Philip F. Anschutz were elected at the 1995 Annual
Meeting. The Class II Directors were elected at the 1996 Annual Meeting. The
Class III Directors were elected at the 1997 Annual Meeting. Philip F. Anschutz,
Craig D. Slater and Drake S. Tempest were appointed to their respective classes
in July 1995. Cortlandt S. Dietler was appointed as a Class IV Director in
October 1996.
A majority of the votes represented at the Annual Meeting by shares of
Common Stock entitled to vote is required to elect a director.
The persons named as proxies in the enclosed proxy, who have been so
designated by the Board of Directors, intend to vote for the election of the
Class IV Nominees referred to below as directors unless otherwise instructed in
the proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE NOMINEES. Certain
information concerning such nominees, as well as the other current directors, is
set forth below:
2
<PAGE>
<TABLE>
<CAPTION>
AGE AND PRINCIPAL OCCUPATION,
YEARS OF POSITIONS WITH COMPANY
SERVICE AND BUSINESS EXPERIENCE DIRECTOR
NAME WITH COMPANY DURING LAST FIVE YEARS SINCE
- ------------------------------ --------------- -------------------------------------------------------- -----------
<S> <C> <C> <C>
CLASS IV NOMINEES--TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 1998
Craig D. Slater 41 - 3 President of Anschutz Investment Company since August 1995
1997. Vice President of Acquisitions and Investments of
both The Anschutz Corporation and Anschutz Company, the
corporate parent of Anschutz, since 1995. Corporate
Secretary of The Anschutz Corporation and Anschutz
Company from 1991 to 1996, and other positions with The
Anschutz Corporation and Anschutz Company from 1988 to
1995. Director of Qwest Communications International
Inc. since February 1997 and Director of Qwest
Communications Corporation since November 1996.
Director of Internet Communications Corporation since
September 1996. Member of the Executive Committee.
Cortlandt S. Dietler 76 - 1 Chairman and Chief Executive Officer of Trans-Montaigne 1996
Oil Company since April 1995. Prior thereto founder,
Chairman and Chief Executive Officer of Associated
Natural Gas Corporation prior to its 1994 merger with
Panhandle Eastern Corporation. Advisory Director of
PanEnergy Corporation. Director of Hallador Petroleum
Company, Key Production Company, Inc. and Grease Monkey
Holding Corporation. Member of the Compensation
Committee
CLASS I DIRECTORS--TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 1999
William L. Dorn 49 - 26 Chairman of the Board and Chairman of the Executive 1982
Committee. Chief Executive Officer until December 1995.
President until November 1993. Chairman of the
Nominating Committee. Chairman of the Board of
Directors of Saxon Petroleum Inc.
James H. Lee 49 - 7 Managing Partner, Lee, Hite & Wisda Ltd., a private oil 1991
and gas consulting firm. Member of the Executive
Committee. Chairman of the Audit Committee.
Philip F. Anschutz 58 - 3 Director and Chairman of the Board of The Anschutz 1995
Corporation, and Anschutz Company, the corporate parent
of Anschutz, for more than five years, and President of
The Anschutz Corporation and Anschutz Company until
December 1996. Director and Chairman of the Board of
Qwest Communications International Inc. since February
1997 and Director and
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AGE AND PRINCIPAL OCCUPATION,
YEARS OF POSITIONS WITH COMPANY
SERVICE AND BUSINESS EXPERIENCE DIRECTOR
NAME WITH COMPANY DURING LAST FIVE YEARS SINCE
- ------------------------------ --------------- -------------------------------------------------------- -----------
Chairman of the Board of Qwest Communications
Corporation from November 1993 until September 1997.
Director and Vice Chairman of Union Pacific Corporation
since September 1996. Director and Chairman of Southern
Pacific Rail Corporation ("SPRC") from 1988 to
September 1996, and President and Chief Executive
Officer of SPRC from 1988 to 1993. Member of the
Nominating Committee.
<S> <C> <C> <C>
CLASS II DIRECTORS--TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 2000
Robert S. Boswell 48 - 12 President since November 1993 and Chief Executive 1985
Officer since December 1995, Vice President until
November 1993. Chief Financial Officer until December
1995. Member of the Executive Committee. Director of
C.E. Franklin Ltd. and Saxon Petroleum Inc.
Drake S. Tempest 44 - 3 Partner in the law firm of O'Melveny & Myers LLP since 1995
1991. Member of the Compensation Committee.
William L. Britton 63 - 2 Partner in the law firm of Bennett Jones Verchere. 1996
Director of Akita Drilling Ltd., ATCO Ltd., Canadian
Western Natural Gas Ltd., Canadian Utilities Limited,
CanUtilities Holdings Ltd. and Northwestern Utilities
Limited. Member of the Audit Committee.
CLASS III DIRECTORS--TERMS EXPIRING AT THE ANNUAL SHAREHOLDERS' MEETING IN 2001
Jordan L. Haines 70 - 2 Chairman of the Board of Fourth Financial Corporation, a 1996
Kansas based bank holding company, and its subsidiary
Bank IV Wichita, N.A. from 1983 until his retirement in
1991. Director of Qwest Communications International
Inc. and a Director of KN Energy, Inc. Member of the
Audit Committee.
J. J. Simmons, III 73 - 1 President of The Simmons Company, a consulting firm. Mr. 1997
Simmons was Vice Chairman of the Surface Transportation
Board from 1995 to 1996 and prior thereto
Commissioner--Vice Chairman of the U.S. Interstate
Commerce Commission.
Michael B. Yanney 64 - 6 Chairman and Chief Executive Officer of the America 1992
First Companies, L.L.C. Director of Burlington Northern
Santa Fe Corporation and Mid-America Apartment
Communities, Inc. Chairman of the Compensation
Committee. Member of the Nominating Committee.
</TABLE>
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows, as of April 30, 1998, the number of shares of the
Company's Common Stock beneficially owned by each director and nominee, each of
the executive officers named in the Summary Compensation Table set forth under
the caption "Executive Compensation" below, and all directors and executive
officers as a group. Unless otherwise indicated, each of the persons has sole
voting power and sole investment power with respect to the shares beneficially
owned by such person.
<TABLE>
<CAPTION>
COMMON STOCK(1)
---------------------------
NAME OF INDIVIDUAL OR NUMBER OF PERCENT
NUMBER IN GROUP SHARES OF CLASS(2)
- ------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Philip F. Anschutz.......................................... 17,086,475(3) 39.5%
Robert S. Boswell........................................... 136,684(4) *
William L. Britton.......................................... 2,753 *
Cortlandt S. Dietler........................................ 3,253 *
William L. Dorn............................................. 142,533(5) *
Forest D. Dorn.............................................. 64,065(6) *
Jordan L. Haines............................................ 1,753 *
David H. Keyte.............................................. 68,182(7) *
James H. Lee................................................ 4,748 *
J. J. Simmons III........................................... 376 *
Craig D. Slater............................................. 8,087 *
Drake S. Tempest............................................ 4,087 *
V. Bruce Thompson........................................... 28,882(8) *
Michael B. Yanney........................................... 12,587(9) *
All directors and executive officers as a group (19 persons,
including the 14 named above)............................. 17,634,878(10) 40.3%
</TABLE>
- ------------------------
* The percentage of shares beneficially owned does not exceed one percent of
the outstanding shares of the class.
(1) Amounts reported also include shares held for the benefit of certain
directors and executive officers by the trustee of the Company's Retirement
Savings Plan Trust as of March 31, 1998.
(2) Based on the number of shares outstanding as of April 30, 1998.
(3) The shares indicated as owned by Philip F. Anschutz are owned of record by
Anschutz, of which Mr. Anschutz is the Chairman of the Board and a Director.
Mr. Anschutz may be deemed to beneficially own such shares based on his
affiliation with Anschutz. The shares indicated as beneficially owned by
Philip F. Anschutz include 5,950,000 shares to be issued pursuant to the
1998 Anschutz Transaction, and 1,587 shares owned by Philip F. Anschutz. See
"The Anschutz Transaction."
(4) Includes 120,000 shares that Robert S. Boswell has the vested right to
purchase pursuant to options granted under the Stock Incentive Plan, and
4,133 shares (net of shares surrendered for tax withholding) of restricted
stock also awarded under the Stock Incentive Plan. Does not include 45
shares held by Robert S. Boswell's wife or 566 shares held by his children,
of which shares Mr. Boswell disclaims beneficial ownership.
(5) Includes 90,000 shares that William L. Dorn has the vested right to purchase
pursuant to options granted under the Stock Incentive Plan, and 1,495 shares
(net of shares surrendered for tax withholding) of restricted stock also
awarded under the Stock Incentive Plan. Also includes (i) 5,160 shares held
of record by William L. Dorn as co-trustee of a trust for the benefit of
himself and his three siblings, and (ii) 14,840 shares held of record by
William L. Dorn as trustee of trusts for the benefit of related parties, of
which shares Mr. Dorn disclaims beneficial ownership. Does not include
5
<PAGE>
2,998 shares held by William L. Dorn's wife or 7,199 shares held by his
children, of which shares Mr. Dorn disclaims beneficial ownership.
(6) Includes 44,000 shares that Forest D. Dorn has the vested right to purchase
pursuant to options granted under the Stock Incentive Plan, and 2,678 shares
(net of shares surrendered for tax withholding) of restricted stock also
awarded under the Stock Incentive Plan. Also includes (i) 5,160 shares held
of record by Forest D. Dorn as co-trustee of a trust for the benefit of
himself and his three siblings, and (ii) 33 shares held of record by Forest
D. Dorn as custodian for the benefit of one of his minor children, of which
shares Mr. Dorn disclaims beneficial ownership. Does not include 1,725
shares held by Forest D. Dorn's wife or 5,192 shares held by his children,
of which shares Mr. Dorn disclaims beneficial ownership.
(7) Includes 59,700 shares that David H. Keyte has the vested right to purchase
pursuant to options granted under the Stock Incentive Plan, and 4,517 shares
(net of shares surrendered for tax withholding) of restricted stock also
awarded under the Stock Incentive Plan. Does not include 1,000 shares held
by one of his children, of which shares Mr. Keyte disclaims beneficial
ownership.
(8) Includes 26,000 shares that V. Bruce Thompson has the vested right to
purchase pursuant to options granted under the Stock Incentive Plan, and
2,558 shares (net of shares surrendered for tax withholding) of restricted
stock also awarded under the Stock Incentive Plan.
(9) Includes 10,000 shares held of record by America First Companies, L.L.C., of
which Michael B. Yanney is a 50% member. Does not include 3,400 shares held
by Michael B. Yanney's wife in her retirement savings trust, of which shares
Mr. Yanney disclaims beneficial ownership.
(10) Includes 64,000 shares held by various executive officers (other than those
named in the table) who have the vested right to purchase such shares
pursuant to options granted under the Stock Incentive Plan, and 3,505 shares
(net of shares surrendered for tax withholding) of restricted stock awarded
to various executive officers under the Stock Incentive Plan.
BOARD OF DIRECTORS AND COMMITTEES
During 1997, the Board of Directors met on six occasions. The Board of
Directors has appointed four committees: the Executive Committee, the Audit
Committee, the Compensation Committee and the Nominating Committee. Only two
members of each committee are necessary to constitute a quorum. During 1997, the
Executive Committee met formally one time and acted by written consent once. The
Executive Committee meets informally on a monthly basis. Robert S. Boswell,
William L. Dorn, James H. Lee and Craig D. Slater are the members of the
Executive Committee.
The Compensation Committee makes recommendations to the Board of Directors
in the area of executive compensation, including the selection of individual
employees to be granted awards from among those eligible under the Stock
Incentive Plan, and establishes the amount of such awards. The Company's
nonemployee directors are automatically awarded shares of Common Stock on an
annual basis pursuant to the Stock Incentive Plan. The Compensation Committee
acted by written consent three times during 1997. Its members are Cortlandt S.
Dietler, Drake S. Tempest and Michael B. Yanney. A Report of the Compensation
Committee on Executive Compensation is set forth below.
The Audit Committee oversees and monitors the Company's independent audit
process and discharges its duties, responsibilities and functions according to a
plan designed to provide assurance to the Board of Directors that the resources
allocated to that process are adequate and utilized effectively. It is also
charged with the responsibility for reviewing all related party transactions for
potential conflicts of interest. The Audit Committee met five times and acted by
written consent once during 1997. Its members are Jordan L. Haines, James H. Lee
and William L. Britton.
6
<PAGE>
The Nominating Committee is responsible for, among other things, review of
qualifications and recommendations for replacement and/or additional nominees to
the Board of Directors, and recommendation of policies regarding directors to
the Board. The Nominating Committee will not consider nominees recommended by
security holders, and has not established any procedures for such
recommendations. The members of the Nominating Committee are Philip F. Anschutz,
William L. Dorn and Michael B. Yanney. The Nominating Committee acted by consent
on one occasion in 1997.
During 1997, each incumbent director of the Company, except Philip F.
Anschutz and William L. Britton, attended at least 75% of the aggregate number
of meetings of the Board of Directors and the committees of the Board of
Directors on which they served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Cortlandt
S. Dietler, Drake S. Tempest and Michael B. Yanney. The Executive Committee
members are Robert S. Boswell, William L. Dorn, James H. Lee and Craig D.
Slater. William L. Dorn is Chairman of the Board and Robert S. Boswell is
President and Chief Executive Officer. During 1997 there were no compensation
committee interlocks between the Company and any other entity. For a description
of transactions with William L. Dorn and Robert S. Boswell, see "Transactions
with Management and Others--Executive Severance Agreements".
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is compensated for
services at the rate of $20,000 annually, and in addition, is paid a fee of
$2,500 for attendance in person at each meeting or series of meetings of the
Board of Directors. The Stock Incentive Plan provides for, among other things,
the payment of a portion of directors' fees in stock. Half of the $20,000 annual
amount is paid at each annual meeting of the shareholders of the Company in
shares of Common Stock, determined by dividing $10,000 by the average of the
fair market values of a share of Common Stock on the 20 consecutive trading days
immediately preceding the date that is three trading days prior to the date of
such meeting.
All directors, whether employees or not, are reimbursed for all costs
incurred by them in their capacities as directors, including the costs of
attending directors' meetings and committee meetings. The nonemployee directors
and the amounts and shares of Common Stock each received during 1997 as
directors were: Philip F. Anschutz received $27,500, $10,000 of which was paid
in the form of 753 shares for his services as a director. William L. Britton
received $25,000, $10,000 of which was paid in the form of 753 shares for his
services as a director. Richard J. Callahan received $8,750, $6,250 of which was
paid in the form of 443 shares for his services as a director. Cortlandt S.
Dietler received $27,500, 10,000 of which was paid in the form of 753 shares for
his services as a director. Jordan L. Haines received $30,000, $10,000 of which
was paid in the form of 753 shares for his services as a director. James H. Lee
received $30,000, $10,000 of which was paid in the form of 753 shares for his
services as a director. J. J. Simmons, III received $22,500, $5,000 of which was
paid in the form of 376 shares for his services as a director. Craig D. Slater
received $30,000, $10,000 of which was paid in the form of 753 shares for his
services as a director. Drake S. Tempest received $30,000, $10,000 of which was
paid in the form of 753 shares for his services as a director. Michael B. Yanney
received $25,000, $10,000 of which was paid in the form of 753 shares for his
services as a director. The payment of fees to directors for attendance at
committee meetings was discontinued in February 1996, except that Mr. Lee
receives $50,000 per year for his service on the Executive Committee, $25,000 of
which was paid in the form of 1,658 shares in 1997. Mr. Lee's service consists
of attendance at monthly meetings and his reviews of certain oil and gas
exploration and development prospects.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers (collectively, the "Named Executive Officers"),
based on salary and bonus earned in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
--------------------------------------- -----------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPENSATION STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($)(2) OPTIONS(#) ($)(3)
- --------------------------- --------- ----------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Dorn ........... 1997 $ 306,261 $ 32,500 $ -0- $ 32,500 -0- $ 17,935
Chairman of the Board 1996 300,012 100,000 -0- -0- 175,000 17,434
1995 300,012 41,415 1,873 -0- -0- 17,328
Robert S. Boswell ......... 1997 303,402 57,500 -0- 57,500 -0- 17,535
President and Chief 1996 287,868 177,000 -0- 24,500 250,000 16,605
Executive Officer 1995 284,004 41,321 1,699 -0- -0- 16,310
David H. Keyte ............ 1997 206,253 37,500 -0- 37,500 -0- 10,313
Executive Vice President 1996 200,004 62,500 -0- 46,403 127,000 10,000
and Chief Financial 1995 165,000 32,113 21,619 -0- -0- 8,250
Officer
Forest D. Dorn ............ 1997 171,670 25,000 -0- 25,000 40,000 9,950
Senior Vice President-- 1996 170,004 35,000 -0- 25,982 90,000 9,468
Gulf Coast Region 1995 163,800 20,889 23,977 -0- -0- 9,264
V. Bruce Thompson ......... 1997 169,888 20,000 -0- 20,000 30,000 8,495
Senior Vice President and 1996 168,864 37,500 26,725 27,844 40,000 8,443
General Counsel 1995 165,000 16,292 -0- -0- -0- 8,250
</TABLE>
- ------------------------------
(1) The 1996 and 1997 totals do not include perquisites and other personal
benefits because the value of these items did not exceed the lesser of
$50,000 or 10% of reported salary and bonus of any of the Named Executive
Officers, except for V. Bruce Thompson. The 1996 total includes the gift to
Mr. Thompson of a Company-owned automobile valued at $25,751.
