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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number: 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation: New York I.R.S. Employer Identification No. 25-0484900
1600 Broadway
Suite 2200
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-812-1400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Common Stock, Par Value $.10 Per Share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $360,638,000 as of February 27, 1998 (based
on the last reported sale price of such stock on the New York Stock Exchange
Composite Tape).
There were 37,320,228 shares of the registrant's Common Stock, Par Value
$.10 Per Share outstanding as of February 27, 1998.
Document incorporated by reference: Proxy Statement of Forest Oil
Corporation relative to the Annual Meeting of Shareholders to be held in May
1998, which is incorporated into Part III of this Form 10- K.
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TABLE OF CONTENTS
Page No.
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PART I
Item 1. Business 1
Item 2. Properties 17
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 4A. Executive Officers of Forest 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 26
Item 6. Selected Financial and Operating Data 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 30
Item 8. Financial Statements and Supplementary Data 43
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 43
PART III
Item 10. Directors and Executive Officers of the Registrant 87
Item 11. Executive Compensation 87
Item 12. Security Ownership of Certain Beneficial Owners and Management 87
Item 13. Certain Relationships and Related Transactions 87
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 87
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PART I
ITEM 1. BUSINESS
THE COMPANY
Forest Oil Corporation and its subsidiaries (Forest or the Company) are
engaged in the acquisition, exploration, development, production and
marketing of natural gas and crude oil in North America. The Company was
incorporated in New York in 1924, the successor to a company formed in 1916,
and has been a publicly held company since 1969. The Company is active in
several of the major exploration and producing areas in and offshore the
United States and in Canada.
Forest's principal reserves and producing properties are located in the
onshore and offshore Gulf of Mexico region, West Texas, Wyoming and Alberta,
Canada. Approximately 56% of the Company's oil and gas reserves are in the
United States and 44% are in Canada. Approximately 61% of total 1997
production was in the United States and approximately 39% was in Canada. The
Company currently operates 39 offshore platforms in the Gulf of Mexico, and
1997 production from this area accounted for approximately 47% of the
Company's reported production on an MCFE basis. (An MCF is one thousand
cubic feet of natural gas. MMCF is used to designate one million cubic feet
of natural gas and BCF refers to one billion cubic feet of natural gas. MCFE
means thousands of cubic feet of natural gas equivalents, using a conversion
ratio of one barrel of liquids to 6 MCF of natural gas. BCFE means billions
of cubic feet of natural gas equivalents. With respect to liquids, the term
BBL means one barrel of liquids whereas MBBLS is used to designate one
thousand barrels of liquids. The term liquids is used to describe oil,
condensate and natural gas liquids.)
The Company operates from production offices located in Lafayette, Louisiana;
Denver, Colorado; and Calgary, Alberta. Forest's corporate headquarters are
located in Denver, Colorado. On December 31, 1997 Forest had 267 employees,
of whom 202 were salaried and 65 were hourly. Of the salaried employees, 17
are dedicated to the Company's marketing and processing business. For
financial information relating to the Company's industry segments, see Note
16 of Notes to Consolidated Financial Statements.
OPERATING STRATEGY
The Company's strategy is to focus on exploration, exploitation, development
and acquisition of oil and gas producing properties located in selected areas
in North America where the Company has expertise and experience. The Company
will pursue this strategy through the following initiatives:
EXPAND EXPLORATION. The Company is expanding exploration as a source of
future growth, particularly opportunities that benefit from the selective use
of advanced technologies such as new 3-D seismic processing techniques and
production and completion methods. The Company is also seeking to apply
proven technologies to deeper water prospects in the Gulf of Mexico and to
prospects in the Northwest Territories in Canada. Since improving its
capitalization, the Company has accelerated the exploration and development
of its inventory of prospects and generally retained a larger working
interest in such prospects. In addition, the Company has continued to acquire
additional prospects identified by the Company's exploration teams. The
Company seeks to maintain a balanced exploration portfolio that includes
higher risk exploration prospects that have the potential for larger
reserves, as well as lower risk projects. The Company participates in
exploration activities through selective drilling for its own account, as
well as through farmout arrangements in certain circumstances. In 1997,
Forest dedicated $65,438,000 or 42% of its capital expenditures budget to
exploration activities. In 1997, a total of 12 exploratory wells were
drilled in the United States and Canada, resulting in eight producing wells
and four dry holes. Also in 1997, under farmout agreements, six exploratory
wells were drilled, resulting in three producing wells and three dry holes.
In 1998, Forest has dedicated approximately $57,700,000 or 43% of its capital
expenditures budget to exploration activities.
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INCREASE EXPLOITATION AND DEVELOPMENT OF EXISTING PROPERTIES. The Company
continually evaluates new imaging, drilling and completion technologies and
their potential application to the Company's existing properties in order to
identify additional exploitation and development opportunities. The Company
increased exploitation and development expenditures and activities on its
existing properties in 1997 as compared to prior years. The Company also
pursues workovers, recompletions, secondary recovery operations and other
production enhancement techniques on its properties to increase production.
CONTINUE TO PURSUE ACQUISITIONS. The Company continues to pursue
acquisitions of producing properties that meet selection criteria that
include (i) strategic location in a core area of operations or establishment
of a new core area through the acquisition of a significant property base,
(ii) potential for increasing reserves and production through lower risk
exploitation and development, (iii) exploration potential, (iv) attractive
potential return on investment, and (v) opportunities for improved operating
efficiencies. In Canada, Forest has an additional criterion that natural gas
properties include sufficient plant processing capacity and adequate access
to markets.
On February 3, 1998 the Company purchased 13 oil and gas properties located
onshore Louisiana (the Louisiana properties) for total consideration of
approximately $231,000,000 (the Louisiana Acquisition). The consideration
consisted of approximately $217,000,000 in cash, funded primarily from the
Company's bank credit facility and from the issuance by Canadian Forest Oil
Ltd. (Canadian Forest) of $75,000,000 principal amount of 8 3/4% Senior
Subordinated Notes due 2007 (the 8 3/4% Notes), and 1,000,000 shares of the
Company's common stock. Estimated proved reserves acquired in the Louisiana
Acquisition were approximately 186 BCFE at an average property acquisition
cost of $1.24 per MCFE.
The Company has an agreement in principle with Anschutz whereby the Company
will issue to Anschutz 5,950,000 shares of the Company's common stock in
exchange for certain oil and gas assets (the Anschutz Transaction). The
consummation of the Anschutz Transaction is subject to the completion of a
definitive agreement and the approval of the transaction by the Company's
shareholders, other than Anschutz, at the Company's annual shareholders'
meeting in May, 1998. The oil and gas assets include Anschutz's interest in
the Anschutz Ranch East Field, certain Canadian properties and other
international projects. There are approximately 80 BCFE of estimated proved
reserves associated with the Anschutz Transaction.
During 1997, the Company's acquisitions totaled 10.4 BCFE of estimated proved
reserves at an average property acquisition cost of $.81 per MCFE.
On January 31, 1996 Forest acquired ATCOR Resources Ltd. for approximately
$136,000,000, including acquisition costs of approximately $1,000,000. This
company, which has been renamed Canadian Forest Oil Ltd. (Canadian Forest),
is a Canadian corporation engaged in oil and gas exploration, production and
processing in western Canada. Estimated proved reserves acquired in the
Canadian Forest transaction were approximately 151 BCFE at an average
property acquisition cost of $.85 per MCFE ($.60 per MCFE net of related
deferred taxes). As part of the ATCOR acquisition, Forest separated ATCOR's
natural gas marketing operation from its exploration and production business
and renamed the marketing business Producers Marketing Ltd. (ProMark). In
addition to marketing Canadian Forest's own gas production, ProMark provides
a full range of gas marketing and management services to outside parties.
Other acquisitions by the Company during 1996 totaled 33 BCFE at an average
property acquisition cost of $.69 per MCFE.
During 1995, the Company's acquisitions totaled 44.0 BCFE at an average
property acquisition cost of $.61 per MCFE. These amounts represent
primarily the reserves of Saxon Petroleum Inc. (Saxon), a consolidated
subsidiary of the Company in which the Company purchased a majority interest
on December 20, 1995. Saxon is an Alberta, Canada corporation engaged in oil
and gas exploration and production primarily in western Canada.
The Company had estimated proved reserves of 711 BCFE at December 31, 1997 on
a pro forma basis giving effect to the Louisiana Acquisition, of which
approximately 69% were natural gas reserves. This represents an increase of
48% compared to estimated proved reserves of 481 BCFE at December 31, 1996 of
which approximately 70% was
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natural gas. The Anschutz Transaction, if consummated, will increase the
Company's estimated pro forma proved reserves to 791 BCFE, and will decrease
the percentage which are natural gas reserves to approximately 67%.