(2) The following Named Executive Officers received conditional grants of
restricted stock in the following respective share amounts: William L.
Dorn--200,000; Robert S. Boswell--400,000; David H. Keyte--250,000. The
restricted stock was awarded on November 7, 1997, and is subject to a
sliding scale condition and a two-year restriction on transferability. The
condition is that the recipient receives shares only if prior to January 1,
1999 the highest average closing price of the Company's Common Stock during
any 20 consecutive-trading-day period as reported on the New York Stock
Exchange is at least $22.00 per share. The restricted stock will not be
entitled to dividends or voting rights until the conditions have been met
and the shares have been issued. The following are the incremental share
awards achieved at various price levels (See "Report of the Compensation
Committee on Executive Compensation--Short-Term Incentives"):
<TABLE>
<CAPTION>
NUMBER OF SHARES AWARDED
---------------------------------------------------
STOCK PRICE LEVEL WILLIAM L. DORN ROBERT S. BOSWELL DAVID H. KEYTE
- ------------------------------ --------------- ----------------- ---------------
<S> <C> <C> <C>
$22 60,000 100,000 70,000
23 66,000 110,000 77,000
24 73,000 122,000 85,000
25 82,000 137,000 96,000
26 93,000 155,000 108,000
27 106,000 176,000 123,000
28 131,000 218,000 153,000
29 176,000 293,000 205,000
30 or greater 200,000 400,000 250,000
</TABLE>
(3) The 1997 totals include (i) the Company's matching contribution to the
Retirement Savings Plan in the following amounts: William L. Dorn--$8,000;
Robert S. Boswell--$8,000; David H. Keyte--$6,786; Forest D. Dorn--$8,000;
V. Bruce Thompson--
8
<PAGE>
$7,917, and (ii) the Company's matching contribution pursuant to deferred
compensation agreements in the following amounts: William L. Dorn--$7,313;
Robert S. Boswell--$7,170; David H. Keyte--$3,527; Forest D. Dorn--$584; V.
Bruce Thompson-- $578. The 1997 totals also include the following amounts
attributable to the term life portion of premiums paid by the Company
pursuant to a split dollar insurance arrangement: William L. Dorn--$2,622;
Robert S. Boswell--$2,365 and Forest D. Dorn-- $1,366. The remainder of the
premium is not included and does not benefit the Named Executive Officers,
because the Company has the right to the cash surrender value of the policy.
STOCK OPTION GRANTS DURING 1997
The following table provides details regarding stock options granted to the
Named Executive Officers in 1997. In addition, in accordance with rules of the
Securities and Exchange Commission (the "SEC"), there are shown the hypothetical
gains or "option spreads" that would exist for the respective options. These
gains are based on assumed rates of annual compound stock price appreciation of
5% and 10% from the date the options were granted over the full term of the
option. The Company does not have any outstanding SARs.
STOCK OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM (3)
UNDERLYING OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED (#)(1) IN 1997 (2) ($/SH) DATE 5% ($) 10% ($)
- -------------------------- ------------------- --------------- ----------- ---------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Forest D. Dorn............ 40,000 9.2 $ 17.50 November 11, 2007 $ 440,226 $ 1,115,620
V. Bruce Thompson......... 30,000 6.9 17.50 November 11, 2007 330,170 836,715
</TABLE>
- ------------------------
(1) The options are subject to a four-year vesting schedule with 20% being
exercisable at December 31, 1997. An additional 20% becomes exercisable on
each succeeding anniversary of the date of grant.
(2) The percentage for each year is the amount granted to each of the Named
Executive Officers as a percent of the total of each issuance granted to all
employees.
(3) These amounts represent certain assumed rates of appreciation based on
actual option term and annual compounding from the date of grant. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall stock
market conditions. There can be no assurance that the amounts reflected in
this table will be achieved. These numbers do not take into account
provisions of the options providing for termination of the option following
termination of employment, non-transferability or vesting.
9
<PAGE>
STOCK OPTION EXERCISES AND YEAR-END STOCK OPTION VALUES
The following table shows options exercised and value realized, and the
number of shares covered by both exercisable and non-exercisable stock options
as of December 31, 1997 and their values at such date.
AGGREGATED OPTION EXERCISES IN 1997 AND
OUTSTANDING STOCK OPTION VALUES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/97 (#) AT 12/31/97 ($)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Dorn............ -0- -0- 70,000 105,000 $ 285,000 $ 427,500
Robert S. Boswell.......... -0- -0- 100,000 150,000 360,000 540,000
David H. Keyte............. 2,500 $ 17,500 48,300 76,200 176,575 284,550
Forest D. Dorn............. -0- -0- 36,000 86,000 92,000 201,000
V. Bruce Thompson.......... -0- -0- 22,000 48,000 62,000 93,000
</TABLE>
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Common Stock during the five years ended
December 31, 1997 with the cumulative return on the S & P 500 Index and the Dow
Jones Oil, Secondary Index. The Company believes that the Dow Jones Oil,
Secondary Index is meaningful because it is an independent, objective view of
the performance of other similarly sized energy companies. The graph assumes
that $100 was invested in each category on the last trading day of 1992 and that
dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
12/92 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C> <C>
Forest Oil 100 137 71 88 111 104
S&P 500 100 110 112 153 189 252
D.J. Oil Secondary 100 111 107 124 153 163
</TABLE>
10
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The goal of the Compensation Committee is to design the Company's executive
compensation program to enable the Company to attract, retain and motivate
executive personnel deemed necessary to maximize return to shareholders. The
fundamental concept of the program is to align the amount of an executive's
total compensation with his contribution to the success of the Company in
creating shareholder value. The program has the following components:
BASE SALARIES. The Compensation Committee believes that the Company should
offer competitive base salaries to enable it to attract, motivate and retain
capable executives. The Compensation Committee has in the past determined
levels of base compensation using published compensation surveys for energy
and similar sized companies and information obtained from compensation
consultants. The Compensation Committee may or may not use such surveys or
other information to determine levels of base compensation in the future.
SHORT-TERM INCENTIVES. The Compensation Committee believes that the Company
should offer short-term incentive compensation annually to reward the
Company's executives for achieving certain predetermined corporate and
individual performance objectives. The incentives may be awarded in the form
of cash bonuses, restricted stock and stock options, or a combination of the
foregoing.
LONG-TERM INCENTIVES. The Compensation Committee believes that long-term
compensation should comprise a substantial portion of each executive
officer's total compensation. Long-term compensation provides incentives
that encourage the executive officers to own and hold the Company's stock
and tie their long-term economic interests directly to those of the
Company's shareholders. Long-term compensation can be provided in the form
of restricted stock or stock options.
The Compensation Committee's duties include the annual review and approval
of the compensation of the Chairman and the President and Chief Executive
Officer, review and determination of individual elements of compensation for the
Company's executive officers, review of the administration of long-term
incentive plans for management and determining the terms and awards under the
Stock Incentive Plan. The Executive Committee is responsible for determining the
salaries for all officers except the Chairman and the President and Chief
Executive Officer.
The Compensation Committee has studied the limitation on the deductibility
of compensation for federal income tax purposes pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). The restricted stock
awards to William L. Dorn, Robert S. Boswell and David H. Keyte described below
in "Short-Term Incentives" may exceed such limitation. Except for such awards,
the Compensation Committee does not currently intend to award levels of
compensation that result in such limitation. The Compensation Committee may
authorize compensation in the future that results in amounts above the limit if
it determines that such compensation is in the best interests of the Company. In
addition, the limitation may affect the future grant of stock options.
BASE SALARIES. In 1997, the Company adjusted base salaries of certain
officers to reflect promotions and changes of responsibilities. Robert S.
Boswell's base salary was increased to provide for a cost of living adjustment.
SHORT-TERM INCENTIVES. In 1997, the Compensation Committee established
individual annual performance goals for managers to earn short-term incentive
compensation. Based on the attainment of certain of these goals, bonuses were
awarded in March 1998; one half of the bonus was paid in restricted stock and
one half was paid in cash to the Company's executive officers. The Compensation
Committee intends to set new goals for 1998 and to continue to pay any earned
bonus in cash and/or restricted stock or stock options. On November 7, 1997, in
lieu of stock option grants for 1997 the Compensation Committee awarded
conditional restricted stock awards to William L. Dorn, Robert S. Boswell and
David H. Keyte. The awards were made pursuant to the Company's Stock Incentive
Plan, which was approved by the Company's shareholders at the 1997 Annual
Meeting. The conditional awards were for an aggregate of up
11
<PAGE>
to 850,000 shares of Common Stock. For the conditions to be met, the closing
price of the Common Stock on the New York Stock Exchange must attain certain
levels, starting at $22.00 per share, for a minimum of
20-consecutive-trading-days prior to January 1, 1999. The awards are conditional
on a sliding scale from $22.00 per share to $30.00 per share. On November 6,
1997, the last sale price of the Common Stock as reported on the Nasdaq National
Market was $17.875 per share. After that date through June 1, 1998, the highest
closing price of the Common Stock on either the Nasdaq National Market or the
New York Stock Exchange was $18 1/16 per share. For more information with
respect to these grants, see the Summary Compensation Table in "Executive
Compensation".
LONG-TERM INCENTIVES. On November 11, 1997, the Compensation Committee
awarded stock options for an aggregate of 453,000 shares at $17.50 per share to
certain of the Company's executive officers and employees. No options were
granted to William L. Dorn, Robert S. Boswell or David H. Keyte. See "Short-Term
Incentives" above. On November 10, 1997, the last sale price of the Common Stock
as reported on the Nasdaq National Market was $17.75 per share.
Date: June 5, 1998.
<TABLE>
<CAPTION>
EXECUTIVE COMMITTEE COMPENSATION COMMITTEE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
William L. Dorn, Chairman Michael B. Yanney, Chairman
Robert S. Boswell Drake S. Tempest
James H. Lee Cortlandt S. Dietler
Craig D. Slater
</TABLE>
PENSION PLAN
The Company's Pension Plan is a qualified, non-contributory defined benefit
plan. On May 8, 1991, the Board of Directors suspended benefit accruals under
the Pension Plan effective as of May 31, 1991.
The following table shows the estimated maximum annual benefits payable upon
retirement at age 65 as a straight life annuity to participants in the Pension
Plan for the indicated levels of average annual compensation and various periods
of service, assuming no future changes in such plan:
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM ANNUAL
PENSION BENEFITS (2)
-------------------------------
YEARS OF SERVICE
-------------------------------
REMUNERATION (1) 10 20 30
- ----------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
$100,000............................................................... $ 36,846 48,060 53,400
200,000............................................................... 73,692 96,120 106,800
300,000............................................................... 79,282 103,412 114,902
400,000............................................................... 79,282 103,412 114,902
</TABLE>
- ------------------------
(1) For each Named Executive Officer, the level of compensation used to
determine benefits payable under the Pension Plan is such officer's base
salary for 1991.
(2) Normal retirement benefits attributable to the Company's contributions are
limited under certain provisions of the Code to $130,000 in 1998, as
increased annually thereafter for cost of living adjustments.
The amount of the Company's contribution, payment or accrual in respect to
any specified person in the Pension Plan is not and cannot readily be separately
or individually calculated by the Pension Plan actuaries. Annual benefits at
normal retirement are approximately 24% of average annual earnings (excluding
bonuses) for any consecutive 60-month period which produces the highest amount,
in the last 15 years prior to retirement, up to May 31, 1991, when benefit
accruals ceased plus 21% of such earnings
12
<PAGE>
prorated over 20 years of credited service, and 1/2 of 1% of such earnings for
each year of credited service in excess of 20, subject to certain adjustments
for lack of plan participation. There is no Social Security offset. Such
benefits are payable for life with a 10 year certain period, or the actuarial
equivalent of such benefit.
Because benefit accruals under the Pension Plan were suspended effective May
31, 1991, the years of credited service for the Named Executive Officers are as
follows: William L. Dorn--20; Robert S. Boswell--2; David H. Keyte--4; Forest D.
Dorn--14; and V. Bruce Thompson--0. The estimated annual accrued benefit
payable, based on a life annuity benefit, upon normal retirement for each of
such persons is: William L. Dorn--$50,429; Robert S. Boswell--$4,616; David H.
Keyte--$5,097; and Forest D. Dorn-- $17,823. V. Bruce Thompson has no benefit
under this plan because his employment commenced after benefit accruals were
suspended.
Certain participants in the Pension Plan have been prevented by the limits
of the Code from receiving the full amount of pension benefits to which they
would otherwise have been entitled. Such persons have had benefits credited to
them under a Supplemental Retirement Plan, which together with the benefits
payable under the Pension Plan, equaled the benefit to which they would have
been entitled under the Pension Plan but for such Code limits. The Supplemental
Retirement Plans for each participant were unfunded, non-qualified,
non-contributory benefit plans. Benefits payable vest to the same extent as the
Pension Plan benefits and are unsecured general obligations of the Company.
Benefit accruals under these plans were suspended effective May 31, 1991 in
conjunction with the suspension of benefit accruals under the Pension Plan. The
additional annual accrued benefit payable, based on a life annuity benefit, upon
normal retirement for each of such persons is: William L. Dorn--$3,788; Robert
S. Boswell--$463.
13
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
The Company currently has one class of voting securities outstanding. On
April 30, 1998, there were 37,320,644 shares of Common Stock outstanding, with
each such share being entitled to one vote.
As of April 30, 1998 to the knowledge of the Board of Directors the only
shareholders who owned beneficially more than 5% of the outstanding shares of
Common Stock were:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNERS BENEFICIAL OWNERSHIP CLASS
- -------------------- ------------------------------------ -------------------- -----------
<S> <C> <C> <C>
Common Stock(1) The Anschutz Corporation 17,086,475(2) 39.5%
2400 Qwest Tower
555 17th Street
Denver, Colorado 80202
Joint Energy Development 3,680,000(3) 9.8%
Investments Limited Partnership
P.O. Box 1188
Houston, Texas 77251-1188
Crabbe Huson Group 3,330,300 8.9%
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
Heartland Advisors, Inc. 2,302,900 6.1%
790 North Milwaukee St.
Milwaukee, WI 53202
</TABLE>
- ------------------------
(1) Based on Schedules 13D and 13G and amendments thereto filed with the SEC and
the Company by the reporting person through April 30, 1998 and the amount of
Common Stock outstanding on April 30, 1998.
(2) The shares indicated as beneficially owned by Anschutz include 5,950,000
shares to be issued pursuant to the 1998 Anschutz Transaction, and 1,587
shares owned by Philip F. Anschutz.
(3) Joint Energy Development Investments Limited Partnership ("JEDI") has agreed
to not transfer 840,000 of its shares, except in limited circumstances,
until after July 31, 1999.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
TRANSACTIONS WITH ANSCHUTZ. For a description of transactions with
Anschutz, see "The Anschutz Transaction--Background".
OTHER TRANSACTIONS. The Company engaged the law firm of Bennett, Jones
Verchere for legal services in 1997. William L. Britton, a Director of the
Company, is a partner in such firm.
During 1997, the Company participated with a 37.5% working interest in the
drilling of an exploratory prospect in south Texas pursuant to an agreement with
Triana Exploration Company ("Triana"). The initial well resulted in a successful
completion in the Slick Sand. Triana is a joint venture managed by Lee, Hite &
Wisda Ltd. ("LHW"), and in which LHW has an economic interest. James H. Lee, a
director of the Company, is the managing partner of LHW. The Company reimbursed
Triana for the acreage rental costs and technical data including seismic and
administrative costs in the amount of $183,750. In addition, Triana is carried
for a 15% working interest at payout. The Company participated in the prospect
upon the same terms as other unrelated industry participants.
RETIREMENT BENEFITS FOR FORMER EXECUTIVES AND DIRECTORS. In December 1990,
in consideration of their many years of service, the Company entered into
retirement agreements with the following seven
14
<PAGE>
executives and directors: Clayton G. Dorn, David F. Dorn, Richard B. Dorn, John
C. Dorn, Martha Dorn Bird, Herbert J. Warner and William F. Higie, collectively
"the Retirees", pursuant to which the Retirees receive supplemental retirement
payments in addition to the amounts to which they are entitled under the
Company's retirement plan. In addition, the Retirees and their spouses are
entitled to lifetime coverage under the Company's group medical and dental
plans, tax and other financial services and payments by the Company in
connection with certain club membership dues. The Company has also agreed to
maintain certain life insurance policies in effect at December 1990 for the
benefit of each of the Retirees. All of the Retirees have subsequently resigned
as directors. Pursuant to the terms of the retirement agreements, the Retirees
who cease to be a director (or his spouse) will be paid $2,500 a month until
December 2000.
The balance of the Company's obligation ($149,000) to Richard B. Dorn under
a revised retirement agreement was paid in May 1997. The retirement agreements
for the other six Retirees, one of whom, David F. Dorn, received in 1991 the
payments scheduled to be made in 1999 and 2000, provide for supplemental
retirement payments totaling approximately $970,000 per year in 1998 and
approximately $770,000 per year in 1999 and 2000.
EXECUTIVE SEVERANCE AGREEMENTS. The Company has entered into executive
severance agreements (the "Executive Severance Agreements") with the following
executive officers, in addition to the Named Executive Officers: Daniel L.
McNamara, Joan C. Sonnen, Neal A. Stanley and Donald H. Stevens. The Executive
Severance Agreements provide for severance benefits for termination without
cause and for termination following a "change of control" of the Company. The
Executive Severance Agreements provide that if an executive's employment is
terminated either (a) by the Company for reasons other than cause or other than
as a consequence of death, disability, or retirement, or (b) by the executive
for reasons of diminution of responsibilities, compensation, or benefits or, in
the case of a change of control, a significant change in the executive's
principal place of employment, the executive will receive certain payments and
benefits. In January 1998 the term of the Executive Severance Agreements was
extended automatically until January 2000.
In the case of termination of an executive's employment which does not occur
within two years of a change of control, these severance benefits include (a)
payment of the executive's base salary for a term of months equal to the whole
number of times that the executive's base salary can be divided by $10,000,
limited to 30 months (such amounts payable will be reduced by 50% if the
executive obtains new employment during the term of payment) and (b) continued
coverage of the executive and any of his or her dependents under the Company's
medical and dental benefit plans throughout the payment term without any cost to
the executive.
If an executive's employment by the Company is terminated under the
circumstances described above within two years after the date upon which a
change of control occurs, the Company would be obligated to take the following
actions after the last day of the executive's employment:
(a) the Company will pay to the executive an amount equal to 2.5 times the
executive's base salary;
(b) the Company will permit the executive and those of his dependents who
are covered under the Company's medical and dental benefit plans to be
covered by such plans without any cost to the executive for a two-year
period of time;
(c) the Company will cause any and all outstanding options to purchase stock
of the Company held by the executive to become immediately exercisable in
full and cause the executive's accrued benefits under any non-qualified
deferred compensation plans to become immediately non-forfeitable; and
(d) if any payment or distribution to the executive, whether or not pursuant
to such agreement, is subject to the federal excise tax on "excess
parachute payments," the Company will be obligated to pay to the
executive such additional amount as may be necessary so that the
executive realizes,
15
<PAGE>
after the payment of any income or excise tax on such additional amount,
an amount sufficient to pay all such excise taxes.
The Executive Severance Agreements also provide that the Company will pay
legal fees and expenses incurred by an executive to enforce rights or benefits
under such agreements. Under the Executive Severance Agreements, a "change of
control" of the Company would be deemed to occur if, (i) the Company is not the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company); (ii) the Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary of the Company); (iii) the Company is dissolved and
liquidated; (iv) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Exchange Act (except Anschutz) acquires or gains
ownership or control (including, without limitation, power to vote) of more than
40% of the outstanding shares of the Company's voting stock (based upon voting
power); or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
cease to constitute a majority of the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the New York Stock Exchange. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it and
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
January 1, 1997 to February 15, 1998, its officers, directors, and greater than
10% beneficial owners complied with all applicable filing requirements, except
that Michael B. Yanney was late in filing one monthly report relating to one
transaction.
16
<PAGE>
THE ANSCHUTZ TRANSACTION
At the Annual Meeting, the Company's shareholders will be asked to approve
the 1998 Anschutz Transaction. Described below are all of the material factors
the Company believes should be considered by the shareholders with respect to
the 1998 Anschutz Transaction.
FAIRNESS OF 1998 ANSCHUTZ TRANSACTION; VOTE REQUIRED:
The Company's Board of Directors considered the following factors in
evaluating the fairness of the 1998 Anschutz Transaction: (i) the value of the
properties to be acquired and their strategic importance to the Company, (ii)
the reduced leverage achieved by issuing Common Stock as consideration for the
properties to be acquired, (iii) the additional collateral available for the
Company's bank credit facilities, (iv) an expected decrease of approximately 5%
in the Company's aggregate depletion rate, and (v) the opinion of Morgan Stanley
with respect to the 1998 Anschutz Transaction. Based on the foregoing, the
Company's Board of Directors has determined that the transaction is fair to and
in the best interests of shareholders other than Anschutz and its affiliates.
The Company has received the opinion, from a financial point of view and
based upon and subject to certain factors and assumptions set forth therein, of
Morgan Stanley with respect to the 1998 Anschutz Transaction. A copy of the
Morgan Stanley opinion is included in this Proxy Statement as Annex A.
A majority of the votes represented at the Annual Meeting by shares of
Common Stock entitled to vote (and held by persons other than Anschutz) is
required for approval of the transactions contemplated by the 1998 Anschutz
Agreement as described in this Proxy Statement.
SUMMARY OF 1998 ANSCHUTZ TRANSACTION:
Pursuant to the 1998 Anschutz Transaction, the Company will issue to
Anschutz 5,950,000 shares of Common Stock in exchange for certain oil and gas
assets. The oil and gas assets include Anschutz' interests in the Anschutz Ranch
East Field, certain Canadian properties and other international projects. See
"Description of 1998 Anschutz Agreement" below.
Therefore, based on the number of shares outstanding on April 30, 1998,
pursuant to the 1998 Anschutz Transaction, Anschutz will increase its ownership
from 30.7% to approximately 39.5% of the Common Stock. Anschutz is subject to a
40% ownership limitation that terminates on July 27, 2000 and is not applicable
to acquisitions of shares approved by the Board of Directors, including a
majority of independent directors, acquisitions following certain business
combinations or tender offers, or acquisitions made after a third party acquires
a greater number of shares than that held by Anschutz and its affiliates, or
subject to acquisition by them. The shares issued pursuant to the 1998 Anschutz
Transaction will be subject to the 40% ownership limitation. See "Shareholders
Agreement" below.
The last reported sales price of the Common Stock on the New York Stock
Exchange Composite Tape was $13.00 on January 9, 1998, the last trading day
prior to the public announcement of the agreement in principle between the
Company and Anschutz with respect to the 1998 Anschutz Transaction, and was
$14 1/16 on June 1, 1998. Between such dates the price ranged from a high of $16
to a low of $13. See "Description of 1998 Anschutz Agreement" below.
The Company believes that this transaction will significantly reduce the
Company's financial leverage, which was recently increased due to an acquisition
of approximately $230,000,000 of assets in south Louisiana. One of the Company's
primary goals is to reduce leverage. This transaction should reduce the
Company's leverage ratio by approximately 5% on a pro forma basis as of March
31, 1998 as a result of issuing additional equity.
The Company believes that the 1998 Anschutz Transaction will add
approximately 86 Bcfe of estimated proved reserves. This represents an increase
of approximately 16% in the Company's reserves as
17
<PAGE>
of December 31, 1997. This transaction will provide the Company with additional
international opportunities, which will expand its international presence in
areas the Company believes are consistent with its international strategy of
investing in oil and gas regions in countries with generally stable political
environments and favorable scenarios for exploration and production. See
"Background" below. Anschutz will continue to be subject to voting restrictions
on the shares it currently owns and the shares it would acquire in the 1998
Anschutz Transaction. Anschutz is required to vote all equity securities of the
Company owned by Anschutz having voting power in excess of an amount equal to
19.99% of the aggregate voting power of the equity securities of the Company
then outstanding in the same proportion as all other equity securities of the
Company voted with respect to the matter (other than equity securities owned by
Anschutz) are voted. Such limitations are not applicable in all situations. For
example, Anschutz is allowed to vote its shares with respect to all matters with
respect to which Anschutz may have liability under Section 16(b) of the Exchange
Act, which provides the Company, as well as any of its shareholders acting on
its behalf, with the right to recover from insiders (including affiliates such
as Anschutz) any profits realized by them on certain "short-swing transaction"
(any purchase and sale, or sale and purchase within a period of less than six
months). For example, Anschutz could be exposed to such liability if it was
required to dispose of its shares in a merger approved by other shareholders of
the Company within six months of the execution of the Anschutz Agreement. This
exception to the restrictions could result in Anschutz having a veto power over
certain transactions between the Company and third parties such as a merger,
which requires the approval of the holders of two-thirds of the outstanding
Common Stock. See "-- Shareholders Agreement" below. It is unlikely that control
of the Company could be transferred to a third party without Anschutz' consent
and agreement. It is also unlikely that a third party would offer to pay a
premium to acquire the Company without the prior agreement of Anschutz, even if
the Board of Directors should choose to attempt to sell the Company in the
future. Finally, the 40% ownership limitation on Anschutz' ownership terminates
on July 27, 2000 and earlier under certain circumstances. Upon termination of
the 40% limitation, Anschutz may have the ability to obtain effective control
over the Company. See "--Shareholders Agreement" below.
The risks to the Company and its shareholders of the 1998 Anschutz
Transaction are those normally involved with the acquisition of oil and gas
properties, including the accuracy of the assessments 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 assessments, the Company has performed a review of the properties to be
acquired from Anschutz that it believes to be generally consistent with industry
practices. Such review, however, will not have revealed all existing or
potential problems nor will it permit the Company to have become sufficiently
familiar with the properties to fully assess their deficiencies and
capabilities. No assurance can be given that the amount to be ultimately
recovered from the oil and gas properties to be acquired from Anschutz will be
of a value equal to or greater than the consideration paid.
BACKGROUND
PRIOR ANSCHUTZ TRANSACTIONS. During 1995 and 1996, the Company consummated
transactions with Anschutz and Joint Energy Development Investments Limited
Partnership ("JEDI"), a Delaware limited partnership the general partner of
which is an affiliate of Enron Corp.
Pursuant to a purchase agreement between the Company and Anschutz (the "1995
Anschutz Agreement"), Anschutz purchased 3,760,000 shares of the Company's
Common Stock and shares of preferred stock which were convertible into 1,240,000
additional shares of Common Stock for a total consideration of $45,000,000. 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 "Anschutz
Warrant"). The Anschutz Warrant was scheduled to expire July 27, 1998.
Concurrent with the Anschutz investment, Forest and JEDI restructured JEDI's
existing loan which had a principal balance of approximately $62,368,000. As a
part of the restructuring, the existing JEDI loan
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<PAGE>
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 a tranche of approximately $22,400,000, 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 "JEDI Warrant") that
entitled it to purchase 2,250,000 shares of the Company's Common Stock for
$10.00 per share.
Also concurrent with the Anschutz investment, 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 JEDI Warrant. The
Company also agreed to use the proceeds from the exercise of the Anschutz
Warrant to pay principal and interest on the $40,000,000 tranche of the JEDI
loan.
In December 1995, JEDI exchanged the $22,400,000 tranche and the JEDI
Warrant for 1,680,000 shares of Common Stock (the "1995 JEDI Exchange").
Pursuant to the 1995 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 JEDI Warrant. 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.
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
tranche then owed to JEDI. In connection with this transaction, Anschutz
acquired 1,628,888 shares of Common Stock by exercising a portion of the
Anschutz 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 Anschutz Warrant was
extended to July 27, 1999.
On August 28, 1997, Anschutz purchased 3,500,000 shares of Common Stock
through the exercise of the Anschutz Warrant at an exercise price of $8.60 per
share resulting in cash proceeds to the Company of $30,100,000. The reduction in
exercise price offered to Anschutz reflected an approximate 10% present value
discount computed to the warrant's expiration date of July 27, 1999. The
exercise price was reduced in order to induce Anschutz to exercise the option
approximately two years earlier than its expiration date in order to provide
additional capital to the Company.
In 1997, the Company farmed out to an affiliate of Anschutz a 50% interest
in a prospect in the Gulf of Mexico. Pursuant to the farmout, and to earn such
interest, Anschutz agreed to pay 50% of the Company's costs already incurred
relating to the prospect and 66.67% of the dry hole drilling costs of an
exploratory well on the prospect, such costs being limited to the lesser of the
first $8,000,000 of gross dry hole costs or actual costs, any remaining costs
will be split evenly. Anschutz participated in the prospect upon the same terms
as other unrelated industry participants. The well on this prospect is currently
drilling.
1998 ANSCHUTZ TRANSACTION. In August 1997, management of the Company began
discussions with management of Anschutz with respect to the acquisition by the
Company of certain oil and gas properties held by Anschutz for Common Stock. In
September 1997, the parties agreed that certain undeveloped international assets
and producing Rocky Mountain assets would be reviewed to determine if both sides
could agree upon a valuation. Over the course of the next several months, the
Company's internal staff, as well as consultants hired by the Company, reviewed
the technical aspects of the targeted assets. The consultants were the petroleum
engineering firms of Malkewicz Hueni Associates, Inc. and Ryder Scott Company.
Both firms evaluated the remaining reserves and economic value associated with
Anschutz' interest in the Anschutz Ranch East Field (the principal producing
asset included in the transaction comprising approximately 79% of the total
value associated with the transaction). Certain assets, as to
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<PAGE>
which the parties could not agree as to value, were eliminated from the targeted
properties and a more intense evaluation was begun in November 1997. At the
Company's Board meeting in November 1997 the Audit Committee, as well as the
full Board, was advised of the discussion between management and Anschutz.
Management advised the Board of their understanding of steps required to
consummate a transaction with Anschutz if the Company and Anschutz could agree
upon a valuation, and if the Board approved the transaction.
In December 1997, management of the Company and Anschutz met again and
continued discussions into January 1998. On January 9, 1998, the parties agreed
in principle as to the number of shares that would be issued and the specific
properties to be acquired. A press release was issued on January 12, 1998
announcing the agreement in principle. At the time the agreement in principle
was reached, the parties agreed that the consummation of the transaction would
be subject to due diligence by each party, the execution of a definitive
agreement, the Company obtaining a fairness opinion from an independent
financial advisor and the approval of the transaction by the Company's
shareholders, other than Anschutz.
The Company engaged Morgan Stanley & Co. Incorporated ("Morgan Stanley") as
its financial advisor for the 1998 Anschutz Transaction. The Company agreed to
pay Morgan Stanley a fee of $150,000 in connection with the delivery of its
opinion to the Board of Directors, as well as to reimburse Morgan Stanley for
its reasonable out-of-pocket expenses, including attorney's fees and indemnify
Morgan Stanley for certain liabilities, including under the federal securities
laws. Morgan Stanley made a preliminary presentation to the Company's Board of
Directors on February 11, 1998. Prior thereto, the Board had been presented with
a draft of the proxy material containing disclosures relating to the 1998
Anschutz Transaction and a draft of Morgan Stanley's Opinion. During the
February 11, 1998 meeting Morgan Stanley described the methodology it planned to
use in evaluating the proposed 1998 Anschutz Transaction, including, without
limitation, the review of financial projections and internal asset valuations
prepared by the Company's management, the review of certain engineering reports,
and the preparation of discounted cash flow, contribution and other analyses.
Three of the Company's directors who became directors under the Shareholders
Agreement, Philip F. Anschutz, Craig D. Slater and Drake S. Tempest (the
"Anschutz Directors"), were excused from that portion of the meeting at which
the 1998 Anschutz Transaction was discussed. The Board of Directors, with the
Anschutz Directors not present, adopted a resolution authorizing the Company to
proceed to finalize a definitive agreement, prepare proxy materials with respect
to the Annual Shareholders Meeting requesting approval for the 1998 Anschutz
Transaction and authorizing the officers to take such other actions as may be
necessary to finalize the acquisition of the Anschutz oil and gas properties.
Management determined that the value of the properties ranged from
$83,000,000 to $91,000,000 based on an economic analysis of the consulting
petroleum engineering firms with respect to the Anschutz Ranch East Field and
internal evaluations for the remaining assets to be acquired. The value of the
cash and other assets to be received as part of the transaction was assumed to
be approximately equal to the debt and other liabilities to be assumed. On
January 6, 1998, the Company offered Anschutz 6,170,000 shares of Common Stock
for the specific properties to be acquired. The closing price of the Common
Stock as reported on the New York Stock Exchange on that date was $14.1875. On
January 9, 1998, the date the agreement was reached, the closing price on the
New York Stock Exchange was $13.00 per share. The original number of shares
agreed to was subsequently reduced as described below.