MAINTAIN FINANCIAL FLEXIBILITY. The Company is committed to maintaining
financial flexibility, which management believes is important for the
successful execution of its operating strategy. The Company substantially
reduced its debt as a percent of book capitalization from 98% as of December
31, 1994 to 48% as of December 31, 1997. From 1995 through December 1997,
the Company added a total of approximately $300,000,000 of common equity. As
a result of the Louisiana Acquisition, the Company's debt as a percentage of
book capitalization increased to approximately 62% on a pro forma basis as
of December 31, 1997. Successful completion of the proposed Anschutz
Transaction would decrease this percentage to approximately 53%. Management
seeks to continue to reduce the Company's level of debt as a percentage of
its capitalization.
SALES AND MARKETS
Forest's U.S. production is generally sold at the wellhead to oil and natural
gas purchasing companies in the areas where it is produced. Crude oil and
condensate are typically sold under short-term contracts at prices which are
based upon posted field prices. Natural gas in the U.S. is generally sold
month to month on the spot market. For the month of March 1998, nearly all
(99.7%) of the Company's U.S. natural gas was sold at the wellhead at spot
market prices. The term "spot market" as used herein refers to contracts with
a term of six months or less or contracts which call for a redetermination of
sales prices every six months or earlier. The Company believes that the loss
of one or more of its current natural gas spot purchasers should not have a
material adverse effect on the Company's business in the United States
because any individual spot purchaser could be readily replaced by another
spot purchaser who would pay approximately the same sales price.
In Canada, crude oil and condensate are typically sold under short-term
contracts at prices which are based upon posted field prices. Canadian
Forest's natural gas production is sold primarily through the ProMark Netback
Pool which is operated by the Company's subsidiary ProMark. The Netback Pool
matches major end users with providers of gas supply through arranged
transportation channels and uses a netback pricing mechanism to establish the
wellhead price paid to producers. Under this netback arrangement, producers
receive the blended market price less related transportation and other direct
costs. ProMark charges a marketing fee for marketing and administering the
gas supply pool. Canadian Forest sold approximately 85% of its natural gas
production through the ProMark Netback Pool in 1997.
The ProMark Netback Pool gas sales in 1997 averaged 128 MMCF per day, of
which Canadian Forest supplied approximately 35 MMCF per day or 27%.
Approximately 17% of the volumes sold in the ProMark Netback Pool in 1997
were sold at fixed prices under one year or longer contracts. The remainder
of the volumes sold in the ProMark Netback Pool are priced in a variety of
ways, including prices based on indices. The loss of one or more of such
long-term buyers could have a material adverse effect on ProMark and Canadian
Forest.
In addition to operating the ProMark Netback Pool, ProMark provides two other
marketing services for producers and purchasers of natural gas. ProMark
manages long-term gas supply contracts for its industrial customers by
providing full-service purchasing, accounting and gas nomination services for
these customers on a fee-for-services basis. ProMark also buys and sells gas
in its trading operation for terms as short as one day and as long as one to
two years. Profits generated by trading are derived from the spread between
the prices of gas purchased and sold. ProMark follows procedures to offset
its gas purchase or sales commitments with other gas purchase or sales
contracts, thereby limiting its exposure to price risk. The Company is,
however, exposed to credit risk in that there exists the possibility that the
counterparties to agreements will fail to perform their contractual
obligations. The credit of counterparties is evaluated and letters of credit
or parent guarantees are obtained to minimize credit risks.
For information concerning sales to major customers, see Note 13 of Notes to
Consolidated Financial Statements.
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OTHER FOREIGN OPERATIONS
Forest considers, from time to time, certain oil and gas opportunities in
other foreign countries. Foreign oil and natural gas operations are subject
to certain risks, such as nationalization, confiscation, terrorism,
renegotiation of existing contracts and currency fluctuations. Forest
monitors the political, regulatory and economic developments in any foreign
countries in which it operates.
The proposed Anschutz Transaction contemplates the acquisition by Forest of
oil and gas interests in various foreign countries. The international
interests include thirteen international concessions, rights or agreements
held by or under negotiation with Anschutz. The interests that the Company
would acquire are located in Albania, Austria, Germany, Italy, Romania,
Sicily, South Africa, Spain, Switzerland, Thailand and Tunisia. Forest
intends to further develop prospects and may elect to promote them out,
thereby reducing its working interest while maintaining exposure to the most
attractive opportunities. The international interests comprise approximately
1% of the Company's total assets on a pro forma basis at December 31, 1997.
COMPETITION
The oil and natural gas industry is intensely competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Forest's competitive position depends
on its geological, geophysical and engineering expertise, on its financial
resources, its ability to develop its properties and its ability to select,
acquire and develop proved reserves. Forest competes with a substantial
number of other companies having larger technical staffs and greater
financial and operational resources. Many such companies not only engage in
the acquisition, exploration, development and production of oil and natural
gas reserves, but also carry on refining operations, generate electricity and
market refined products. The Company also competes with major and
independent oil and gas companies in the marketing and sale of oil and gas to
transporters, distributors and end users. There is also competition between
the oil and natural gas industry and other industries supplying energy and
fuel to industrial, commercial and individual consumers. Forest also
competes with other oil and natural gas companies in attempting to secure
drilling rigs and other equipment necessary for drilling and completion of
wells. Such equipment may be in short supply from time to time. Finally,
companies not previously investing in oil and natural gas may choose to
acquire reserves to establish a firm supply or simply as an investment. Such
companies will also provide competition for Forest.
Forest's business is affected not only by such competition, but also by
general economic developments, governmental regulations and other factors
that affect its ability to market its oil and natural gas production. The
prices of oil and natural gas realized by Forest are highly volatile. The
price of oil is generally dependent on world supply and demand, while the
price Forest receives for its natural gas is tied to the specific markets in
which such gas is sold. Declines in crude oil prices or natural gas prices
adversely impact Forest's activities. The Company's financial position and
resources may also adversely affect the Company's competitive position. Lack
of available funds or financing alternatives will prevent the Company from
executing its operating strategy and from deriving the expected benefits
therefrom. For further information concerning the Company's financial
position, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ProMark also faces significant competition from other gas marketers, some of
whom are significantly larger in size and have greater financial resources
than ProMark, Canadian Forest or the Company.
REGULATION
UNITED STATES. Various aspects of the Company's oil and natural gas
operations are regulated by administrative agencies under statutory
provisions of the states where such operations are conducted and by certain
agencies of the Federal government for operations on Federal leases. All of
the jurisdictions in which the Company owns producing crude oil and natural
gas properties have statutory provisions regulating the exploration for and
production of crude oil and natural gas, including provisions requiring
permits for the drilling of wells and maintaining bonding requirements in
order to drill or operate wells and provisions relating to the location of
wells, the method of drilling and casing wells, the surface use and
restoration of properties upon which wells are drilled
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and the plugging and abandoning of wells. The Company's operations are also
subject to various conservation laws and regulations. These include the
regulation of the size of drilling and spacing units or proration units and
the density of wells which may be drilled and the unitization or pooling of
crude oil and natural gas properties. In this regard, some states allow the
forced pooling or integration of tracts to facilitate exploration while other
states rely on voluntary pooling of lands and leases. In addition, state
conservation laws establish maximum rates of production from crude oil and
natural gas wells, generally prohibit the venting or flaring of natural gas
and impose certain requirements regarding the ratability of production. Some
states, such as Texas and Oklahoma, have, in recent years, reviewed and
substantially revised methods previously used to make monthly determinations
of allowable rates of production from fields and individual wells. The
effect of these regulations is to limit the amounts of crude oil and natural
gas the Company can produce from its wells, and to limit the number of wells
or the location at which the Company can drill.
The Federal Energy Regulatory Commission (FERC) regulates the transportation
and sale for resale of natural gas in interstate commerce pursuant to the
Natural Gas Act of 1938 (NGA) and the Natural Gas Policy Act of 1978 (NGPA).
In the past, the Federal government has regulated the prices at which oil and
gas could be sold. While sales by producers of natural gas, and all sales of
crude oil, condensate and natural gas liquids can currently be made at
uncontrolled market prices, Congress could reenact price controls in the
future. Deregulation of wellhead sales in the natural gas industry began
with the enactment of the NGPA in 1978. In 1989, Congress enacted the
Natural Gas Wellhead Decontrol Act (the Decontrol Act). The Decontrol Act
removed all NGA and NGPA price and nonprice controls affecting wellhead sales
of natural gas effective January 1, 1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B and
636-C (Order No. 636), which require interstate pipelines to provide
transportation separate, or "unbundled", from the pipelines' sales of gas.