On February 24, 1998 and March 9, 1998, representatives of the Company and
Anschutz met to discuss issues that had arisen in connection with the Company's
due diligence. At the February 24, 1998, meeting two properties in the United
States were excluded from the agreement and the number of shares of Common Stock
to be issued to Anschutz was reduced to 5,950,000. The Board of Directors
received the opinion of Morgan Stanley on March 17, 1998, a copy of which is
attached to this Proxy Statement as Annex A. The Board of Directors (with the
Anschutz Directors not attending or voting) approved a draft form of the
definitive agreement on March 17, 1998 and authorized the Company to proceed
with the 1998 Anschutz Transaction. The definitive agreement was entered into on
April 6, 1998 (the "1998 Anschutz
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Agreement"). The form of definitive agreement approved by the Board of Directors
was substantially the same as the version entered into by the parties.
DESCRIPTION OF 1998 ANSCHUTZ AGREEMENT
The 1998 Anschutz Agreement contemplates the acquisition by the Company of
certain oil and gas properties from Anschutz. The properties will, with one
exception, be acquired by the merger of the Anschutz subsidiaries that own such
properties with newly-created subsidiaries of the Company or the acquisition of
stock of such Anschutz subsidiaries. The transaction will be accounted for by
the Company as a purchase. The 1998 Anschutz Agreement is effective as of
January 1, 1998. Anschutz Ranch East Corporation ("AREC"), which owns the
interests in the Anschutz Ranch East Unit, will receive a $31,000,000 capital
contribution, subject to certain adjustments, from Anschutz prior to its merger
with a Forest subsidiary. The Company presently intends to use the capital
contribution, together with a portion of the cash held by AREC to repay in full
certain nonrecourse debt of AREC.
The 1998 Anschutz Agreement contains representations and warranties by the
Company regarding corporate existence and power, authorization, approvals,
binding effect, financial information, absence of certain changes or events,
taxes, litigation, compliance with laws, employee matters, labor disputes and
acts of God, capitalization, books and records, documents filed with the
Securities and Exchange Commission, and fees for brokers and finders.
The 1998 Anschutz Agreement also contains representations and warranties by
Anschutz with respect to the subsidiaries and affiliates of Anschutz that own
the properties to be acquired regarding corporate existence and power,
authorization, approvals, binding effect, financial statements, absence of
certain changes or events, taxes, litigation, compliance with laws, employee
matters, labor disputes and acts of God, capitalization, books and records,
contracts, brokers and finders, investment intent, title to the property,
condition of the oil and gas properties, licenses, environmental matters, and
insurance. The 1998 Anschutz Agreement contains a disclaimer by the Company and
Anschutz which generally disclaims liability for representations, warranties,
statements or communications made prior to the closing, except as specifically
set forth in the 1998 Anschutz Agreement or agreements delivered in connection
therewith, and specifically disclaims certain other enumerated representations
and warranties.
The 1998 Anschutz Agreement also contains covenants by Anschutz, including
affirmative covenants and negative covenants regarding the conduct of the
businesses of the subsidiaries to be acquired and the operation of the
properties to be acquired, as well as agreements by Anschutz to cooperate with
the Company for up to 180 days following the closing to ensure a smooth
transition of ownership and operation of the properties and for a period of one
year to notify the Company of, and offer the Company the opportunity to
participate in, certain investment opportunities within a limited area of mutual
interest.
Anschutz has also agreed that prior to closing it will provide the Company
with access to information concerning the properties to be acquired, notify the
Company of any notice or other event relating to the oil and gas properties, pay
all costs and expenses incurred with respect to contracts relating to the
properties to be acquired, keep in full force and effect all present insurance
policies or other comparable insurance coverage, and use its best efforts to
obtain all consents, approvals and waivers required to consummate the
traansactions contemplated by the Anschutz Agreement. In addition, Anschutz has
agreed to not take certain actions regarding the properties to be acquired with
respect to certain day-to-day operational matters or the incurrence of debt.
Anschutz has also agreed to not solicit any inquiries with respect to any
additional transactions with respect to the properties to be acquired.
The 1998 Anschutz Agreement also contains mutual indemnifications, including
indemnifications with respect to taxes.
The respective obligations of the Company and Anschutz to consummate the
transactions contemplated by the 1998 Anschutz Agreement are subject to the
receipt by each party of certain closing
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<PAGE>
certificates and the satisfaction of certain conditions, including the
following: (i) the representations and warranties of the other party contained
in the 1998 Anschutz Agreement shall, except for such changes as are
contemplated by the 1998 Anschutz Agreement, be true and correct on and as of
the closing date with the same effect as though such representations and
warranties had been made on and as of such date; (ii) each and all of the
covenants and agreements of the other party to be performed on or before the
closing date pursuant to the terms of the 1998 Anschutz Agreement shall have
been performed and satisfied in all material respects; (iii) all required
approvals shall have been obtained; (iv) no action shall be pending or, to the
knowledge of the Company or Anschutz, threatened against either such party or
one or more of its affiliates, that restricts in any material respect or
prohibits the consummation of the transactions contemplated by the 1998 Anschutz
Agreement; (v) the consummation of the transactions contemplated by the 1998
Anschutz Agreement shall not violate any order, decision, ruling or decree of
any governmental entity having competent jurisdiction over the transactions
contemplated by the 1998 Anschutz Agreement or require any material action on
the part of the other party or any of its affiliates; and (vi) all adjustments
to the $31,000,000 to be contributed to AREC shall not exceed certain amounts
set forth in the 1998 Anschutz Agreement.
The obligations of the Company to consummate the transactions contemplated
by the 1998 Anschutz Agreement are further subject to the fulfillment of the
following conditions: (a) since the date of the 1998 Anschutz Agreement, neither
the directly acquired assets nor any acquired Anschutz subsidiary (or their
assets) shall have suffered a material adverse effect, and the Company shall not
have discovered or otherwise become aware of any condition, event, fact or
circumstance that could be reasonably expected to have such a material adverse
effect; and (b) the Company shall have received an opinion from Morgan Stanley
that the consideration to be received by the Company is fair to the Company from
a financial point of view.
In connection with the 1995 Anschutz Agreement the Company entered into a
Shareholders Agreement and a Registration Rights Agreement with Anschutz. See
"--Shareholders Agreement" below. Pursuant to the Registration Rights Agreement
the Company agreed to register pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), any Common Stock acquired by Anschutz in
connection with the 1995 Anschutz Agreement. Anschutz has the right to demand
such registration on four separate occasions and will have certain "piggy-back"
registration rights with respect to Company registrations. The Company will bear
the cost of any registration pursuant to the Registration Rights Agreement. The
Shareholders Agreement and the Registration Rights Agreement will be amended in
connection with the 1998 Anschutz Agreement to subject the shares of Common
Stock to be acquired by Anschutz to the transfer restrictions contained in the
Shareholders Agreement and to entitle such shares to the benefits of the
Registration Rights Agreement.
The 1998 Anschutz Agreement also contains a covenant by the Company that it
will amend the Rights Agreement dated as of October 14, 1993 between the Company
and ChaseMellon Shareholder Services, as Rights Agent, (the "Rights Agreement")
with respect to the transactions contemplated by the 1998 Anschutz Agreement.
The amendment of the Rights Agreement will exempt from the provisions of the
Rights Agreement shares of Common Stock acquired by Anschutz pursuant to the
1998 Anschutz Agreement. The amendment to the Rights Agreement will not exempt
other shares of Common Stock acquired by Anschutz from the provisions of the
Rights Agreement. In the amendment, the Company will agree to waive the
provisions of the Rights Agreement with respect to Anschutz if, and to the same
extent, it waives such provisions with respect to any other person. A similar
amendment was entered in connection with the 1995 Anschutz Transaction.
SHAREHOLDERS AGREEMENT
In connection with the 1995 Anschutz Transaction, Anschutz entered into a
Shareholders Agreement with the Company providing for certain voting and other
limitations regarding its shares of Common Stock until the earlier of (i) July
27, 2000 and (ii) the first day on which the sum of the number of shares of
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Common Stock owned by Anschutz and its affiliates and any shares of Common Stock
subject to acquisition by Anschutz and its affiliates (regardless of any
conditions or restrictions on such rights) is less than 20% of the total of all
shares of Common Stock issued and outstanding and subject to issuance
(regardless of any conditions or restrictions on such rights). The Shareholders
Agreement requires the Company to, among other things, except as otherwise
approved by the Board of Directors, including a majority of the Independent
Directors (as defined below), or by vote of the holders of two-thirds of the
shares of Common Stock then issued and outstanding (in which Anschutz Excess
Securities (as defined below) are voted in accordance with the restrictions
contained in the Shareholders Agreement) (a) fix the number of directors of the
Company at ten, who are to be three persons selected by Anschutz (the "Anschutz
Designees"), two persons who are officers of the Company and five persons
unaffiliated with Anschutz who are not and have not been at any time during the
preceding two years an officer or employee of the Company or a director, officer
or employee of a beneficial owner of 5% or more of the shares of Common Stock
then issued and outstanding or an affiliate of such beneficial owner
("Independent Directors"), (b) appoint an Anschutz Designee chosen by Anschutz
to each of the Executive Committee, the Compensation Committee and the Audit
Committee (or committees having similar functions) of the Board of Directors,
(c) appoint a Nominating Committee composed of three directors, one of whom
shall be an Anschutz Designee, one of whom shall be an officer of the Company
and one of whom shall be an Independent Director, (d) require that nominees to
the Board of Directors other than the Anschutz Designees shall be selected by a
vote of at least two members of the Nominating Committee, of whom one shall be
an Independent Director, (e) if any Anschutz Designee shall cease to be a
director for any reason, fill the vacancy resulting thereby with an Anschutz
Designee and (f) call meetings of the Board of Directors and committees thereof
upon the written request of any Anschutz Designee who is a director.
The Shareholders Agreement also contains a limit on voting that would
require Anschutz to vote all equity securities of the Company having voting
power in excess of an amount equal to 19.99% of the aggregate voting power of
the equity securities of the Company then outstanding (the "Anschutz Excess
Securities") in the same proportion as all other equity securities of the
Company voted with respect to the matter (other than equity securities held by
Anschutz) are voted, except that Anschutz may vote the Anschutz Excess
Securities without restriction (a) for the election of the permitted number of
Anschutz Designees, (b) with respect to all matters with respect to which
Anschutz may have liability under Section 16(b) of the Exchange Act (unless the
Company has obtained a final judgment to the effect that Anschutz will have no
such liability) and (c) with respect to other matters as approved by the Board
of Directors, including a majority of Independent Directors.
The exception with respect to Section 16(b) of the Exchange Act could have
the effect of permitting Anschutz to vote the Anschutz Excess Securities without
restriction in connection with a proposed merger of the Company with a third
party, which merger had been approved by the Board of Directors (regardless of
how the directors appointed by Anschutz might vote on such merger). Depending
upon its percentage ownership, if permitted to vote the Anschutz Excess
Securities, Anschutz could have a veto power over certain transactions between
the Company and third parties such as a merger which requires the approval of
the holders of two-thirds of the outstanding Common Stock.
The Shareholders Agreement also contains an agreement on the part of
Anschutz not to transfer the beneficial ownership of any of its shares of Common
Stock, except (a) in a public offering of Common Stock pursuant to a
registration statement effective under the Securities Act, (b) to a person or
Group (as defined in Section 13(d)(3) of the Exchange Act) who represents that
it will then beneficially own 9.9% or less of the total number of shares of
Common Stock then issued and outstanding and those subject to issuance (even if
then subject to conditions or restrictions), (c) to a person or Group who will
then beneficially own more than 9.9% but less than 20% of the total number of
shares of Common Stock issued and outstanding and those subject to issuance
(even if then subject to conditions or restrictions) if such person or Group
assumes by written instrument satisfactory to both Anschutz and the Company the
transfer restrictions previously applicable to Anschutz, (d) any transfer
approved by the Board of
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Directors, including a majority of the Independent Directors, which approval
shall not be unreasonably withheld with respect to a transfer to any person or
Group who represents that it will then beneficially own more than 9.9% and less
than 20% of the total number of shares of Common Stock issued and outstanding
and those subject to issuance (even if then subject to conditions or
restrictions), (e) a transfer in connection with certain business combination
transactions or tender or exchange offers, upon the liquidation or dissolution
of the Company or as effected by operation of law and (f) the pledge or grant of
a security interest in certain cases.
The Shareholders Agreement also provides that Anschutz will neither alone,
nor through or with its affiliates, acquire shares of Common Stock which, when
combined with shares of Common Stock then owned by Anschutz and its affiliates,
would result in Anschutz beneficially owning 40% or more of the shares of Common
Stock then issued and outstanding, except that such restriction shall not apply
to (i) acquisitions following a business combination transaction that (A) has
been approved by the Board of Directors (including a majority of the Independent
Directors) or by the holders of two-thirds of the shares of Common Stock voted
with respect to such transaction in which Anschutz Excess Securities are voted
in accordance with the Shareholders Agreement) and (B) results in the beneficial
ownership by any person or Group of 20% or more of the shares of Common Stock
then issued and outstanding (or if all or any part of the shares of Common Stock
are changed into or exchanged for shares of capital stock of any other person,
20% of such issued and outstanding shares), (ii) acquisitions following the
commencement of a tender or exchange offer made by any person or Group (other
than and not including Anschutz or an affiliate of, or any person acting in
concert with, Anschutz) to acquire beneficial ownership of 40% or more of the
shares of Common Stock then issued and outstanding, (iii) acquisitions after any
person or Group (other than and not including an affiliate of Anschutz) shall
own beneficially shares of Common Stock which exceed the sum of the number of
shares of Common Stock then owned by Anschutz and its affiliates plus the number
then subject to acquisition upon the conversion, exercise or exchange by
Anschutz and its affiliates of equity securities of the Company or other rights
then owned (whether or not subject to restrictions or conditions) and (iv)
acquisitions approved by the Board of Directors, including a majority of
Independent Directors. If Anschutz' percentage ownership were diluted by future
increases in the outstanding Common Stock, the 40% restriction on Anschutz'
ownership would not preclude Anschutz from acquiring shares of Common Stock in
the open market up to the 40% level, regardless of Anschutz' ability to exercise
warrants or options or to convert the New Convertible Preferred Stock.
The Shareholders Agreement also provides that the Company will not take or
recommend to its shareholders any action which would impose on Anschutz or its
affiliates any limitations on their legal rights, other than those imposed by
the express terms of the Shareholders Agreement, and that the Company will not
take any action that will or may, directly or indirectly, result in Anschutz or
any affiliate having liability under Section 16(b) of the Exchange Act with
respect to securities acquired pursuant to the 1995 Anschutz Agreement. The
Company has the right to seek a declaratory judgment as to whether any action
described in the preceding sentence or the provisions with respect to the
limitations on the voting of the Anschutz Excess Securities on a matter shall be
effective and in doing so whether Anschutz will have Section 16(b) liability
with respect to such matters. The Shareholders Agreement also provides that the
voting restrictions on the Anschutz Excess Securities, and the transfer
restrictions and the cap on purchases of Common Stock by Anschutz in excess of
40%, shall no longer apply if any of the Anschutz Designees are not elected to
the Board of Directors (and Anschutz and its affiliates voted all the shares of
Common Stock owned by them in favor of such election) or one or more directors
who are Anschutz Designees are not appointed to the Committees as provided in
the Shareholders Agreement (and the directors who are Anschutz Designees voted
in favor of such appointment).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
TRANSACTIONS CONTEMPLATED BY THE 1998 ANSCHUTZ TRANSACTION AS DESCRIBED IN THIS
PROXY STATEMENT.
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The persons named in the enclosed proxy, who have been so designated by the
Board of Directors, intend to vote for the proposal described above unless
otherwise instructed in the proxy. The Company believes that the members of the
Board of Directors and the senior management of the Company intend to vote or
direct the vote of all shares of Common Stock of which they have beneficial
ownership in favor of this proposal.
DESCRIPTION OF ANSCHUTZ PROPERTIES
The principal oil and gas asset to be acquired is an interest in the
Anschutz Ranch East Unit in Utah and Wyoming. In addition, the Company will
acquire all of Anschutz' Canadian oil and gas assets, primarily comprised of
approximately 170,000 net acres of undeveloped land. The Company will also
acquire certain of Anschutz' international oil and gas assets comprised of 13
international projects encompassing approximately 11,000,000 net acres of
undeveloped land. For further information, see the Condensed Pro Forma Combined
Financial Statements of Forest Oil Corporation and related notes thereto and
Statement of Oil and Gas Revenue and Direct Lease Operating Expense of the
Anschutz Ranch East Field and related notes thereto, all included in Annex B
hereto.