Also, Order No. 636 requires pipelines to provide open-access transportation
on a basis that is equal for all gas supplies. Although Order No. 636 does
not directly regulate the Company's activities, the FERC has stated that it
intends for Order No. 636 to foster increased competition within all phases
of the natural gas industry. It is unclear what impact, if any, increased
competition within the natural gas industry under Order No. 636 will have on
the Company's activities. Although Order No. 636 could provide the Company
with additional market access and more fairly applied transportation service
rates, Order No. 636 could also subject the Company to more restrictive
pipeline imbalance tolerances and greater penalties for violation of those
tolerances. Order 636 and subsequent FERC orders issued in individual
pipeline restructuring proceedings have been the subject of appeals, the
results of which have generally supported the FERC's open-access policy. In
1996, the United States Court of Appeals for the District of Columbia Circuit
largely upheld Order No. 636. Because further review of certain of these
orders is still possible, other appeals remain pending and the FERC continues
to review and modify its open access regulations, it is difficult to predict
the ultimate impact of the orders on the Company and its production efforts.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in
which interstate pipelines release capacity under Order No. 636 and, more
recently, the price which shippers can charge for their released capacity.
In addition, in 1995, FERC issued a policy statement on how interstate
natural gas pipelines can recover the costs of new pipeline facilities. In
January 1996, the FERC issued a policy statement and a request for comments
concerning alternatives to its traditional cost-of-service ratemaking
methodology. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. In February 1997, the FERC
announced a broad inquiry into issues facing the natural gas industry to
assist the FERC in establishing regulatory goals and priorities in the
post-Order No. 636 environment. In November 1997, the FERC issued a proposed
rulemaking to further standardize pipeline transportation tariffs that, if
implemented as proposed, could adversely affect the reliability of scheduled
interruptible transportation service. In December 1997, the FERC requested
comments on the financial outlook of the natural gas pipeline industry,
including among other matters, whether the FERC's current rate making
policies are suitable in the current industry environment. While any
additional FERC action on these matters would affect the Company only
indirectly, these policy statements and proposed rule changes are intended to
further enhance competition in natural gas markets. The Company cannot
predict what action the FERC will take on these matters, nor can it predict
whether the FERC's actions will achieve its stated goal of increasing
competition in natural gas
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markets. However, the Company does not believe that it will be treated
materially differently than other natural gas producers and markets with
which it competes.
Commencing in October 1993, the FERC issued a series of rules (Order Nos. 561
and 561-A) establishing an indexing system under which oil pipelines are able
to change their transportation rates, subject to prescribed ceiling levels.
The indexing system, which allows or may require pipelines to make rate
changes to track changes in the Producer Price Index for Finished Goods,
minus one percent, became effective January 1, 1995. In certain
circumstances, these rules permit oil pipelines to establish rates using
traditional cost of service or other methods of rate making. The Company is
not able at this time to predict the effects of Order Nos. 561 and 561-A, if
any, on the transportation costs associated with oil production from the
Company's oil producing operations.
The Outer Continental Shelf Lands Act (OCSLA) requires that all pipelines
operating on or across the Outer Continental Shelf (the OCS) provide
open-access, non-discriminatory service. Although the FERC has opted not to
impose the regulations of Order No. 509, in which the FERC implemented the
OCSLA, on gatherers and other non-jurisdictional entities, the FERC has
retained the authority to exercise jurisdiction over those entities if
necessary to permit non-discriminatory access to service or the OCS.
Certain operations the Company conducts are on federal oil and gas leases,
which the Minerals Management Service (MMS) administers. The MMS issues such
leases through competitive bidding. These leases contain relatively
standardized terms and require compliance with detailed MMS regulations and
orders pursuant to the OCSLA (which are subject to change by the MMS). For
offshore operations, lessees must obtain MMS approval for exploration plans
and development and production plans prior to the commencement of such
operations. In addition to permits required from other agencies (such as the
Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency), lessees must obtain a permit from the MMS prior to the commencement
of drilling. The MMS has promulgated regulations requiring offshore
production facilities located on the OCS to meet stringent engineering and
construction specifications. The MMS proposed additional safety-related
regulations concerning the design and operating procedures for OCS production
platforms and pipelines. These proposed regulations were withdrawn pending
further discussions among interested federal agencies. The MMS also has
regulations restricting the flaring or venting of natural gas and has
recently proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the MMS has
promulgated other regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities. To cover the
various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that the Company can continue to obtain
bonds or other surety in all cases. Under certain circumstances, the MMS may
require any Company operations on federal leases to be suspended or
terminated. Any such suspension or termination could materially and adversely
affect the Company's financial condition and operations.
In addition, the MMS is conducting an inquiry into certain contract
agreements from which producers on MMS leases have received settlement
proceeds that are royalty bearing and the extent to which producers have paid
the appropriate royalties on those proceeds. The Company believes that this
inquiry will not have a material impact on its financial condition, liquidity
or results of operations.
In April 1997, after two years of study, the MMS withdrew proposed changes to
the way it values natural gas for royalty payments. These proposed changes
would have established an alternative market-based method to calculate
royalties on certain natural gas sold to affiliates or pursuant to non-arm's
length sales contracts.
The MMS has also issued a notice of proposed rulemaking in which it proposes
to amend its regulations governing the calculation of royalties and the
valuation of crude oil produced from federal leases. This proposed rule
would modify the valuation procedures for both arm's length and non-arm's
length crude oil transactions to decrease reliance on oil posted prices and
assign a value to crude oil that better reflects market value, establish a
new MMS form for collecting value differential data, and amend the valuation
procedure for the sale of federal royalty oil. The
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Company cannot predict what action the MMS will take on this matter, nor can
it predict at this stage of the rulemaking proceeding how the Company might
be affected by this amendment to the MMS' regulations.
Recently, the MMS has issued a final rule to clarify the types of costs that
are deductible transportation costs for purposes of royalty valuation of
production sold off the lease. In particular, under the rule, the MMS will
not allow deduction of costs associated with marketer fees, cash out and
other pipeline imbalance penalties, or long-term storage fees. The Company
cannot predict what, if any, effect the new rule will have on its operations.
Additional proposals and proceedings that might affect the oil and gas
industry are regularly considered by Congress, states, the FERC and the
courts. The Company cannot predict when or whether any such proposals may
become effective. In the past, the natural gas industry has been heavily
regulated. There is no assurance that the regulatory approach currently
pursued by the FERC will continue indefinitely. Notwithstanding the
foregoing, the Company does not anticipate that compliance with existing
federal, state and local laws, rules and regulations will have a material or
significantly adverse effect upon the capital expenditures, earnings or
competitive position of the Company or its subsidiaries. No material portion
of Forest's business is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the Federal government.
OIL SPILL FINANCIAL RESPONSIBILITY REQUIREMENTS - UNITED STATES. As
originally enacted, the Oil Pollution Act of 1990 (OPA) would have required
the Company to establish $150 million in financial responsibility to cover
oil spill related liabilities. Under recent amendments to the OPA, the
responsible person for an offshore facility located seaward of state waters,
including OCS facilities, will be required to provide evidence of financial
responsibility in the amount of $35 million. Although the financial
responsibility requirement for offshore facilities located landward of the
seaward boundary of state waters (including certain facilities in coastal
inland waters) is a lesser amount ($10 million), the Company currently has a
number of offshore facilities located beyond state waters and, thus, is
subject to the $35 million financial responsibility requirement. The amount
of financial responsibility may be increased, to a maximum of $150 million,
if the MMS determines that a greater amount is justified based on specific
risks posed by the operations. The Company expects that financial
responsibility could be established through insurance, guaranty, indemnity,
surety bond, letter of credit, qualification as a self insurer or a
combination thereof. The Company cannot predict the final form of any
financial responsibility rule that may be adopted by the MMS under OPA, but
in any event, the impact of the rule is not expected to be any more
burdensome to the Company than it will be to other similarly situated
companies involved in oil and gas exploration and production. The Company
currently satisfies similar requirements for its OCS leases under OCSLA.
CANADA. The oil and natural gas industry in Canada is subject to extensive
controls and regulations imposed by various levels of government. It is not
expected that any of these controls or regulations will affect the operations
of the Company in a manner materially different than they would affect other
oil and gas companies of similar size.
In Canada, producers of oil negotiate sales contracts directly with oil
purchasers, with the result that the market determines the price of oil. The
price depends in part on oil quality, prices of competing fuels, distance to
market and the value of refined products. Oil exports may be made pursuant
to export contracts with terms not exceeding one year in the case of light
crude, and not exceeding two years in the case of heavy crude, provided that
an order approving any such export has been obtained from the National Energy
Board (NEB). Any oil export to be made pursuant to a contract of longer
duration (up to a maximum of 25 years) requires an exporter to obtain an
export license from the NEB and the issue of such a license requires the
approval of the Canadian federal government.