ANSCHUTZ RANCH EAST UNIT. The Anschutz Ranch East Unit is located in the
Rocky Mountain region along the overthrust area bordering between Uinta County,
Wyoming and Summit County, Utah. There are approximately 80.8 Bcfe of proved
reserves associated with the Anschutz Ranch East Unit, of which 48% is natural
gas and 52% is oil and natural gas liquids. The Anschutz Ranch East Unit
consists of 38 gross and six net wells.
The Anschutz Ranch Field was discovered in 1979, and has been the target of
a pressure maintenance project since 1982. Currently, there are 36 producing
wells and the field is producing 400 Mmcf/day of wet gas, of which an average of
190 Mmcf/day is sold. In addition to the gas, the field produces 6,000 bbl/day
of condensate, 20,000 bbl/day of gas liquids, and 5,500 bbl/day of water. The
Company will acquire a 43% working interest (WI) (35.5% net revenue interest
(NRI)) in the East Lobe structure of the field and a 10% WI (8% NRI) in the West
Lobe structure. This field is operated by Amoco.
Anschutz Ranch East is a large unit, encompassing the 'west lobe' and the
'east lobe' structures which comprise the field. These asymmetric folds are
located along the leading edge of the Absaroka Thrust, with the Nugget in the
east lobe juxtaposed vertically against the underlying Cretaceous source rocks.
Hydrocarbons generated and migrated from these Cretaceous rocks upward into the
Nugget reservoir, filled the east lobe, and spilled into the western lobe, which
is high structurally to the east lobe. The primary producing reservoir is the
Jurassic Nugget sandstone, locally divided into three members. Production has
been primarily gas, with sweet retrograde condensate, which has necessitated a
pressure maintenance program in the larger, west lobe of the field.
The following table summarizes the estimates of the reserves of Anschutz
Ranch East as of December 31, 1997, and the related present value of estimated
future net revenues before income taxes at such date. All of the reserves are
classified as proved developed producing.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997
----------------------
<S> <C>
Oil and natural gas liquids (BBLS).................................... 6,892,000
Natural gas (MCF)..................................................... 36,285,000
Total reserves (MCFE)................................................. 77,637,000
Future net cash flow before income taxes.............................. $ 94,013,000
Future net cash flow before income taxes,
Discounted at 10%................................................... $ 63,371,000
</TABLE>
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The present value of estimated future net revenues before income taxes
(discounted at 10%) as of December 31, 1997 was determined using the weighted
average sales prices of $9.80 per Bbl of liquids and $1.92 per Mcf of gas.
In accordance with applicable requirements of the Commission, these
estimates of the proved reserves and future net revenues of Anschutz Ranch East
were made using oil and natural gas sales prices estimated to be in effect as of
the date of such reserve estimates and were held constant throughout the life of
the properties (except to the extent a contract specifically provides for
escalation). Estimated quantities of proved reserves and future net revenues
therefrom are affected by oil and natural gas prices, which have fluctuated
widely in recent years. There are numerous uncertainties inherent in estimating
oil and natural gas reserves and their estimated values, including many factors
beyond the control of the producer. The foregoing reserve data represents only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function of the quality
of available data and engineering and geological interpretation and judgment. As
a result, estimates of different engineers may vary. In addition, estimates of
reserves are subject to revision based upon actual production, results of future
development and exploration activities, prevailing oil and natural gas prices,
operating costs and other factors, which revisions may be material. Accordingly,
reserve estimates are often different from the quantities of oil and natural gas
that are ultimately recovered. The meaningfulness of such estimates is highly
dependent upon the accuracy of the assumptions upon which they are based.
CANADIAN ASSETS. The Canadian assets are located in Lake Erie, Ontario and
in West-central Alberta. The Lake Erie assets include proved reserves and a
significant undeveloped land position. In the western basin of Lake Erie,
Anschutz drilled an exploratory well in 1997 and discovered gas. Anschutz is the
operator and holds a 50% working interest. This well is currently producing sour
gas. A total of four exploratory wells were drilled during 1997; however, the
other three were dry. An eight well development program has been initiated to
follow up the discovery. It is estimated that of the 5,139,000 Mcfe of estimated
total proved reserves in this development program, 11% are proved developed
producing and 89% are proved undeveloped. A number of additional exploratory
prospects have been seismically identified on the 302,406 gross (151,203 net)
undeveloped acres located in the lake. Currently, only the Canadian side of Lake
Erie is open for exploration and development. The portion of the lake in the
United States is not available for oil and gas exploration activities at this
time. Only production of natural gas is allowed in Lake Erie--the exception to
this is oil production taken from the lake by directionally drilled wells
located onshore and drilled out under Lake Erie.
In West-central Alberta, an interest in 26,095 gross acres (11,719 net) will
be acquired. Pan East Petroleum Corporation is the operator of the joint venture
covering this exploration play. This play is in the initial stages of evaluation
and development.
INTERNATIONAL OPPORTUNITIES. Thirteen international concessions, rights or
agreements (the "International Projects") held by or under negotiation with
Anschutz will be acquired. The International Projects cover over 11,000,000 net
undeveloped acres. The package will provide Forest with an entree into the
international oil and gas arena. The International Projects are in Albania,
Austria, Germany, Italy, Romania, Sicily, South Africa, Spain, Switzerland,
Thailand and Tunisia. Forest intends to further develop the prospects and may
elect to promote them out thereby reducing its working interest while
maintaining exposure to the most attractive opportunities.
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<PAGE>
PRODUCTION, 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, 1997, 1996, and
1995 for Anschutz Ranch East. There was no significant production in 1997, 1996
or 1995 from any of the Anschutz Properties:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Average Sales Prices:
Natural Gas
Total Production (MMCF)................................................ 7,161 7,064 6,238
Average sales price (per MCF).......................................... $ 1.89 1.31 1.12
Liquids
Total Production (MBBLS)............................................... 823 875 868
Average sales price (per BBL).......................................... $ 12.79 13.26 9.76
Average production cost (per MCFE)(1)...................................... $ .33 .28 .62
</TABLE>
- ------------------------
(1) Production costs were converted to common units of measure using a
conversion ratio of one barrel of oil to six MCF of natural gas. Such
production costs exclude all depreciation, depletion and amortization with
property and equipment.
DEVELOPED AND UNDEVELOPED ACREAGE. The following is the acreage of the
Anschutz Properties at December 31, 1997.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE(1)
UNDEVELOPED ACREAGE(2)
---------------------- --------------------------
GROSS(3) NET(4) GROSS(3) NET(4)
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
United States:
Rocky Mountains................................................ 7,204 963 -- --
Canada:
Alberta........................................................ -- -- 26,095 11,719
Ontario........................................................ 10,710 5,355 302,406 151,203
International:
Spain.......................................................... -- -- 600,000 600,000
Germany........................................................ -- -- 1,369,775 1,369,775
Romania........................................................ -- -- 766,900 766,900
Albania (3 blocks)............................................. -- -- 1,113,185 333,956
Italy - Southern Alps.......................................... -- -- 233,855 70,157
Italy - Central Appenines...................................... -- -- 651,923 531,923
Sicily - Offshore.............................................. -- -- 111,000 111,000
Tunisia........................................................ -- -- 2,520,420 2,520,420
South Africa................................................... -- -- 4,571,000 4,113,900
Thailand....................................................... -- -- 730,675 730,675
----------- --------- ------------ ------------
Total acreage at December 31, 1997................................. 17,914 6,318 12,997,234 11,311,628
</TABLE>
- ------------------------
(1) Developed acres are those acres which are spaced or assigned to productive
wells.
(2) Undeveloped acres are considered to be those acres on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether such
acreage contains proved reserves. It should not be confused with undrilled
acreage held by production under the terms of a lease.
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<PAGE>
(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.
PRO FORMA CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of March 31, 1998, and (ii) pro forma capitalization of the Company
giving effect to the issuance to Anschutz of 5,950,000 shares of Common Stock,
the assumption of $44,000,000 principal amount of 8.5% Senior Notes associated
with the Anschutz Ranch East Field and the use of $31,000,000 of cash received
in the Anschutz Transaction to repay a portion of Forest's U.S. Credit Facility.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA(1)
----------- --------------
<S> <C> <C>
Long term debt, including current portion:
U.S. Credit Facility............................................................... $ 227,300 196,300
Canadian Credit Facility........................................................... -- --
Saxon Credit Facility.............................................................. 27,157 27,157
8 1/2% Senior Notes................................................................ -- 44,000
8 3/4% Senior Subordinated Notes................................................... 199,974 199,974
11 1/4% Senior Subordinated Notes.................................................. 8,676 8,676
Production payment obligation...................................................... 9,966 9,966
----------- --------------
Total long-term debt, including current portion.................................. 473,073 486,073
Minority interest(2)................................................................. 12,927 12,927
Shareholders' equity:
Common Stock, par value $.10 per share, ........................................... 3,732 4,327
issued and outstanding:(3)
37,320,644 shares historical and
43,270,644 shares pro forma
Capital surplus.................................................................... 503,058 570,028
Accumulated deficit................................................................ (224,463) (224,463)
Accumulated other comprehensive loss............................................... (7,017) (7,017)
----------- --------------
Total shareholders' equity....................................................... 275,310 342,875
----------- --------------
Total capitalization................................................................. $ 761,310 841,875
----------- --------------
----------- --------------
</TABLE>
- ------------------------
(1) Reflects the issuance to Anschutz of 5,950,000 shares of Common Stock in
exchange for certain oil and gas assets in the 1998 Anschutz Transaction,
the assumption of $44,000,000 principal amount of 8.5% Senior Notes
associated with the Anschutz Ranch East Field and the use of $31,000,000 of
cash received in the transaction to repay a portion of Forest's U.S. Credit
Facility.
(2) Represents a 35% minority economic interest in Saxon.
(3) Does not include a total of 1,933,060 shares reserved for issuance upon
exercise of outstanding stock options.
28
<PAGE>
OPINION OF FINANCIAL ADVISOR TO THE COMPANY
On March 17, 1998, Morgan Stanley delivered its oral opinion, which it
subsequently confirmed in writing (the "Morgan Stanley Opinion"), to the
Company's Board to the effect that, as of such date, and based upon and subject
to the factors and assumptions set forth therein, the consideration to be paid
by the Company pursuant to the 1998 Anschutz Agreement, as set forth in the
draft thereof dated March 10, 1998 (the "Draft 1998 Anschutz Agreement") was
fair from a financial point of view to the Company.
THE FULL TEXT OF THE MORGAN STANLEY OPINION DATED MARCH 17, 1998, WHICH SETS
FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE MORGAN STANLEY OPINION, IS ATTACHED AS ANNEX A
TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE MORGAN
STANLEY OPINION WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE COMPANY'S
BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE TRANSACTIONS CONTEMPLATED BY
THE 1998 ANSCHUTZ AGREEMENT, AS SET FORTH IN THE DRAFT 1998 ANSCHUTZ AGREEMENT
(THE "1998 ANSCHUTZ TRANSACTION"). SUCH OPINION ADDRESSES ONLY THE FAIRNESS,
FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE PAID BY THE COMPANY
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF THE COMPANY'S COMMON
STOCK AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE ANNUAL MEETING. THE SUMMARY
OF THE MORGAN STANLEY OPINION SET FORTH HEREIN IS QUALIFIED BY THE FULL TEXT OF
SUCH OPINION, AND THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THE MORGAN
STANLEY OPINION IN ITS ENTIRETY.
For purposes of its opinion, Morgan Stanley has:
(i) reviewed certain publicly available financial statements, the Company's
Offering Memorandum dated January 28, 1998 with respect to $75 million
of 8 3/4% Senior Subordinated Notes due 2007, 1998 Series, and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by management of the
Company;
(iii) reviewed certain internal financial statements and other financial and
operating data prepared by the management of Anschutz concerning the
oil and gas assets (the "Assets") to be acquired pursuant to the 1998
Anschutz Agreement, as set forth in the Draft 1998 Anschutz Agreement;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) discussed the past and current operations and financial condition and
the prospects of the Assets with senior executives of the Company and
Anschutz;
(vi) analyzed certain financial projections with respect to the Company and
the Assets prepared by the management of the Company;
(vii) analyzed the pro forma impact of the consummation of the 1998 Anschutz
Transaction on the Company's earnings per share, cash flow per share,
consolidated capitalization and financial ratios;
(viii) reviewed the reported prices and trading activity for the Company's
Common Stock;
(ix) compared the financial performance of the Company and the Assets and
the prices and trading activity of the Company's Common Stock with that
of certain other comparable publicly-traded companies and their
securities;
29
<PAGE>
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xi) reviewed the estimates of the Company's 1997 year-end domestic proved
reserves prepared by the Company's reserve engineers (of which the
major producing oil and gas properties were reviewed by Ryder Scott
Company), estimates of Canadian Forest Oil, Ltd.'s (a wholly-owned
subsidiary of the Company) 1997 year-end proved reserves prepared by
McDaniel & Associates Consultants Ltd., estimates of Saxon Petroleum
Inc.'s (a 66%-owned subsidiary of the Company) 1997 year-end proved
reserves prepared by Fekete Associates, Inc. and estimates of 1997
year-end proved reserves for LLOG prepared by the Company's internal
engineers;
(xii) reviewed the estimates of 1997 year-end proved reserves for certain of
the Assets prepared by Ryder Scott Company and an evaluation of same
prepared by Malkewicz Hueni Associates, the Company's independent
reserve engineers, relating to the Assets;
(xiii) reviewed the terms of the Draft 1998 Anschutz Agreement and certain
related documents; and
(xiv) performed such other analyses and considered such other factors as
Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied without independent verification upon the
accuracy and completeness of the information reviewed by it for purposes of its
opinion. With respect to the financial projections, Morgan Stanley assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company and
the Assets. Morgan Stanley did not make any independent valuation or appraisal
of the assets and liabilities of the Company or the Assets; however, Morgan
Stanley has reviewed the reserve reports referred to in clauses (xi) and (xii)
above and has relied, without independent verification, upon such reports for
the purposes of its opinion. In addition, Morgan Stanley assumed, with the
Company's consent, that the consummation of the 1998 Anschutz Transaction will
not result in a change of control of the Company. Morgan Stanley also assumed
that the final form of the Anschutz Agreement would be substantially similar to
the last draft reviewed by Morgan Stanley dated March 10, 1998. The Morgan
Stanley Opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to Morgan Stanley as of, the
date of such opinion.
The following is a summary of the material financial analyses used by Morgan
Stanley in connection with providing the Morgan Stanley Opinion.
1. DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley used a discounted
cash flow analysis to calculate the pre-tax present value of future cash
flows that certain of the Assets could be expected to generate for the ten
years ended 2007 based upon oil and natural gas spot price forecasts under
four pricing scenarios and the reserve reports prepared by Ryder Scott
Company and Company management, and added to such value the approximate
value of the undeveloped acreage included in the Assets.
The natural gas price forecasts were based on Henry Hub equivalent
forecasts for spot market sales and on a standard heating value of 1,000
British Thermal Units per cubic foot of gas. Adjustments were made to the
natural gas price forecasts to reflect transportation charges and quality
differentials. In Case I, spot market gas prices per thousand cubic feet
("Mcf") for the years 1998 to 2002 were $2.18, $2.25, $2.25, $2.26 and
$2.29, respectively, and increased by $0.04 to $0.07 per annum for each year
thereafter. Case II estimates of spot market natural gas prices per Mcf for
the years 1998 to 2002 were $2.41, $2.39, $2.38, $2.52 and $2.59,
respectively, and increased by $0.07 to $0.09 per annum thereafter. Case III
and IV estimates of spot market natural gas prices per Mcf for the years
1998 and 1999 were $2.25 and $2.32, respectively, and increased by 3% for
each year thereafter.
30
<PAGE>
The oil price forecasts were based on West Texas Intermediate equivalent
forecasts for spot market sales. Adjustments were made to the oil price
forecasts to reflect transportation charges and quality differentials. In
Case I, estimates of spot market oil prices per Mcf for the years 1998 to
2002 were $17.70, $18.33, $18.45, $18.58 and $18.75, respectively, and
increased by $0.15 to $0.40 per annum thereafter. Case II estimates of spot
market oil prices per Mcf for the years 1998 to 2002 were $16.62, $17.76,
$17.96, $18.08 and $18.20, respectively, and increased by $0.07 to $0.57 per
annum for each year thereafter. Case III estimates of spot market oil prices
per Mcf for the years 1998 and 1999 were $17.75 and $19.50, respectively,
and increased by 3% per annum thereafter. Case IV estimates of spot market
oil prices per Mcf for the years 1998 and 1999 were $18.50 and $20.00,
respectively, and increased by 3% per annum for each year thereafter.
Production forecasts and associated costs with respect to the Anschutz
Ranch East properties located in Utah (the "Anschutz Ranch East Properties")
to be acquired by the Company were supplied by Ryder Scott Company and
production forecasts and associated production costs associated with the
Lake Erie properties located in Canada (the "Lake Erie Properties") were
provided by Company management. The pre-tax cash flows associated with the
proved reserves for the Anschutz Ranch East Properties were discounted at
rates ranging from 8% to 12% per annum and the pre-tax cash flows associated
with the proved and probable reserves for the Lake Erie Properties were
discounted at rates ranging from 10% to 15% per annum.
The value of undeveloped acreage included in the Assets was estimated by
considering replacement cost, net risked reserve potential, implied value
assuming typical industry farm-out agreements are entered into with respect
to certain of the prospects, and industry estimates of John S. Herold, Inc.,
a well known appraisal firm specializing in the petroleum industry. Based on
such analyses, the value of undeveloped acreage in Lake Erie was estimated
to be $10.00-$15.00 (Canadian dollars) per acre. The value of other
undeveloped acreage was estimated to be $1.00-$1.50 (U.S. dollars) per acre.
After discounting future pre-tax cash flows and adjusting for the value
for undeveloped acreage and estimated net debt of zero, Morgan Stanley
arrived at a valuation for the Assets ("Asset Value") ranging from $83.9
million to $105.7 million.
2. PRIVATE MARKET PREMIUMS PAID ANALYSIS. Morgan Stanley reviewed the
prices paid for oil and gas reserves in precedent transactions involving the
following seller/buyers: Amoco Corp. ("Amoco")/ HS Resources, Inc. ("HS
Resources"), Amoco/Howell Corp. ("Howell"), Equitable Resources Inc./ Inland
Resources Inc., Equitable Resources Inc./Cabot Oil & Gas Corp. ("Cabot"),
Kerr-McGee Corp./Devon Energy Corp., EEX Corporation/Abraxas Petroleum Corp.
and Cross Timbers Oil Co., Basin Exploration, Inc./HS Resources, Gerrity Oil
& Gas Corp. and Snyder Oil Corporation ("Snyder")/Patina Oil & Gas Corp., KN
Production Co./Tom Brown, Inc. ("Tom Brown"), Unocal Corp./ Devon Energy
Corp., Apache Corp./Citation Oil & Gas Corp., Presidio Oil Co./Tom Brown,
Plains Petroleum Co./Barrett Resources, Inc. ("Barrett") and Washington
Energy Co./Cabot (collectively, the "Precedent Transactions"). Price paid as
a multiple of proved reserves ranged from $3.00 to $8.87, with a mean of
$4.55. Price paid as a multiple per barrel of oil equivalent ("BOE") of
daily production ranged from $5,556 to $47,168, with a mean of $20,146.
Morgan Stanley used estimates for the Anschutz Ranch East Properties of
proved reserves provided by Ryder Scott Company and current daily production
provided by the Company's management. Morgan Stanley applied valuation
ranges to the Anschutz Ranch East Properties ranging from $4.50-$5.50 to
proved reserves of 13.6 million BOE and $15,000-$20,000 per BOE of daily
production. Morgan Stanley then added to the oil and gas reserve valuation
for the Anschutz Ranch East Properties the value of the Lake Erie Properties
and the undeveloped acreage using the same valuation methodologies as
described in the "Discounted Cash Flow Analysis" section above. Based on the
foregoing analyses, Morgan Stanley estimated an implied Asset Value ranging
from $87.0
31
<PAGE>
million to $113.8 million. Such implied Asset Values as a multiple of
estimated 1997 earnings before EBITDA (defined as earnings before cumulative
effect of changes in accounting principles, extraordinary items, income
taxes, interest, depreciation and depletion, impairment of proved oil and
gas properties, restructuring charges, and, with respect to companies which
have adopted the successful efforts method of accounting, dry hole expense)
for the Anschutz Ranch East Assets were 4.4x and 5.8x, respectively,
compared to a range of 3.1x to 12.3x, and a mean of 7.6x, for certain of the
Precedent Transactions for which transaction values as a multiple of the
last twelve months ("LTM") EBITDA were available.
No Precedent Transaction is identical to the 1998 Anschutz Transaction.
In evaluating the Precedent Transactions, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of the Company or of Anschutz such as the impact of competition
on their respective businesses and on the industry generally, industry
growth, and the absence of any material adverse change in the financial
condition and prospects of the Company or the Assets or in the financial
markets in general. Mathematical analysis (such as determining the average
or mean) of the financial ratios of the Precedent Transactions is not in
itself a meaningful method of using precedent transaction data.
3. PUBLIC MARKET TRADING MULTIPLES VALUATION. Morgan Stanley
calculated the market value and the adjusted market capitalization for the
following publicly traded companies: Barrett, Belco Oil & Gas Corp., Snyder,
Tom Brown, Howell, Inland Resources Inc., HS Resources and Patina Oil & Gas
Corporation (collectively, the "Comparable Companies"). For this purpose,
Morgan Stanley used estimates of cash flows and earnings provided by First
Call Corporation dated as of March 6, 1998.
Morgan Stanley defined "Equity Market Value" as the price per share
multiplied by the number of shares outstanding, and the "adjusted market
capitalization" as the Equity Market Value, plus total debt and preferred
stock, minus cash and cash equivalents, and "cash flow" was defined as the
sum of net income plus deferred taxes plus depletion, depreciation,
amortization and dry hole expense. Forward estimates for the Assets were
derived from the Ryder Scott Company's estimates of production and cash flow
(modified to reflect the price decks assumed in Case I) for the Anschutz
Ranch East Properties with respect to proved reserves only. Market value as
a multiple of Cash Flow for the Comparable Companies ranged from 3.1x to
9.4x (with a median of 7.1x) for projected 1998 and 2.8x to 6.8x (with a
median of 5.7x) for projected 1999. Morgan Stanley then assumed that the
Assets were capitalized with $30 million of debt which compares to the
typical capital structure of the Comparable Companies. Morgan Stanley
applied multiples ranging from 4.5x to 5.5x to the estimated 1998 cash flow
(adjusted for assumed leverage) from the Assets, and multiples ranging from
4.0x to 5.0x the estimated 1999 cash flow (adjusted for assumed leverage)
yielding an implied Asset Value ranging from $83.8 million to $120.5
million.
Adjusted market capitalization as a multiple of EBITDA for the
Comparable Companies ranged from 4.2x to 15.6x (with a median of 7.7x) for
projected 1998 and 3.6x to 11.1x (with a median of 6.6x) for projected 1999.
Morgan Stanley applied multiples to estimated EBITDA from the Assets ranging
from 6.0x to 7.0x for projected 1998, and 5.0x to 6.0x for 1999, yielding an
implied Asset Value ranging from $78.5 million to $130.9 million.
Morgan Stanley also calculated the "adjusted price" (defined as adjusted
market capitalization less an assumed value for non-oil and gas
reserve-related net property, plant and equipment, less working capital,
less other non-current assets, plus other non-current liabilities (excluding
deferred taxes)) as a multiple of 1997 year-end proved reserves of the
Assets, yielding an implied Asset Value ranging from $94.5 million to $114.8
million.
32
<PAGE>
The average implied Asset Value based upon (i) market value as a
multiple of estimated cash flow, (ii) adjusted market capitalization as a
multiple of EBITDA and (iii) adjusted price per BOE of proved reserves
ranged from $94.6 million to $111.5 million.
No Comparable Company has assets or operations identical to those Assets
proposed to be purchased by the Company in the 1998 Anschutz Transaction. In
evaluating the Comparable Companies, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of the Company and Anschutz such as the impact of competition on
their respective businesses and on the industry generally, industry growth
and the absence of any material adverse change in the financial condition
and prospects of the Company or the Assets or in the financial markets in
general. Mathematical analysis (such as determining the average or median)
of the financial ratios of the Comparable Companies is not in itself a
meaningful method of using comparable company data.
4. HISTORICAL STOCK PERFORMANCE. Morgan Stanley conducted an
historical analysis of the Company's Common Stock performance as measured by
closing prices and trading volumes from January 1, 1996 to March 16, 1998.
During this period, based on closing prices on the New York Stock Exchange
and the Nasdaq Stock Market, the Company's Common Stock achieved a high of
$18.88 and a low of $10.75 per share. The Company's Common Stock closed at a
price of $13.00 on the date of the announcement of the 1998 Anschutz
Transaction and at $15.12 per share on March 16, 1998. Applying the high and
low ranges of the Company's historical stock price for such period to an
estimated 5.95 million shares to be received by Anschutz in consideration
for the Assets results in an implied Asset value ranging between $72.9
million to $113.1 million.
Morgan Stanley also compared historical closing prices of the Company's
Common Stock and weighted them against an index of companies including
Vastar Resources, Noble Affiliates, Barrett, Newfield Exploration, Stone
Energy, Houston Exploration, Denbury Resources, Comstock Resources, Snyder
Oil and Tom Brown (the "Forest Comparable Companies") and against an index
of the Standard & Poor's 400 Companies Index (the "S&P 400") for the six
month, one year, two year and five year periods ended March 16, 1998. Based
upon such analyses, the Company underperformed the Forest Comparable
Companies over five, two and one year periods ended March 16, 1998, but
performed in line with the Forest Comparable Companies for the six month
periods ended on such date. The Company underperformed the S&P 400 over each
of the four periods ended March 16, 1998.
5. CONTRIBUTION ANALYSIS. Morgan Stanley reviewed certain historical
and estimated future operating and financial data and other information with
respect to the Company and the Assets (including, among other things, the
amount and value of proved reserves, undeveloped acreage, seismic and other
assets, and total debt and other liabilities, actual and implied market
capitalization, actual and implied adjusted market capitalization, 1997
pre-tax proved reserve value as of year-end 1997 discounted at 10% per annum
("PV10 Value"), 1997 year-end reserve data, 1998 production estimates and
1998 revenue, EBITDA, cash flow and net income projections) based on
publicly available information, third party reserve engineer estimates, and
projections provided by the Company. For purposes of the pro forma analysis
of the combined Company after giving effect to the 1998 Anschutz
Transaction, it was assumed that each of the LLOG acquisition and the 1998
Anschutz Transaction were consummated on January 1, 1998. The analysis
indicated that based on the Company's January 9, 1998 closing stock price of
$13.00 per share and the March 16, 1998 closing stock price of $15.12 per
share, Anschutz was estimated to hold between 7.7% and 8.3% of the total
market capitalization (which Morgan Stanley defined as Equity Market Value
plus total debt) of the Company on a pro forma basis, as compared with a
contribution to total asset value ranging from 11.0% to 11.4%, a
contribution to PV10 Value of 10.2%, a contribution to 1997 year-end
reserves of 10.2%, a contribution to 1998 production of 11.4%, a
contribution to 1998 revenues of 9.9%, and a
33
<PAGE>
contribution to 1998 EBITDA of 10.8%. The 5.95 million shares to be issued
to Anschutz represent approximately 13.8% of the equity value of the Company
after giving effect to the 1998 Anschutz Transaction, as compared to a
contribution to net asset value ranging from 24.2% to 28.8% and a
contribution to cash flow of 14.3%. The contribution to net income is
projected to turn from negative to positive in 1998 after giving pro forma
effect to the 1998 Anschutz Transaction.
6. PRO FORMA ACQUISITION ANALYSIS. Morgan Stanley prepared pro forma
analyses of the financial impact of the 1998 Anschutz Transaction. Using
earnings estimates prepared by the Company's management for the years 1998,
1999 and 2000 and assuming that the transaction would be accounted for as a
purchase, Morgan Stanley compared the projected earnings and cash flow per
share of the Company's Common Stock on a standalone basis to the projected
earnings and cash flow per share of the Company's Common Stock after giving
effect to the 1998 Anschutz Transaction. Based on these forecasts, the 1998
Anschutz Transaction would be neutral to the Company's shareholders on an
earnings per share basis in 1998 and accretive in each of 1999 and 2000. The
1998 Anschutz Transaction would be dilutive to the Company's shareholders on
a cash flow basis by 1.4%, 7.0% and 9.2% in each of 1998, 1999 and 2000,
respectively, but leverage, as measured by debt/book capitalization, would
decrease from 62.1% to 55.5% at year-end 1998, 58.8% to 51.3% at year-end
1999 and 51.8% to 43.4% at year-end 2000.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any particular analysis
or factor considered by it. Furthermore, selecting any portions of Morgan
Stanley's analyses, without considering all analyses, would create an incomplete
view of the process underlying the Morgan Stanley Opinion. In addition, Morgan
Stanley may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of the Assets.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company or Anschutz,
including, without limitation, the impact of competition on the business of the
Company and the industry generally, industry growth and the absence of any
adverse material change in the financial condition and prospects of the Company
or the industry or in the financial markets in general. The analyses performed
by Morgan Stanley are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely in connection with the Morgan Stanley Opinion. The
analyses do not purport to be appraisals or to reflect the prices at which the
Assets might actually be sold. In addition, as described above, the Morgan
Stanley Opinion and its presentation to the Company's Board of Directors was one
of many factors taken into consideration by the Company's Board of Directors in
making its determination to approve the 1998 Anschutz Transaction.
The Company retained Morgan Stanley based on its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and advisory
firm. As part of its investment banking business, Morgan Stanley is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Morgan Stanley is a
full service securities firm engaged in securities trading and brokerage
activities, as well as providing investment banking and financial advisory
services. In the course of its market-making and other trading activities,
Morgan Stanley may, from time to time, have a long or short position in, and buy
and sell securities from, the Company or Anschutz.
34
<PAGE>
Morgan Stanley is familiar with the Company and with Anschutz, having
provided financial services to the Company and to Anschutz in the past. Morgan
Stanley received customary fees for the rendering of such services.
Pursuant to a letter agreement dated March 6, 1998, the Company has agreed
to pay Morgan Stanley a fee of $150,000 in connection with the delivery of its
opinion. In addition, the Company has agreed to reimburse Morgan Stanley for its
reasonable out-of-pocket expenses, including attorney's fees, and to indemnify
Morgan Stanley against certain liabilities, including certain liabilities under
the federal securities laws.
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders of the Company, the Board has
designated the firm of KPMG Peat Marwick LLP, Suite 2300, 707 Seventeenth
Street, Denver, Colorado 80202 as independent auditors to examine and audit the
Company's financial statements for the year 1998. This firm has audited the
Company's financial statements for approximately 48 years and is considered to
be well qualified. The designation of such firm as auditors is being submitted
for ratification or rejection at the Annual Meeting. Action by shareholders is
not required under the law for the appointment of independent auditors, but the
ratification of their appointment is submitted by the Board in order to give the
shareholders of the Company the final choice in the designation of auditors. The
Board will be governed by the decision of a majority of the votes entitled to be
cast. A majority of the vote represented at the Annual Meeting by shares of
Common Stock entitled to vote is required to ratify the appointment of KPMG Peat
Marwick LLP.
A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting with the opportunity to make a statement if he desires to do so and will
also be available to respond to appropriate questions. A representative of the
firm was present at the last Annual Meeting for the same purpose.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
ADJOURNMENT OF THE ANNUAL MEETING
Approval of proposals regarding the election of directors and the
appointment of independent auditors require the affirmative vote of at least a
majority of the outstanding shares of Common Stock, represented in person or by
proxy, entitled to vote at the Annual Meeting. A majority of the votes
represented at the Annual Meeting by shares of Common Stock entitled to vote
(and held by persons other than Anschutz) is required for approval of the
transactions contemplated by the 1998 Anschutz Agreement as described in this
Proxy Statement. In the event there is an insufficient number of shares of
Common Stock present in person or by proxy at the Annual Meeting to approve such
proposals, the Board of Directors requests approval to adjourn the Annual
Meeting to a later date. The place and date to which the Annual Meeting would be
adjourned would be announced at the Annual Meeting, but would in no event be
more than 30 days after the date of the Annual Meeting.
The effect of any such adjournment would be to permit the Company to solicit
additional proxies for approval of the proposals. While such an adjournment
would not invalidate any proxies previously filed, including those filed by
shareholders voting against the subject proposals, it would afford the Company
the opportunity to solicit additional proxies in favor of the proposals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be included in the Board of Directors'
solicitation of proxies for the 1999 Annual Meeting of Shareholders must be
received by Daniel L. McNamara, Secretary, at 1600 Broadway, Suite 2200, Denver,
CO 80202, no later than December 19, 1998.
35
<PAGE>
GENERAL AND OTHER MATTERS
The Board of Directors knows of no matter, other than those referred to in
this Proxy Statement, which will be presented at the Annual Meeting. However, if
any other matters are properly brought before the meeting or any of its
adjournments, the person or persons voting the proxies will vote them in
accordance with their judgment on such matters. Should any nominee for director
be unwilling or unable to serve at the time of the Annual Meeting, or any
adjournment thereof, the persons named in the proxy will vote it for the
election of such other person for such directorship as the Board of Directors
may recommend unless, prior to the Annual Meeting, the Board of Directors has
eliminated that directorship by reducing the size of the Board of Directors. The
Board of Directors is not aware that any nominee named herein will be unwilling
or unable to serve as a director.