In Canada, the price of natural gas sold in interprovincial and international
trade is determined by negotiation between buyers and sellers. Natural gas
exported from Canada is subject to regulation by the NEB and the Government
of Canada. Producers and exporters are free to negotiate prices and other
terms with purchasers, provided that the export contracts must continue to
meet certain criteria prescribed by the NEB and the Government of Canada. As
is the case with oil, natural gas exports for a term of less than two years
must be made pursuant to an NEB order, or, in the case of exports for a
longer duration, pursuant to an export license from the NEB with Canadian
federal government approval.
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The provincial governments of Alberta, British Columbia and Saskatchewan also
regulate the volume of natural gas which may be removed from those provinces
for consumption elsewhere based on such factors as reserve availability,
transportation arrangements and market considerations.
On January 1, 1994 the North American Free Trade Agreement (NAFTA) among the
governments of Canada, the United States and Mexico became effective. NAFTA
carries forward most of the material energy terms contained in the
Canada-U.S. Free Trade Agreement. In the context of energy resources, Canada
continues to remain free to determine whether exports to the United States or
Mexico will be allowed provided that any export restrictions do not: (i)
reduce the proportion of energy resource exported relative to domestic use
(based upon the proportion prevailing in the most recent 36-month period),
(ii) impose an export price higher than the domestic price, and (iii) disrupt
normal channels of supply. All three countries are prohibited from imposing
minimum export or import price requirements. NAFTA contemplates clearer
disciplines on regulators to ensure fair implementation of any regulatory
changes and to minimize disruption of contractual arrangements, which is
important for Canadian natural gas exports.
In addition to federal regulation, each province has legislation and
regulations which govern land tenure, royalties, production rates,
environmental protection and other matters. The royalty regime is a
significant factor in the profitability of oil and natural gas production.
Royalties payable on production from lands other than Crown lands are
determined by negotiations between the mineral owner and the lessee. Crown
royalties are determined by government regulation and are generally
calculated as a percentage of the value of the gross production, and the rate
of royalties payable generally depends in part on prescribed reference
prices, well productivity, geographical location, field discovery date and
the type or quality of the petroleum product produced.
From time to time the governments of Canada, Alberta, British Columbia and
Saskatchewan have established incentive programs which have included royalty
rate deductions, royalty holidays and tax credits for the purpose of
encouraging oil and natural gas exploration or enhanced recovery projects.
In Alberta, a producer of oil or natural gas is entitled to a credit against
the royalties payable to the Crown by virtue of the ARTC (Alberta royalty tax
credit) program. The ARTC program is based on a price sensitive formula, and
the ARTC rate varies between 75%, at prices for oil below $100 CDN per cubic
meter, and 25%, at prices above $210 CDN per cubic meter. The ARTC rate is
applied to a maximum of $2,000,000 CDN of Alberta Crown royalties payable for
each producer or associated group of producers. Crown royalties on
production from producing properties acquired from corporations claiming
maximum entitlement to ARTC will generally not be eligible for ARTC. The
rate is established quarterly based on the average "par price", as determined
by the Alberta Department of Energy for the previous quarterly period.
Canadian Forest is eligible for ARTC credits only on eligible properties
acquired and wells drilled after the change of control. On December 22, 1997
the Government of Alberta gave notice that they intended to review the ARTC
program. Any changes to the program will not take effect prior to 2001.
Oil and natural gas royalty holidays and reductions for specific wells reduce
the amount of Crown royalties paid by the Company to the provincial
governments. The ARTC program provides a rebate on Crown royalties paid in
respect of eligible producing properties in Alberta.
ENVIRONMENTAL MATTERS. Extensive federal, state, provincial and local laws
govern oil and natural gas operations regulating the discharge of materials
into the environment or otherwise relating to the protection of the
environment. Numerous governmental departments issue rules and regulations to
implement and enforce such laws which are often difficult and costly to
comply with and which carry substantial penalties for failure to comply.
Some laws, rules and regulations relating to protection of the environment
may, in certain circumstances, impose "strict liability" for environmental
contamination, rendering a person liable for environmental damages and
cleanup costs without regard to negligence or fault on the part of such
person. Other laws, rules and regulations may restrict the rate of oil and
natural gas production below the rate that would otherwise exist or even
prohibit exploration or production activities in sensitive areas. In
addition, state laws often require some form of remedial action to prevent
pollution from former operations, such as closure of inactive pits and
plugging of abandoned wells. The regulatory burden on the
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oil and natural gas industry increases its cost of doing business and
consequently affects its profitability. These laws, rules and regulations
affect the operations of the Company. Compliance with environmental
requirements generally could have a material adverse effect upon the capital
expenditures, earnings or competitive position of Forest and its
subsidiaries. The Company believes that it is in substantial compliance with
current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse impact
on the Company. Nevertheless, changes in environmental law have the potential
to adversely affect the Company's operations. For instance, a few courts
have ruled that certain wastes associated with the production of crude oil
may be classified as hazardous substances under the Comprehensive
Environmental Response, Compensation, and Liability Act (commonly called
Superfund) and thus the Company could become subject to the burdensome
cleanup and liability standards established under the federal Superfund
program if significant concentrations of such wastes were determined to be
present at the Company's properties or to have been produced as a result of
the Company's operations. Alternately, pending amendments to Superfund
presently under consideration by the U.S. Congress could relax many of the
burdensome cleanup and liability standards established under the Statute.
The U.S. Oil Pollution Act (OPA) and regulations thereunder impose a variety
of requirements on "responsible parties" related to the prevention of oil
spills and liability for damages resulting from such spills in U.S. waters.
A "responsible party" includes the owner or operator of a facility or vessel,
or the lessee or permittee of the area in which an offshore facility is
located. OPA assigns liability to each responsible party for oil cleanup
costs and a variety of public and private damages. OPA also requires
operators of offshore facilities to demonstrate to the Minerals Management
Service (MMS) that they possess at least $35 million in financial resources
that are available to pay for costs that may be incurred in responding to an
oil spill. While liability limits apply in some circumstances, a party
cannot take advantage of liability limits if the spill was caused by gross
negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails to report a
spill or to cooperate fully in the cleanup, liability limits likewise do not
apply. Even if applicable, the liability limits for offshore facilities
require the responsible party to pay all removal costs, plus up to $75
million in other damages. Few defenses exist to the liability imposed by OPA.
The U.S. Water Pollution Control Act (commonly called the Clean Water Act)
imposes restrictions and strict controls regarding the discharge of produced
waters and other oil and gas wastes in navigable waters. Many state
discharge regulations and the federal National Pollutant Discharge
Elimination System generally prohibit the discharge of produced water and
sand, drilling fluids, drill cuttings and certain other substances related to
the oil and gas industry into coastal waters. Although the costs to comply
with these recently enacted zero discharge mandates under federal or state
law may be significant, the entire industry is expected to experience similar
costs and the Company believes that these costs will not have a material
adverse impact on the Company's financial condition and operations.
In Canada, the oil and natural gas industry is currently subject to
environmental regulation pursuant to provincial and federal legislation.
Environmental legislation provides for restrictions and prohibitions on
releases or emissions of various substances produced or utilized in
association with certain oil and gas industry operations. In addition,
legislation requires that well and facility sites be abandoned and reclaimed
to the satisfaction of provincial authorities. A breach of such legislation
may result in the imposition of fines and penalties.
In Alberta, environmental compliance has been governed by THE ALBERTA
ENVIRONMENTAL PROTECTION AND ENHANCEMENT ACT ("AEPEA") since September 1,
1993. In addition to replacing a variety of older statutes which related to
environmental matters, AEPEA also imposes certain new environmental
responsibilities on oil and natural gas operators in Alberta and in certain
instances also imposes greater penalties for violations.
British Columbia's ENVIRONMENTAL ASSESSMENT ACT became effective June 30,
1995. This legislation rolls the previous processes for the review of major
energy projects into a single environmental assessment process which
contemplates public participation in the environmental review.
Although the Company maintains insurance against some, but not all, of the
risks described above, including insuring the costs of clean-up operations,
public liability and physical damage, there is no assurance that such
insurance will
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be adequate to cover all such costs or that such insurance will continue to
be available in the future or that such insurance will be available at
premium levels that justify its purchase. The occurrence of a significant
event not fully insured or indemnified against could have a material adverse
effect on the Company's financial condition and operations.
The Company has established guidelines to be followed to comply with
environmental laws, rules and regulations. The Company has designated a
compliance officer whose responsibility is to monitor regulatory requirements
and their impacts on the Company and to implement appropriate compliance
procedures. The Company also employs an environmental manager whose
responsibilities include causing Forest's operations to be carried out in
accordance with applicable environmental guidelines and implementing adequate
safety precautions. Although the Company maintains pollution insurance
against the costs of clean-up operations, public liability and physical
damage, there is no assurance that such insurance will be adequate to cover
all such costs or that such insurance will continue to be available in the
future.
FORWARD-LOOKING STATEMENTS
Certain of the statements set forth under "Item 1. - Business" and "Item 2.
- -Properties" and "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-K, include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). All statements, other than statements of
historical facts included in this Form 10-K, regarding planned capital
expenditures, the availability of capital resources to fund capital
expenditures, estimates of proved reserves, the number of anticipated wells
to be drilled, the Company's financial position, business strategy and other
plans and objectives for future operations, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. There are numerous
uncertainties inherent in estimating quantities of proved oil and natural gas
reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in
an exact way, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation
and judgment. As a result, estimates made by different engineers often vary
from one another. In addition, results of drilling, testing and production
subsequent to the date of an estimate may justify revisions of such estimate
and such revisions, if significant, would change the schedule of any further
production and development drilling. Accordingly, reserve estimates are
generally different from the quantities of oil and natural gas that are
ultimately recovered. Additional important factors that could cause actual
results to differ materially from the Company's expectations are disclosed
under "Risk Factors" and elsewhere in this Form 10-K. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by such
factors.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS FORM 10-K,
THE FOLLOWING FACTORS RELATING TO THE COMPANY SHOULD BE CAREFULLY CONSIDERED
WHEN EVALUATING THE COMPANY.
VOLATILITY OF OIL AND NATURAL GAS PRICES. The Company's revenues,
profitability and future rate of growth are substantially dependent upon the
prevailing prices of, and demand for, oil and natural gas. Prices for oil
and natural gas are subject to wide fluctuation in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of additional factors that are beyond the control
of the Company. These factors include the level of consumer product demand,
weather conditions, domestic and foreign governmental regulations, the price
and availability of alternative fuels, political conditions in the Middle
East, the foreign supply of oil and natural gas, the price of oil and gas
imports and overall economic conditions. From time to time, oil and gas
prices have been depressed by excess domestic and imported supplies. There
can be no assurance that current price levels will be sustained. It is
impossible to predict future oil and natural gas price movements with any
certainty. Declines in oil and natural gas prices will adversely affect the
Company's financial condition, liquidity
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and results of operations and may reduce the amount of the Company's oil and
natural gas that can be produced economically.
The Company is impacted more by natural gas prices than by oil prices,
because the majority of its production and reserves are natural gas. At
December 31, 1997, 72% of the Company's estimated proved reserves consisted
of natural gas on an MCFE basis and, during 1997, 72% of the Company's total
production consisted of natural gas. The average spot price received by the
Company for natural gas produced in the Gulf Coast decreased from $3.89 per
MCF at December 31, 1996 to approximately $2.61 per MCF at December 31, 1997
and is expected to average approximately $2.26 per MCF for the month of March
1998. During the same periods, the West Texas Intermediate price for crude
oil decreased from $23.75 per barrel to $14.75 per barrel and was $12.25 per
barrel at March 1, 1998.
In order to attempt to minimize the product price volatility to which the
Company is subject, the Company, from time to time, enters into energy swap
agreements and other financial arrangements with third parties to attempt to
reduce the Company's short-term exposure to fluctuations in future oil and
natural gas prices. There can be no assurance, however, that such hedging
transactions will reduce risk or mitigate the effect of any substantial or
extended decline in oil or natural gas prices. Any substantial or extended
decline in the prices of oil or natural gas would have a material adverse
effect on the Company's financial condition, liquidity and results of
operation. For further information concerning market conditions, long-term
contracts, production payments and energy swap agreements, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Notes 5, 6, 11 and 12 of Notes to Consolidated Financial
Statements.
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES. This Form 10-K contains
estimates of the Company's proved oil and gas reserves and the estimated
future net revenues therefrom that rely upon various assumptions, including
assumptions required by the Securities and Exchange Commission (the
Commission) as to oil and gas prices, drilling and operating expenses,
capital expenditures, taxes and availability of funds. The process of
estimating oil and gas reserves is complex, requiring significant decisions
and assumptions in the evaluation of available geological, geophysical,
engineering and economic data for each reservoir. As a result, such
estimates are inherently imprecise. Actual future production, oil and gas
prices, revenues, taxes, development expenditures, operating expenses and
quantities of recoverable oil and gas reserves may vary substantially from
those estimated. Any significant variance in these assumptions could
materially affect the estimated quantities and present value of reserves set
forth in this Form 10-K. In addition, the Company's proved reserves may be
subject to downward or upward revision based upon production history, results
of future exploration and development, prevailing oil and gas prices and
other factors, many of which are beyond the Company's control. Actual
production, revenues, taxes, development expenditures and operating expenses
with respect to the Company's reserves will likely vary from the estimates
used, and such variances may be material.
Approximately 22% of the Company's total estimated proved reserves at
December 31, 1997 were undeveloped, and thus are by their nature less
certain. Recovery of such reserves will require significant capital
expenditures and successful drilling operations. The reserve data assumes
that substantial capital expenditures by the Company will be required to
develop such reserves. Although costs and reserves estimates attributable to
the Company's oil and gas reserves have been prepared in accordance with
industry standards, no assurance can be given that the estimated costs are
accurate, that development will occur as scheduled or that the results will
be as estimated. See Note 17 of Notes to Consolidated Financial Statements.
The present value of future net revenues referred to in this Form 10-K should
not be construed as the current market value of the estimated oil and gas
reserves attributable to the Company's properties. In accordance with
applicable requirements of the Commission, the estimated discounted future
net cash flows from proved reserves are generally based on prices and costs
as of the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. The recent significant declines in oil and gas
prices would have the effect of reducing the Company's present value of
future net revenues. See "Volatility of Oil and Natural Gas Prices." Actual
future net cash flows will also be affected by increases or decreases in
consumption by gas purchasers and changes in governmental regulations or
taxation. The timing of actual future net cash flows from proved reserves,
and thus their actual present value, will be affected by the timing of both
the production and the incurrence of expenses in
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connection with development and production of oil and gas properties. In
addition, the 10% discount factor, which is required by the Commission to be
used in calculating discounted future net cash flows for reporting purposes,
is not necessarily the most appropriate discount factor based on interest
rates in effect from time to time and risks associated with the Company or
the oil and gas industry in general.
EFFECTS OF LEVERAGE. As of December 31, 1997, the Company's long-term debt
was $254,760,000 including $85,550,000 outstanding under its bank credit
facility (the Global Credit Facility). In connection with the consummation
of the Louisiana Acquisition, the Company increased its aggregate borrowing
capacity under the Global Credit Facility from $130,000,000 to $260,000,000.
As of February 28, 1998, the Company had outstanding aggregate borrowings of
$224,900,000 under the Global Credit Facility. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 5 of Notes to Consolidated Financial Statements.
The Company's level of indebtedness will have several important effects on
its operations, including (i) a substantial portion of the Company's cash
flow from operations will be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) the covenants
contained in the Global Credit Facility and 8 3/4% Notes Indenture limit its
ability to borrow additional funds or to dispose of such assets and may
affect the Company's flexibility in planning for, and reacting to, changes in
business conditions, (iii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired,
and (iv) the terms of certain of the Company's indebtedness permit its
creditors to accelerate payments upon certain events of default or a change
of control of the Company. Moreover, future acquisition or development
activities may require the Company to alter its capitalization significantly.
These changes in capitalization may significantly alter the leverage of the
Company. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic conditions and to
financial, business and other factors affecting the operations of the
Company, many of which are beyond its control. There can be no assurance
that the Company's future performance will not be adversely affected by such
economic conditions and financial, business and other factors or that the
Company will be able to meet its debt service obligations. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
Furthermore, to the extent that the Company is unable to repay its
indebtedness at maturity out of cash on hand, it could attempt to refinance
such indebtedness, or repay such indebtedness with the proceeds of an equity
offering, at or prior to their maturity. There can be no assurance that the
Company will be able to generate sufficient cash flow to service its interest
payment obligations under its indebtedness or that future borrowings or
equity financing will be available for the payment or refinancing of the
Company's indebtedness. To the extent that the Company is not successful in
negotiating renewals of its borrowings or in arranging new financing, it may
have to sell significant assets which would have a material adverse effect on
the Company's business and results of operations. Among the factors that
will affect the Company's ability to effect an offering of its capital stock
or refinance its indebtedness are financial market conditions and the value
and performance of the Company at the time of such offering or refinancing.