On July 25, 1997, the Company renewed Directors and Officers Liability
Coverages designed to indemnify the directors and officers of the Company and
its subsidiaries against certain liabilities incurred by them in the performance
of their duties and also providing for reimbursement in certain cases to the
Company and its subsidiaries for sums paid by them to directors and officers as
indemnification for similar liability. This type of coverage was originally
purchased by the Company on May 24, 1978. The 1997 renewal was for a one-year
period. Primary insurance of $10,000,000 was secured with Executive Risk
Indemnity, Inc. and the excess insurance coverage of $15,000,000 was secured
with Reliance Insurance Company for a total coverage of $25,000,000. Aggregate
premiums for the 12-month period ending July 25, 1998 were $271,250. No claims
have been filed and no payments have been made to the Company or its
subsidiaries or to any of their directors or officers under this coverage.
The Restated Certificate of Incorporation of the Company limits the personal
liability of the Company's directors to the fullest extent permitted by the New
York Business Corporation Law ("BCL"), as currently formulated or as it might be
revised in the future. The Restated Certificate of Incorporation provides that a
director will not be liable for damages for any breach of duty unless it is
finally established that (a) the director's acts or omissions were in bad faith
or involved intentional misconduct or a knowing violation of law; or (b) the
director personally gained a financial profit or other advantages to which he
was not legally entitled; or (c) the director's acts violated Section 719 of the
BCL which provides that directors who vote for, or concur in, certain types of
corporate action proscribed by the BCL will be jointly and severally liable for
any injury resulting from such action.
The cost of preparing, assembling, and mailing this Proxy Statement, the
enclosed proxy card and the Notice of Annual Meeting will be paid by the
Company. Additional solicitation by mail, telephone, telegraph or personal
solicitation may be done by directors, officers, and regular employees of the
Company. Such persons will receive no additional compensation for such services.
Brokerage houses, banks and other nominees, fiduciaries and custodians nominally
holding shares of Common Stock of record will be requested to forward proxy
soliciting material to the beneficial owners of such shares, and will be
reimbursed by the Company for their reasonable expenses. The Company has
retained Morrow & Co., Inc. to assist in such solicitation and has agreed to pay
reasonable and customary fees for its services and to reimburse it for
reasonable out-of-pocket expenses in connection therewith.
INCORPORATION BY REFERENCE. The Company hereby incorporates by reference
into this Proxy Statement the following documents: (a) Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997; (b) the Form 8-K/A dated
February 3, 1998, (c) Form 8-K dated April 8, 1998 and (d) Form 10-Q for the
quarter ended March 31, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing thereof. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Proxy Statement to the extent that a
statement contained herein, or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such
36
<PAGE>
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
AVAILABLE INFORMATION. UPON REQUEST OF ANY SHAREHOLDER, THE COMPANY'S
ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1997 FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS,
THE SCHEDULES AND ANY AMENDMENTS THERETO AND ANY DOCUMENTS INCORPORATED BY
REFERENCE THEREIN WILL BE SENT TO THE SHAREHOLDER WITHOUT CHARGE BY FIRST CLASS
MAIL WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST. ALL REQUESTS SHOULD BE
ADDRESSED TO THE SECRETARY OF THE COMPANY AT 1600 BROADWAY, SUITE 2200, DENVER,
COLORADO 80202 OR BY TELEPHONE TO (303) 812-1400. THE MORGAN STANLEY OPINION IS
INCLUDED IN THIS PROXY STATEMENT AS ANNEX A AND CERTAIN CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS ARE INCLUDED HEREIN AS ANNEX B.
You are urged to complete, sign, date and return your proxy promptly. You
may revoke your proxy at any time before it is voted. If you attend the Annual
Meeting, as we hope you will, you may vote your shares in person.
By order of the Board of Directors
DANIEL L. McNAMARA
SECRETARY
June 5, 1998
37
<PAGE>
ANNEX A
March 17, 1998
The Board of Directors
Forest Oil Corporation
Suite 2200
1600 Broadway
Denver, Colorado 80202
Members of the Board:
We understand that The Anschutz Corporation ("Anschutz") and Forest Oil
Corporation ("Forest") propose to enter into a Purchase and Sale Agreement,
substantially in the form of the draft dated March 10, 1998 (the "Acquisition
Agreement"), which provides, among other things, for the sale by Anschutz to
Forest of certain oil and gas assets (the "Assets") as more fully described in
the Acquisition Agreement for 5.95 million shares of common stock of Forest
("Forest Common Stock"), subject to certain adjustments as described in the
Acquisition Agreement (the "Acquisition"). The terms and conditions of the
Acquisition are more fully set forth in the Acquisition Agreement.
You have asked for our opinion as to whether the consideration to be paid by
Forest pursuant to the Acquisition Agreement is fair from a financial point of
view to Forest.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements, Forest's
Offering Memorandum dated January 28, 1998 with respect to $75 million
of 8 3/4% Senior Subordinated Notes due 2007, 1998 Series, and other
information of Forest;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Forest prepared by the management of Forest;
(iii) reviewed certain internal financial statements and other financial and
operating data concerning the Assets prepared by the management of
Anschutz;
(iv) discussed the past and current operations and financial condition and
the prospects of Forest with senior executives of Forest;
(v) discussed the past and current operations and financial condition and
the prospects of the Assets with senior executives of Forest and
Anschutz;
(vi) analyzed certain financial projections with respect to Forest and to
the Assets prepared by the management of Forest;
(vii) analyzed the pro forma impact of the consummation of the Acquisition on
Forest's earnings per share, cash flow per share, consolidated
capitalization and financial ratios;
(viii) reviewed the reported prices and trading activity for Forest Common
Stock;
(ix) compared the financial performance of Forest and the Assets and the
prices and trading activity of Forest Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
A-1
<PAGE>
(xi) reviewed the estimates of Forest's 1997 year-end domestic proved
reserves prepared by Forest's reserve engineers (of which the major
producing oil and gas properties were reviewed by Ryder Scott Company),
estimates of Canadian Forest Oil Ltd.'s (a wholly-owned subsidiary of
Forest) 1997 year-end proved reserves prepared by McDaniel & Associates
Consultants Ltd., estimates of Saxon Petroleum Inc.'s (a 66%-owned
subsidiary of Forest) 1997 year-end proved reserves prepared by Fekete
Associates, Inc. and estimates of 1997 year-end proved reserves for
LLOG Exploration Company prepared by the Company's internal engineers;
(xii) reviewed the estimates of 1997 year-end proved reserves of certain of
the assets prepared by Ryder Scott Company and an evaluation of same
prepared by Malkewicz Hueni Associates, Forest's independent reserve
engineers, relating to the Assets;
(xiii) reviewed the terms of the Acquisition Agreement and certain related
documents; and
(xiv) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Forest
and the Assets. We have not made any independent valuation or appraisal of the
assets or liabilities of Forest or the Assets; however, we have reviewed the
reserve reports referred to in paragraphs (xi) and (xii) above and have relied
without independent verification upon such reports for the purpose of this
opinion. In addition, we have assumed with the Company's consent, that the
consummation of the Acquisition will not result in a change of control of the
Company. We have also assumed that the final form of the Acquisition Agreement
would be substantially similar to the draft dated March 10, 1998. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have been engaged to provide this opinion to the Board of Directors of
Forest in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financial services to Anschutz and Forest, and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Forest and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
proxy statement to be mailed to holders of Forest Common Stock in connection
with obtaining approval for the issuance of Forest Common Stock under the terms
of the Acquisition Agreement. In addition, Morgan Stanley expresses no opinion
or recommendation as to how holders of Forest Common Stock should vote at the
shareholders' meeting to be held in connection with the Acquisition.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be paid by Forest pursuant to the Acquisition
Agreement is fair from a financial point of view to Forest.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ D. S. Reid
-----------------------------------
Donald S. Reid
Managing Director
A-2
<PAGE>
ANNEX B
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
On February 3, 1998, Forest Oil Corporation (Forest) purchased interests in
13 oil and gas properties located onshore Louisiana from a private company for
total consideration of approximately $230,776,000 (the Louisiana Acquisition).
The consideration consisted of 1,000,000 shares of Forest Common Stock and
approximately $216,557,000 of cash. The cash portion of the consideration was
funded from the Company's bank credit facility and from the issuance of
$75,000,000 principal amount of 8 3/4% Senior Subordinated Debentures.
On April 6, 1998 Forest entered into a definitive purchase and sale
agreement with The Anschutz Corporation to acquire certain oil and gas property
interests from Anschutz in exchange for 5,950,000 shares of Forest Common Stock
(the Anschutz Transaction). The properties include an interest in the Anschutz
Ranch Field which is located in Utah and Wyoming, prospects and producing
acreage in Canada, and interests in projects in various other countries.
The following unaudited condensed pro forma combined balance sheet assumes
that the Anschutz Transaction occurred on March 31, 1998 and reflects the
historical consolidated balance sheet of Forest giving pro forma effect to the
transaction using the purchase method of accounting. The unaudited condensed pro
forma combined balance sheet should be read in conjunction with the historical
statements and related notes of Forest.
The following unaudited condensed pro forma combined statements of
operations for the three months ended March 31, 1998 and for the year ended
December 31, 1997 assume that the Louisiana Acquisition and the Anschutz
Transaction occurred as of January 1, 1997. The pro forma results of operations
are not necessarily indicative of the results of operations that would actually
have been attained if the transactions had occurred as of this date. These
statements should be read in conjunction with the historical financial
statements and related notes of Forest, the Statement of Oil and Gas Revenue and
Direct Operating and Production Expenses of the properties acquired in the
Louisiana Acquisition included in the Form 8-K/A dated February 3, 1998 and
incorporated by reference herein, and the Statement of Oil and Gas Revenue and
Direct Operating Expenses of the Anschutz Ranch Field included herein.
B-1
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED BALANCE SHEET (NOTE A)
MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
ANSCHUTZ PRO FORMA
FOREST TRANSACTION COMBINED
HISTORICAL (NOTE C) FOREST
---------- ------------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................ $ 5,770 50,951(1) 25,721
(31,000)(2)
Accounts receivable...................................................... 50,243 3,290(1) 53,533
Other current assets..................................................... 5,539 -- 5,539
---------- ------------- ----------
Total current assets................................................... 61,552 23,241 84,793
Net property and equipment, at cost........................................ 760,723 62,638(1) 823,861
500(3)
Goodwill and other intangible assets, net.................................. 25,947 -- 25,947
Other assets............................................................... 13,606 -- 13,606
---------- ------------- ----------
$ 861,828 86,379 948,207
---------- ------------- ----------
---------- ------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................ $ -- 5,300(1) 5,300
Accounts payable......................................................... 43,435 3,159(1) 47,094
500(3)
Accrued interest......................................................... 3,158 1,476(1) 4,634
Other current liabilities................................................ 2,927 341(1) 3,268
---------- ------------- ----------
Total current liabilities.............................................. 49,520 10,776 60,296
Long-term debt............................................................. 472,922 38,700(1) 480,622
(31,000)(2)
Other liabilities.......................................................... 16,973 338(1) 17,311
Deferred income taxes...................................................... 34,176 -- 34,176
Minority interest.......................................................... 12,927 -- 12,927
Shareholders' equity:
Common stock............................................................. 3,732 595(1) 4,327
Capital surplus.......................................................... 503,058 66,970(1) 570,028
Accumulated deficit...................................................... (224,463) -- (224,463)
Foreign currency translation............................................. (7,017) -- (7,017)
---------- ------------- ----------
Total shareholders' equity............................................. 275,310 67,565 342,875
---------- ------------- ----------
$ 861,828 86,379 948,207
---------- ------------- ----------
---------- ------------- ----------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
B-2
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS (NOTE A)
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
LOUISIANA ANSCHUTZ
ACQUISITION COMBINED FOREST ANSCHUTZ TRANSACTION PRO FORMA
FOREST ADJUSTMENTS AND LOUISIANA TRANSACTION ADJUSTMENTS COMBINED
HISTORICAL (NOTE B) ACQUISITION HISTORICAL (NOTE C) FOREST
----------- ------------- --------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Marketing and processing............... $ 35,003 -- 35,003 -- -- 35,003
Oil and gas sales:
Gas.................................. 27,607 2,435(1) 30,042 3,104 -- 33,146
Oil, condensate and natural gas
liquids............................ 12,886 1,199(1) 14,085 1,832 -- 15,917
----------- ------------- ------- ------ ------------- -----------
Total oil and gas sales.............. 40,493 3,634 44,127 4,936 -- 49,063
----------- ------------- ------- ------ ------------- -----------
Total revenue.......................... 75,496 3,634 79,130 4,936 -- 84,066
Operating expenses:
Marketing and processing............... 33,168 -- 33,168 -- -- 33,168
Oil and gas production................. 8,842 378 9,220 863 -- 10,083
General and administrative............. 4,255 -- 4,255 -- -- 4,255
Depreciation and depletion............. 23,333 1,770(2) 25,103 -- 2,348(1) 27,451
----------- ------------- ------- ------ ------------- -----------
Total operating expenses............. 69,598 2,148 71,746 863 2,348 74,957
----------- ------------- ------- ------ ------------- -----------
Earnings from operations................. 5,898 1,486 7,384 4,073 (2,348) 9,109
Other income and expense:
Other (income) expense, net............ 2 -- 2 -- -- 2
Interest expense....................... 8,506 1,432(3) 9,938 -- 963(2) 10,901
Minority interest in earnings (loss) of
subsidiary........................... (80) -- (80) -- -- (80)
Translation gain on subordinated
debt................................. (1,024) -- (1,024) -- -- (1,024)
----------- ------------- ------- ------ ------------- -----------
Total other income and expense....... 7,404 1,432 8,836 -- 963 9,799
----------- ------------- ------- ------ ------------- -----------
Earnings (loss) before income taxes...... (1,506) 54 (1,452) 4,073 (3,311) (690)
Income tax expense (benefit)............. (503) -- (503) -- -- (503)
----------- ------------- ------- ------ ------------- -----------
Income (loss) from continuing
operations............................. $ (1,003) 54 (949) 4,073 (3,311) (187)
----------- ------------- ------- ------ ------------- -----------
----------- ------------- ------- ------ ------------- -----------
Weighted average number of common shares
outstanding............................ 36,975 -- 36,975 -- 5,950(3) 42,925
----------- ------------- ------- ------ ------------- -----------
----------- ------------- ------- ------ ------------- -----------
Income (loss) from continuing operations
attributable to common stock........... $ (1,003) -- (949) -- -- (187)
----------- ------------- ------- ------ ------------- -----------
----------- ------------- ------- ------ ------------- -----------
Basic income (loss) per share from
continuing operations.................. $ (.03) -- (.03) -- -- --
----------- ------------- ------- ------ ------------- -----------
----------- ------------- ------- ------ ------------- -----------
Fully diluted income (loss) per share
from continuing operations............. $ (.03) -- (.03) -- -- --
----------- ------------- ------- ------ ------------- -----------
----------- ------------- ------- ------ ------------- -----------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
B-3
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited condensed pro forma combined balance sheet
assumes that the Anschutz Transaction occurred on March 31, 1998 and reflects
the historical consolidated balance sheet of Forest at that date giving pro
forma effect to the transaction using the purchase method of accounting. The
unaudited condensed pro forma combined balance sheet should be read in
conjunction with the historical statements and related notes of Forest.
The accompanying unaudited condensed pro forma combined statements of
operations for the three months ended March 31, 1998 and for the year ended
December 31, 1997 assume that the Louisiana Acquisition and the Anschutz
Transaction occurred as of January 1, 1997. The pro forma results of operations
are not necessarily indicative of the results of operations that would actually
have been attained if the transactions had occurred as of this date. These
statements should be read in conjunction with the historical financial
statements and related notes of Forest, the Statement of Revenue and Direct
Operating Expenses of the properties acquired in the Louisiana Acquisition
included in the Form 8-K/A dated February 3, 1998 and incorporated by reference
herein, and the Statement of Revenue and Direct Operating Expenses of the
Anschutz Properties included herein.
B. ACQUISITION OF LOUISIANA PROPERTIES
On February 3, 1998, Forest purchased interests in 13 oil and gas properties
located onshore Louisiana from a private company for total consideration of
approximately $230,776,000. The consideration consisted of 1,000,000 shares of
Forest Common Stock and approximately $216,557,000 of cash. The cash portion of
the consideration was funded by borrowings under the Company's bank credit
facility and from the issuance of $75,000,000 principal amount of 8 3/4% Senior
Subordinated Debentures. The effects of this transaction are included in the
historical balance sheet at March 31, 1998.