There can be no assurance that any such offering or refinancing can be
successfully completed. Any failure by the Company to satisfy its obligations
with respect to any of its indebtedness at maturity or prior thereto would
constitute a default under agreements governing other indebtedness, if any,
of the Company. Such defaults could result in a default on the 8 3/4% Notes
and could delay or preclude payment of interest or principal thereon. See
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources.
CEILING LIMITATION WRITEDOWNS. The Company reports its operations using the
full cost method of accounting for oil and gas properties. The Company
capitalizes the cost to acquire, explore for and develop oil and gas
properties. Under full cost accounting rules, the net capitalized costs of
oil and gas properties may not exceed a "ceiling limit" which is based upon
the present value of estimated future net cash flows from proved reserves,
discounted at 10%, plus the lower of cost or fair market value of unproved
properties. If net capitalized costs of oil and gas properties exceed the
ceiling limit, the Company is subject to a ceiling limitation writedown to
the extent of such excess. A ceiling limitation writedown is a charge to
earnings which does not impact cash flow from operating activities. However,
such writedowns impact the amount of the Company's shareholders' equity. The
risk that the Company
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will be required to write down the carrying value of its oil and gas
properties increases when oil and gas prices are depressed or volatile. In
addition, writedowns may occur if the Company has substantial downward
revisions in its estimated proved reserves or if purchasers abrogate
long-term contracts for its natural gas production. The recent significant
declines in oil and gas prices increase the risk that the Company may be
required to record a ceiling limitation writedown. See "Volatility of Oil and
Natural Gas Prices." No assurance can be given that the Company will not
experience ceiling limitation writedowns in the future. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
AVAILABILITY OF FINANCING. The Company has historically addressed its
long-term liquidity needs through the issuance of debt and equity securities
when market conditions permit, and through the use of credit facilities and
cash provided by operating activities. The Company continues to examine
alternative sources of long-term capital, including bank borrowings or the
issuance of debt instruments, the sale of common stock, preferred stock or
other equity securities of the Company, the issuance of nonrecourse
production-based financing or net profits interests, sales of non-strategic
properties, prospects and technical information, or joint venture financing.
Availability of these sources of capital and, therefore, the Company's
ability to execute its operating strategy will depend upon a number of
factors, including general economic and financial market conditions, oil and
natural gas prices and the value and performance of the Company, some of
which are beyond the control of the Company.
REPLACEMENT OF RESERVES. In general, the volume of production from oil and
gas properties declines as reserves are depleted. The decline rates depend
on reservoir characteristics and vary from the steep declines characteristic
of Gulf of Mexico reservoirs, where the Company has a significant portion of
its production, to the relatively slow declines characteristic of long-lived
fields in other regions. Except to the extent the Company acquires
properties containing proved reserves or conducts successful development and
exploration activities, or both, the proved reserves of the Company will
decline as reserves are produced. The Company's future natural gas and oil
production is, therefore, highly dependent upon its level of success in
finding or acquiring additional reserves. The business of exploring for,
developing or acquiring reserves is capital intensive. To the extent cash
flow from operations is reduced and external sources of capital become
limited or unavailable, the Company's ability to make the necessary capital
investment to maintain or expand its asset base of oil and gas reserves would
be impaired. In addition, there can be no assurance that the Company's
future development, acquisition and exploration activities will result in
additional proved reserves or that the Company will be able to drill
productive wells at acceptable costs.
INDUSTRY RISKS. Oil and gas drilling and production activities are subject
to numerous risks, many of which are beyond the Company's control. These
risks include the risk that no commercially productive oil or natural gas
reservoirs will be encountered, that operations may be curtailed, delayed or
canceled and that title problems, weather conditions, compliance with
governmental requirements, mechanical difficulties or shortages or delays in
the delivery of drilling rigs, work boats and other equipment may limit the
Company's ability to develop, produce and market its reserves. The Company
has encountered particular difficulties in securing drilling equipment in
certain of its core areas in the past 12 months. There can be no assurance
that new wells drilled by the Company will be productive or that the Company
will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells but
also from wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs. In
addition, the Company's properties may be susceptible to hydrocarbon drainage
from production by other operators on adjacent properties.
Industry operating risks include the risk of fire, explosions, blow-outs,
pipe failure, abnormally pressured formations and environmental hazards such
as oil spills, gas leaks, ruptures or discharges of toxic gases, the
occurrence of any of which could result in substantial losses to the Company
due to injury or loss of life, severe damage to or destruction of property,
natural resources and equipment, pollution or other environmental damage,
clean-up responsibilities, regulatory investigation and penalties and
suspension of operations. Additionally, a substantial portion of the
Company's oil and gas operations are located in the Gulf of Mexico, an area
that is subject to tropical weather disturbances, some of which can be severe
enough to cause substantial damage to facilities and possibly interrupt
production. In accordance with customary industry practice, the Company
maintains insurance against some, but not all, of the risks described above.
There can be no assurance that any insurance will be adequate to
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cover losses or liabilities. The Company cannot predict the continued
availability of insurance at premium levels that justify its purchase.
CONCENTRATION OF ASSETS. At March 1, 1998, the Company had four offshore
Gulf of Mexico wells, the combined production from which represented
approximately 17% of the Company's daily deliverability. The Company's
production, revenue and cash flow could be adversely affected if production
from these properties decreases to a significant degree.
GAS MARKETING - TRADING AND CREDIT RISK. The Company's operations include
gas marketing through its subsidiary, ProMark. ProMark's gas marketing
operations consist of the marketing of Canadian Forest's gas production, the
purchase and direct sale of third parties' natural gas, the handling of
transportation and operations of third party gas and spot purchasing and
selling of natural gas. The profitability of such natural gas marketing
operations depends in large part on the ability of the Company to assess and
respond to changing market conditions, including credit risk. Profitability
of such natural gas marketing operations also depends in large part on the
ability of the Company to maximize the volume of third party natural gas
which the Company purchases and resells and on the ability of the Company to
obtain a satisfactory margin between the purchase price and the sales price
for such volumes. The inability of the Company to respond appropriately to
changing conditions in the gas marketing business could materially adversely
affect the Company's results of operations. In addition, a significant
portion of the volumes sold by ProMark are sold at fixed prices under
long-term contracts. The loss of one or more such long term buyers could
have a material adverse effect on the Company. ProMark buys and sells gas in
its trading operations for terms as short as one day and as long as one to
two years. Profits generated by trading are derived from the spread between
the prices of gas purchased and sold. ProMark endeavors to offset its gas
purchase or sales commitments with other gas purchase or sales contracts,
thereby limiting its exposure to price risk. The Company is, however,
exposed to credit risk in that there exists the possibility that the
counterparties to agreements will fail to perform their contractual
obligations.
INTERNATIONAL OPERATIONS. A substantial portion of the Company's operations
is located in Canada. The expenses of such operations are payable in
Canadian dollars and most of the revenue derived from natural gas and oil
sales is based upon U.S. dollar price indices. As a result, the Company's
Canadian operations are subject to the risk of fluctuations in the relative
value of the Canadian and U.S. dollar. The Company is also required to
recognize foreign currency translation gains or losses related to its 8 3/4%
Notes issued by Canadian Forest because the debt is denominated in U.S.
dollars and the functional currency of Canadian Forest is the Canadian
dollar. As a result of the decline in the value of the Canadian dollar
relative to the U.S. dollar during the fourth quarter of 1997, the Company
reported a noncash translation loss of approximately $4,051,000. The
Company's Canadian operations may also be adversely affected by Canadian
local political and economic developments, royalty and tax increases and
other Canadian laws or policies, as well as U.S. policies affecting trade,
taxation and investment in Canada. To the extent that the Company pursues
opportunities in other countries, similar risks will apply.
COMPETITION. The Company operates in a highly competitive environment. The
Company competes with major and independent oil and gas companies for the
acquisition of desirable oil and gas properties, as well as the equipment and
labor required to develop and operate such properties. The Company also
competes with major and independent oil and gas companies in the marketing
and sale of oil and natural gas to marketers and end-users. Many of these
competitors have financial and other resources substantially greater than
those of the Company.
DRILLING RISKS. Drilling involves numerous risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. The cost
of drilling and completing wells is often unpredictable, and drilling
operations may be curtailed, delayed or cancelled as a result of a variety of
factors, including unexpected drilling conditions, pressure or irregularities
in formations, equipment failures or accidents, weather conditions and
shortages or delays in delivery of equipment. There can be no assurance as
to the success of the Company's future drilling activities. The Company's
current inventory of 2-D and 3-D seismic surveys will not necessarily
increase the likelihood that the Company will drill or complete commercially
productive wells or that the volumes of reserves discovered, if any, would
necessarily be greater than the Company would have discovered without its
current inventory of seismic surveys.
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ACQUISITION RISKS. The Company's recent growth has been attributable in part
to acquisitions of producing properties. The successful acquisition of
producing properties requires an assessment of recoverable reserves, future
oil and gas prices, operating costs, potential environmental and other
liabilities and other factors beyond the Company's control. Such assessments
are necessarily inexact and their accuracy inherently uncertain. In
connection with such an assessment, the Company performs a review of the
subject properties that it believes to be generally consistent with industry
practices. Such a review, however, will not reveal all existing or potential
problems nor will it permit a buyer to become sufficiently familiar with the
properties to fully assess their deficiencies and capabilities. Inspections
may not always be performed on every platform or well, and structural and
environmental problems are not necessarily observable even when an inspection
is undertaken. The Company is generally not entitled to contractual
indemnification for preclosing liabilities, including environmental
liabilities, and generally acquires interests in the properties on an "as is"
basis with limited remedies for breaches of representations and warranties.
In addition, competition for producing oil and gas properties is intense and
many of the Company's competitors have financial and other resources which
are substantially greater than those available to the Company. Therefore, no
assurance can be given that the Company will be able to acquire producing oil
and gas properties which contain economically recoverable reserves or that it
will make such acquisitions at acceptable prices.
UNCERTAINTIES OF CONSUMMATION OF THE ANSCHUTZ TRANSACTION. The Company has
an agreement in principle with Anschutz to acquire certain oil and gas assets
from Anschutz. The consummation of the Anschutz Transaction is subject to the
completion of a definitive agreement and the approval of the Company's
shareholders, other than Anschutz at the Company's annual shareholders'
meeting in May, 1998. There can be no assurance that conditions to the
Anschutz Transaction will be met or that the transactions will be completed
according to the terms currently contemplated, if at all.
MARKETABILITY OF OIL AND GAS PRODUCTION. The marketability of the Company's
production depends in part upon the availability, proximity and capacity of
gas gathering systems, pipelines and processing facilities. U.S. federal and
state regulation and Canadian regulation of oil and gas production and
transportation, general economic conditions, and changes in supply and demand
all could adversely affect the Company's ability to produce and market its
oil and natural gas. If market factors were to change dramatically, the
financial impact on the Company could be substantial. The availability of
markets is beyond the control of the Company and thus represents a
significant risk.
GOVERNMENT REGULATION. The Company's oil and gas operations are subject to
various U.S. federal, state and local and Canadian federal and provincial
governmental regulations. Matters subject to regulation include discharge
permits for drilling operations, drilling and abandonment bonds, reports
concerning operations, the spacing of wells, and unitization and pooling of
properties and taxation. From time to time, regulatory agencies have imposed
price controls and limitations on production by restricting the rate of flow
of oil and gas wells below actual production capacity in order to conserve
supplies of oil and gas. In addition, the Oil Pollution Act of 1990 (OPA)
requires operators of offshore facilities to establish evidence of financial
responsibility to address potential oil spills. OPA, together with other
federal and state environmental statutes, also imposes strict liability on
owners and operators of certain defined facilities for such spills, subject
to certain limitations. A substantial spill from one of the Company's
facilities could have a material adverse effect on the Company's results of
operations, competitive position or financial condition. The production,
handling, storage, transportation and disposal of oil and gas, by-products
thereof and other substances and materials produced or used in connection
with oil and gas operations are also subject to regulation under federal,
state, provincial and local laws and regulations primarily relating to the
protection of human health and the environment. To date, expenditures
related to complying with these laws and for remediation of existing
environmental contamination have not been significant in relation to the
results of operations of the Company. Although the Company believes it is in
substantial compliance with all applicable laws and regulations, the
requirements imposed by such laws and regulations are frequently changed and
subject to interpretation, and the Company is unable to predict the ultimate
cost of compliance with these requirements or their effect on its operations.
See Item 1. Regulation.
OWNERSHIP POSITION OF ANSCHUTZ. Based on the number of shares outstanding on
February 27, 1998, Anschutz owned approximately 29.8% of the outstanding shares
of Forest's common stock. The Company has agreed in principle to issue
5,950,000 shares of common stock to Anschutz in the Anschutz Transaction,
which would increase Anschutz's ownership position to approximately 39.5%.
Pursuant to a shareholders agreement between Anschutz and the Company (the
Anschutz Agreement), Anschutz may designate three of the Company's 11
directors.
15
<PAGE>
Therefore, Anschutz has the ability to exert substantial influence with
respect to matters considered by the Company's Board of Directors. The
Anschutz Agreement prohibits Anschutz from acquiring in excess of 40% of the
outstanding shares of common stock. The Anschutz Agreement terminates on
July 27, 2000. Under certain circumstances Anschutz could have a veto power
over proposed transactions between the Company and third parties such as a
merger, which, under applicable law, requires the approval of the holders of
two-thirds of the outstanding shares of common stock. It is unlikely that
control of the Company could be transferred to a third party without
Anschutz's consent and agreement. It is also unlikely that a third party
would offer to pay a premium to acquire the Company without the prior
agreement of Anschutz, even if the Board of Directors should choose to
attempt to sell the Company in the future.
16
<PAGE>
ITEM 2. PROPERTIES
Forest's principal reserves and producing properties are oil and gas
properties located in the onshore and offshore Gulf of Mexico region, West
Texas, Wyoming and Alberta, Canada.
RESERVES
Historical and pro forma information regarding the Company's proved and
proved developed oil and gas reserves and the standardized measure of
discounted future net cash flows and changes therein is included in Note 17
of Notes to Consolidated Financial Statements.
Since January 1, 1997 Forest has not filed any oil or natural gas reserve
estimates or included any such estimates in reports to any Federal or foreign
governmental authority or agency, other than the Securities and Exchange
Commission (SEC), the MMS and the Department of Energy (DOE). The reserve
estimate report filed with the MMS related solely to Forest's Gulf of Mexico
reserves. There were no differences between the reserve estimates included
in the MMS report, the SEC report, the DOE report and those included herein,
except for production and additions and deletions due to the difference in
the "as of" dates of such reserve estimates.
PRODUCTION
The following table shows net liquids and natural gas production for Forest
and its subsidiaries for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
Net Natural Gas and Liquids Production (1)(2)
---------------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
United States:
Natural Gas (MMCF) 34,018 28,624 33,342
Liquids (MBBLS) 1,267 1,104 1,173
Canada:
Natural Gas (MMCF) 15,017 13,872 -
Liquids (MBBLS) 1,940 1,645 -
TOTAL (MMCFE) 68,277 58,990 40,380
</TABLE>
(1) Includes amounts delivered pursuant to volumetric production payments. See
Note 6 of Notes to Consolidated Financial Statements.
(2) Volumes reported for natural gas include immaterial amounts of sulfur
production on the basis that one long ton of sulfur is equivalent to 15 MCF
of natural gas. Liquids volumes include both oil and condensate and
natural gas liquids.
17
<PAGE>
AVERAGE SALES PRICES AND PRODUCTION COSTS PER UNIT OF PRODUCTION
The following table sets forth the average sales prices per MCF of natural
gas and per barrel of liquids and the average production cost per equivalent
unit of production for the years ended December 31, 1997, 1996 and 1995 for
Forest and its subsidiaries:
<TABLE>
UNITED STATES CANADA
------------------------ ---------------
1997 1996 1995 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average Sales Prices:
NATURAL GAS
Total production (MMCF) (1) 34,018 28,624 33,342 15,017 13,872
Sales price received (per MCF) (2) $ 2.53 2.36 1.65 1.46 1.41
Effects of energy swaps (per MCF) (3) (.21) (.23) .12 - (.04)
------- ------ ------ ------ ------
Average sales price (per MCF) (2) $ 2.32 2.13 1.77 1.46 1.37
LIQUIDS:
Oil and Condensate:
Total production (MBBLS) (4) 1,137 964 1,121 1,498 1,308
Sales price received (per BBL) $ 18.20 20.03 16.36 18.07 20.64
Effects of energy swaps (per BBL) (3) (.23) (1.07) (.50) (.08) (1.82)
------- ------ ------ ------ ------
Average sales price (per BBL) $ 17.97 18.96 15.86 17.99 18.82
Natural gas liquids:
Total production (MBBLS) 130 140 52 442 337
Average sales price (per BBL) $ 10.62 10.48 15.81 12.42 11.87
Total liquids production (MBBLS) 1,267 1,104 1,173 1,940 1,645
Average sales price (per BBL) $ 17.21 17.88 15.86 16.72 17.40
Average production cost (per MCFE) (5) $ .50 .56 .56 .58 .52
</TABLE>
(1) Total natural gas production includes scheduled deliveries under
volumetric production payments, net of royalties, of 801 MMCF, 3,168 MMCF
and 9,120 MMCF in 1997 and 1996 and 1995, respectively. Natural gas
delivered pursuant to volumetric production payment agreements represented
approximately 2%, 7% and 27% of total natural gas production in 1997, 1996
and 1995, respectively. On June 30, 1997 the Company repurchased its last
remaining volumetric production payment. For further information
concerning volumes and prices recorded under volumetric production
payments, see Notes 6 and 13 of Notes to Consolidated Financial Statements.