The historical information of Forest Oil Corporation in the accompanying
condensed pro forma combined statement of operations for the three months ended
March 31, 1998 includes the historical revenue and direct operating expenses of
the Louisiana properties subsequent to their acquisition on February 3, 1998. In
addition, the following pro forma adjustments have been made to the accompanying
historical revenue and direct operating expenses of Forest Oil Corporation for
the three months ended March 31, 1998:
1. To record oil and gas revenue of the Louisiana properties for the
period from January 1, 1998 to February 2, 1998.
2. To adjust depletion expense to reflect the pro forma combined
depletion rate giving effect to the acquisition of the properties.
3. To increase interest expense for interest associated with the debt
incurred in connection with the Louisiana Acquisition.
The accompanying condensed pro forma combined statement of operations for
the year ended December 31, 1997 has been adjusted to include the historical
revenue and direct operating expenses of the Louisiana properties. In addition,
the following pro forma adjustments have been made to the accompanying
historical revenue and direct operating expenses of the Louisiana properties for
the year ended December 31, 1997:
B-5
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
B. ACQUISITION OF LOUISIANA PROPERTIES (CONTINUED)
1. To adjust general and administrative expense to reflect increased
costs associated with the Louisiana Acquisition.
2. To adjust depletion expense to reflect the pro forma combined
depletion rate for the properties.
3. To increase interest expense for interest associated with the debt
incurred in connection with the Louisiana Acquisition.
4. To adjust the weighted average shares outstanding to reflect the
shares issued in connection with the Louisiana Acquisition.
C. ACQUISITION OF ANSCHUTZ PROPERTIES
On January 9, 1998 Forest entered into an agreement in principle with The
Anschutz Corporation to purchase certain oil and gas property interests in
exchange for shares of Forest Common Stock. On April 6, 1998 a definitive
purchase and sale agreement was executed. The properties to be acquired include
an interest in The Anschutz Ranch Field which is located in Utah and Wyoming,
prospects and producing acreage in Canada, and interests in projects in various
other countries (the Anschutz Properties). Forest's consideration will consist
of 5,950,000 shares of Common Stock.
The accompanying historical balance sheet of Forest at March 31, 1998 has
been adjusted as follows to record the purchase price of the Anschutz assets
acquired and liabilities assumed:
1. To record the assets acquired and liabilities assumed relating to
the Anschutz Properties at March 31, 1998 and the issuance of Forest Common
Stock in consideration therefor. The assets acquired and liabilities assumed
(which consist primarily of the assets and liabilities of the Anschutz Ranch
East Corporation which owns the Anschutz Ranch East Field) are as follows
(in thousands):
<TABLE>
<S> <C>
Cash.............................................. $ 50,951
Accounts receivable............................... 3,290
Oil and gas properties............................ 62,638
Current portion of long-term debt................. (5,300)
Accounts payable.................................. (3,159)
Accrued interest.................................. (1,476)
Other current liabilities......................... (341)
Long-term debt.................................... (38,700)
Other liabilities................................. (338)
---------
Fair value of Forest Common Stock................. $ 67,565
---------
---------
</TABLE>
The Common Stock issued was valued at $67,565,000 determined by
reference to the quoted market price of Forest common shares during the
period two days preceding and two days following the announcement of the
agreement in principle, less a discount to reflect the size of the block of
shares to be issued and the estimated brokerage fees on the ultimate
disposition of the shares.
B-6
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
C. ACQUISITION OF ANSCHUTZ PROPERTIES (CONTINUED)
In connection with the transaction, the Company will assume $44,000,000
of Senior Notes. The Senior Notes bear interest at 8.5% per annum, payable
semiannually until the notes are repaid in 2003. A principal repayment of
$1,000,000 is due on May 31, 1998 with the balance payable in 10 semiannual
payments beginning November 30, 1998. The Senior Notes are secured by a
first priority lien on The Anschutz Ranch Field.
2. To reflect the use of available cash received in the transaction to
repay a portion of Forest's bank credit facility.
3. To record estimated costs associated with the Anschutz Transaction.
The accompanying condensed pro forma combined statements of operations for
the three months ended March 31, 1998 and for the year ended December 31, 1997
have been adjusted to include the historical revenue and direct operating
expenses of the Anschutz Ranch Field prior to the acquisition. There was no
significant production from any of the other acquired properties. In addition,
the following adjustments have been made to the accompanying condensed pro forma
combined statements of operations for the three months ended March 31, 1998 and
for the year ended December 31, 1997:
1. To adjust depletion expense to reflect the pro forma combined
depletion rate giving effect to the acquisition of the Anschutz Properties.
2. To record interest expense associated with the debt to be assumed by
Forest in connection with the acquisition of the Anschutz Properties.
3. To adjust the weighted average shares outstanding to reflect shares
issued in connection with the Anschutz Acquisition.
In addition to effects of the pro forma adjustments described above, the Company
presently expects additional effects and events to occur as described below. The
following statements are forward-looking and are based upon the Company's
current belief as to the outcome and timing of such future events. There are
risks and uncertainties that can affect the outcome and timing of such events,
including many factors which are beyond the control of the Company. Should one
or more of these risks or uncertainties occur, or should underlying assumptions
prove incorrect, the Company's actual results could differ materially from those
expressed in the forward-looking statements.
1. The Company intends to repay in full the notes assumed in the
Anschutz Acquisition as soon after closing as is reasonably practicable.
Such repayment, which will be made using funds available under the Company's
bank credit facility, is expected to result in reduced interest expense to
the Company in the amount of approximately $450,000 annually.
2. General and administrative expense will increase as a result of
adding the Anschutz Properties to the Company's existing property base. The
Company estimates that additional engineering, marketing, accounting, legal
and other administrative services will cost approximately $200,000 to
$300,000 annually.
B-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Anschutz Ranch East Corporation:
We have audited the accompanying statement of oil and gas revenue and direct
lease operating expenses of an oil and gas property (the Anschutz Ranch Field)
of Anschutz Ranch East Corporation (AREC) acquired by Forest Oil Corporation for
each of the years in the three-year period ended December 31, 1997. This
financial statement is the responsibility of AREC's management. Our
responsibility is to express an opinion on this financial statement 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 statement of oil and gas revenue and
direct lease operating expenses is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of oil and gas revenue and direct lease operating
expenses. 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.
The accompanying statement of oil and gas revenue and direct lease operating
expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission and excludes material
expense, that would not be comparable to those resulting from the proposed
future operations of the oil and gas properties as described in Note 1 to the
Financial Statement, and thus is not intended to be a complete presentation of
the revenue and expenses of the Anschutz Ranch Field.
In our opinion, the statement of oil and gas revenue and direct lease
operating expenses referred to above presents fairly, in all material respects,
the oil and gas revenue and direct lease operating expenses of the Anschutz
Ranch Field as described in Note 1 for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 12, 1998
B-8
<PAGE>
ANSCHUTZ RANCH EAST CORPORATION
ANSCHUTZ RANCH FIELD
STATEMENT OF OIL AND GAS REVENUE
AND DIRECT LEASE OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
YEARS ENDED DECEMBER 31,
(UNAUDITED) -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating Revenue:
Sales of natural gas......................................... $ 3,104 3,340 13,541 9,247 6,978
Sales of condensate.......................................... 819 1,347 4,700 5,163 4,870
Sales of natural gas liquids................................. 1,013 1,670 5,827 6,440 3,600
--------- --------- --------- --------- ---------
Total Operating Revenue........................................ 4,936 6,357 24,068 20,850 15,448
Direct Lease Operating Expenses................................ 863 983 4,035 3,390 7,056
--------- --------- --------- --------- ---------
Net Operating Revenue.......................................... $ 4,073 5,374 20,033 17,460 8,392
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
B-9
<PAGE>
ANSCHUTZ RANCH EAST CORPORATION
ANSCHUTZ RANCH FIELD
NOTES TO STATEMENT OF OIL AND GAS REVENUE
AND DIRECT LEASE OPERATING EXPENSES
FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED DECEMBER 31, 1997
(1) PURCHASE OF OIL AND GAS PROPERTIES AND BASIS OF PRESENTATION
The accompanying financial statement presents the revenues and direct
operating expenses of a certain oil and gas property and related equipment of
Anschutz Ranch East Corporation (the Anschutz Property) for each of the years in
the three-year period ended December 31, 1997. The property consists of a
working interest in a oil and gas property located in Summit County, Utah and
Uinta County, Wyoming. This property is subject to an agreement whereby it would
be purchased by Forest Oil Corporation effective January 1, 1998.
The accompanying statement of oil and gas revenue and direct lease operating
expenses of the Anschutz Property was prepared to comply with certain rules and
regulations of the Securities and Exchange Commission and does not include
general and administrative expenses, interest expense, a provision for
depreciation, depletion and amortization, or any provision for income taxes
since historical expenses of this nature incurred by Anschutz Ranch East
Corporation are not necessarily indicative of the costs to be incurred by Forest
Oil Corporation.
Revenue in the accompanying statement of oil and gas revenue and direct
lease operating expense is recognized on the sales method. During 1997 and 1996,
a portion of the Anschutz Property's revenue was sold under a gas purchase
contract. This contract was terminated in 1997.
Direct lease operating expenses are recognized on the accrual basis and
consist of all costs incurred in producing, marketing and distributing products
produced by the property as well as production taxes and monthly administrative
overhead costs.
(2) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following unaudited information has been prepared in accordance with
Statement of Financial Accounting Standards No. 69, DISCLOSURE ABOUT OIL AND GAS
PRODUCING ACTIVITIES (SFAS No. 69). The following unaudited information has been
prepared in accordance with Statement of Financial Accounting Standards No. 69,
DISCLOSURE ABOUT OIL AND GAS PRODUCING ACTIVITIES (SFAS No. 69).
(A) ESTIMATED PROVED OIL AND GAS RESERVES
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. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Proved undeveloped oil and
gas reserves are reserves that are expected to be recovered from new wells on
undrilled acreage, or from existing wells where a relatively major expenditure
is required for completion.
B-10
<PAGE>
ANSCHUTZ RANCH EAST CORPORATION
ANSCHUTZ RANCH FIELD
NOTES TO STATEMENT OF OIL AND GAS REVENUE
AND DIRECT LEASE OPERATING EXPENSES (CONTINUED)
FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED DECEMBER 31, 1997
(2) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
An estimate of proved developed future net recoverable oil and gas reserves
of the Anschutz Property and changes therein follows. Such estimates are
inherently imprecise and may be subject to substantial revisions. Proved
undeveloped reserves attributable to the Anschutz Property are not significant.
<TABLE>
<CAPTION>
OIL AND
CONDENSATE NATURAL GAS
(000'S OF BBLS) (MMCF)
--------------- -----------
<S> <C> <C>
Balance at December 31, 1994............................................... 9,166 54,903
Production............................................................... (868) (6,238)
Effect of changes in prices and other.................................... 57 366
----- -----------
Balance at December 31, 1995............................................... 8,355 49,031
Production............................................................... (875) (7,064)
Effect of changes in prices and other.................................... 383 1,945
----- -----------
Balance at December 31, 1996............................................... 7,863 43,912
Production............................................................... (823) (7,161)
Effect of changes in prices and other.................................... (148) (466)
----- -----------
Balance at December 31, 1997............................................... 6,892 36,285
----- -----------
----- -----------
</TABLE>
(B) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows has been
calculated in accordance with the provisions of SFAS No. 69.
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.
Future income tax expense has not been considered as the properties are not a
tax paying entity. Future general and administrative and interest expenses have
also 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
B-11
<PAGE>
ANSCHUTZ RANCH EAST CORPORATION
ANSCHUTZ RANCH FIELD
NOTES TO STATEMENT OF OIL AND GAS REVENUE
AND DIRECT LEASE OPERATING EXPENSES (CONTINUED)
FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED DECEMBER 31, 1997
(2) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
estimate of the current market value of the proved reserves. The standardized
measure of discounted future net cash flows as of December 31, 1997, 1996, and
1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Future oil and gas sales........................................................ $ 137,339 243,887 135,650
Future production and development costs......................................... (43,326) (56,999) (47,564)
---------- --------- ---------
Future net revenue.............................................................. 94,013 186,888 88,086
10% annual discount for estimated timing of cash flows.......................... (30,642) (65,114) (29,317)
---------- --------- ---------
Standardized measure of discounted future net cash flows........................ $ 63,371 121,774 58,769
---------- --------- ---------
---------- --------- ---------
</TABLE>
(C) CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED OIL AND GAS RESERVES
An analysis of the changes in the total standardized measure of discounted
future net cash flows during each of the last three years is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning of year............................................................... $ 121,774 58,769 70,108
Changes resulting from:
Sales of oil and gas, net of production costs................................. (20,033) (17,460) (8,392)
Changes in prices and other................................................... (50,547) 74,588 (9,958)
Accretion of discount......................................................... 12,177 5,877 7,011
---------- --------- ---------
End of year..................................................................... $ 63,371 121,774 58,769
---------- --------- ---------
---------- --------- ---------
</TABLE>
B-12
<PAGE>
FOREST OIL CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Forest Oil Corporation, a New York
corporation (the "Company"), hereby appoints William L. Dorn, Robert S.
Boswell and Daniel L. McNamara, or any one of them, attorneys, agents and
proxies of the undersigned, with full power of substitution to each of them,
to vote all the shares of Common Stock, par value $.10 per share, of the
Company which are entitled to one vote per share and which the undersigned
may be entitled to vote at the Annual Meeting of Shareholders of the Company
to be held at 1600 Broadway, Suite 590, Denver, Colorado, on Tuesday, June
16, 1998, at 10:00 a.m., M.D.T., and at any adjournment of such meeting, with
all powers which the undersigned would possess if personally present:
1. To elect two (2) Class IV Directors;
2. To approve the transaction with The Anschutz Corporation:
3. To authorize the Company to adjourn the meeting to solicit
additional proxies in the event that the number of proxies sufficient
to approve any of the proposals has not been received by the date of
meeting; and
4. To consider and vote upon the ratification of the appointment of KPMG
Peat Marwick LLP as independent auditors for the Company for the
fiscal year ended December 31, 1998;
5. To vote upon such other matters as may be properly brought before
the meeting or any adjournment thereof hereby revoking all previous
proxies and ratifying all that any of said proxies, their substitutes,
or any of them, may lawfully do by virtue hereof.
IF NO DIRECTIONS ARE GIVEN, THE INDIVIDUALS DESIGNATED ABOVE WILL VOTE
FOR THE ABOVE PROPOSALS AND, AT THEIR DISCRETION, ON ANY OTHER MATTER THAT
MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement of the Company.
(CONTINUED AND TO BE VOTED, DATED AND SIGNED ON REVERSE SIDE)
- -------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
<PAGE>
<TABLE>
FOREST OIL CORPORATION Common Stock Proxy One(1) Vote Per Share PLEASE MARK VOTES / / or /X/
The Board of Directors recommends a Vote FOR the following Proposals:
<S> <C> <C>
No. 1. Election of Directors. (To withhold authority to vote for all nominees SPECIAL NOTES
Nominees are 01 Craig D. Slater. check the block marked "Withheld". To withhold authority -------------
and 02 Cortlandt S. Diesler. to vote for any individual nominee write that nominee's I plan to attend the
FOR WITHHELD name on the space provided below.) meeting / /
/ / / / THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD
-------------------------------------------------------- OF DIRECTORS
No. 2. Approve the transaction with No. 3 Adjournment of Meeting. -------------------------
The Anschutz Corporation. FOR AGAINST ABSTAIN ***IF YOU WISH TO VOTE BY
FOR AGAINST ABSTAIN / / / / / / TELEPHONE PLEASE READ THE
/ / / / / / INSTRUCTIONS BELOW***
-------------------------
No. 4 Ratification of the
Appointment of Independent
Auditors.
FOR AGAINST ABSTAIN
/ / / / / /
SIGNATURE SIGNATURE DATE
------------------------------------ ------------------------------- ------------------------------------
Signature should agree with names on Stock Certificates as shown herein. Attorneys, executors, administrators, trustees,
guardians or custodians should give full title as such.) Please complete, date and sign this proxy and return it promptly in the
enclosed envelope whether or not you plan to attend the meeting.
- -----------------------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
* VOTE BY TELEPHONE *
QUICK * EASY * IMMEDIATE *
Your telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned
your proxy card.
You will be asked to enter a Control Number which is located in the box in the lower right hand corner of this form.
- -----------------------------------------------------------------------------------------------------------------------------------
OPTION #1: TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL PROPOSALS: PRESS 1.
- -----------------------------------------------------------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM YOU VOTE BY PRESSING 1.
- -----------------------------------------------------------------------------------------------------------------------------------
OPTION #2: IF YOU CHOOSE TO VOTE ON EACH PROPOSAL SEPARATELY, PRESS 0. YOU WILL HEAR THESE INSTRUCTIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The Instructions are the same for all remaining proposals.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- -----------------------------------------------------------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Call * Toll Free * On a Touch Tone Telephone
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