(2) Amounts shown for 1995 exclude the effects of a gas contract settlement.
Including such amount, the sales price received and average sales price for
natural gas in 1995 were $1.78 and $1.90 per MCF, respectively. For
further information regarding the gas contract settlement, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 14 of Notes to Consolidated Financial Statements.
(3) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 13,990 MMCF,
12,741 MMCF and 10,146 MMCF for the years ended December 31, 1997, 1996 and
1995, respectively. Hedged oil and condensate volumes were 949,000
barrels, 895,600 barrels and 498,000 barrels for 1997, 1996 and 1995,
respectively. The aggregate gains (losses) under energy swap agreements
were $(7,439,000), $(10,422,000) and $3,536,000, respectively, for the
years ended December 31, 1997, 1996 and 1995 and were accounted for as
increases (reductions) to oil and gas sales.
(4) An immaterial amount of oil production was covered by scheduled deliveries
under volumetric production payments in 1996 and 1995.
(5) Production costs were converted to common units of measure using a
conversion ratio of one barrel of oil to six MCF of natural gas and one
long ton of sulfur to 15 MCF of natural gas. Such production costs exclude
all depreciation, depletion and provision for impairment associated with
property and equipment.
18
<PAGE>
PRODUCTIVE WELLS
The following summarizes total gross and net productive wells of the Company
and its subsidiaries at December 31, 1997:
<TABLE>
Productive Wells (1)
------------------------
United States Canada
------------- ------
<S> <C> <C>
Gross (2)
Gas 271 373
Oil 164 505
---- -----
Totals (3) 435 878
---- -----
Net (4)
Gas 79.1 134.5
Oil 99.5 235.1
---- -----
Totals 178.6 369.6
---- -----
---- -----
</TABLE>
(1) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(2) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.
(3) Includes 25 dual completions in the United States and 17 dual completions
in Canada. Dual completions are counted as one well. If one completion is
an oil completion, the well is classified as an oil well.
(4) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
19
<PAGE>
DEVELOPED AND UNDEVELOPED ACREAGE
Forest and its subsidiaries held acreage as set forth below at December 31,
1997 and 1996 and on a pro forma basis including acreage from the Louisiana
Acquisition at December 31, 1997. A majority of the developed acreage is
subject to mortgage liens securing either the bank indebtedness or
nonrecourse secured debt of the Company and its subsidiaries. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 5 of Notes to Consolidated Financial Statements.
<TABLE>
Developed Acreage (1) Undeveloped Acreage (2)
--------------------- -----------------------
Gross (3) Net (4) Gross (3) Net (4)
--------- ------- --------- -------
<S> <C> <C> <C> <C>
United States:
Louisiana offshore 106,846 43,567 84,003 60,425
Oklahoma 40,326 13,604 23,926 5,469
Texas onshore 103,348 47,423 16,220 7,537
Texas offshore 39,622 26,114 48,980 40,327
Wyoming 8,161 4,066 53,995 22,782
Other 14,367 3,415 17,605 6,646
------- ------- --------- -------
312,670 138,189 244,729 143,186
Canada
Alberta 355,238 140,665 278,516 157,684
Northwest Territories - - 917,474 188,374
Other 39,802 22,725 58,963 34,539
------- ------- --------- -------
395,040 163,390 1,254,953 380,597
------- ------- --------- -------
Total acreage at December 31, 1997 707,710 301,579 1,499,682 523,783
------- ------- --------- -------
------- ------- --------- -------
Total acreage at December 31, 1996 797,797 333,136 910,031 252,585
------- ------- --------- -------
------- ------- --------- -------
Pro forma acreage at December 31,
1997 (5) 721,239 309,724 1,503,064 525,819
------- ------- --------- -------
------- ------- --------- -------
</TABLE>
(1) Developed acres are those acres which are spaced or assigned to productive
wells.
(2) Undeveloped acres are considered to be those acres on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether such
acreage contains proved reserves. It should not be confused with undrilled
acreage held by production under the terms of a lease.
(3) A gross acre is an acre in which a working interest is owned. The number
of gross acres is the total number of acres in which a working interest is
owned.
(4) A net acre is deemed to exist when the sum of the fractional ownership
working interests in gross acres equals one. The number of net acres is
the sum of the fractional working interests owned in gross acres expressed
as whole numbers and fractions thereof.
(5) Includes acreage acquired in the Louisiana Acquisition, all of which is
onshore Louisiana.
During 1997, the Company's historical gross and net developed acreage decreased
approximately 11% and 9%, respectively, due primarily to property sales and
abandonment of wells. Historical gross and net undeveloped acreage increased
approximately 13% and 37%, respectively, due primarily to acquisition of new
acreage, net of expirations.
Approximately 7% of the Company's total historical net undeveloped acreage at
December 31, 1997 is under leases that have terms expiring in 1998, if not held
by production, and approximately 17% of net undeveloped acreage will expire in
1999 if not also held by production.
20
<PAGE>
DRILLING ACTIVITY
Forest and its subsidiaries owned interests in gross and net exploratory and
development wells for the years ended December 31, 1997, 1996 and 1995 as set
forth below. This information does not include wells drilled under farmout
agreements nor does it include any wells drilled with respect to properties
included in the Louisiana Acquisition.
<TABLE>
United States Canada
------------------- ------------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Exploratory Wells:
Dry (1) 4 4 3 5 4
Productive (2) 8 9 1 7 2
--- --- -- ---- ----
12 13 4 12 6
--- --- -- ---- ----
--- --- -- ---- ----
Net Exploratory Wells:(3)
Dry (1) 1.4 2.0 1.3 3.9 2.9
Productive (2) 4.0 3.5 .3 5.3 1.4
--- --- -- ---- ----
5.4 5.5 1.6 9.2 4.3
--- --- -- ---- ----
--- --- -- ---- ----
Gross Development Wells:
Dry (1) 5 3 - 15 4
Productive (2) 13 15 6 31 70
--- --- -- ---- ----
18 18 6 46 74
--- --- -- ---- ----
--- --- -- ---- ----
Net Development Wells:(3)
Dry (1) .7 .5 - 10.6 .9
Productive (2) 4.0 1.9 .6 21.5 19.9
--- --- -- ---- ----
4.7 2.4 .6 32.1 20.8
--- --- -- ---- ----
--- --- -- ---- ----
</TABLE>
(1) A dry well (hole) is a well found to be incapable of producing either oil
or natural gas in sufficient quantities to justify completion as an oil or
natural gas well.
(2) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(3) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
FARMOUT AGREEMENTS
Under a farmout agreement, outside parties undertake exploration activities
using prospects owned by Forest. This enables the Company to participate in the
exploration prospects without incurring additional capital costs, although with
a substantially reduced ownership interest in each prospect.
In 1997, three exploratory wells were drilled in the United States under farmout
agreements. Two were productive and one was a dry hole. In Canada, eight
development wells and three exploratory wells were drilled in 1997 under farmout
agreements. Six of the development wells were productive and two were dry
holes. One of the exploratory wells was productive and two were dry holes.
21
<PAGE>
PRESENT ACTIVITIES
At December 31, 1997 Forest and its subsidiaries had three exploratory and four
development wells that were in the process of being drilled. One of the
exploratory wells (in Canada) was a dry hole and the other two (both in Canada)
are still being drilled. Three of the development wells (two in the U.S. and
one in Canada) were determined to be productive in 1998 and the fourth (in the
U.S.) is still being drilled. Four additional wells (two exploratory and two
development) were being drilled under farmout agreements. One of the
exploratory wells (in the U.S.) was determined to be productive in 1998 and the
second (in Canada) is still being drilled. One of the development wells (in the
U.S.) was determined to be productive in 1998 and the second (in Canada) is
still being drilled.
DELIVERY COMMITMENTS
The Company is obligated to deliver approximately 1.1 BCF of natural gas under
existing long-term contracts in the U.S.
A significant portion of Canadian Forest's natural gas production is sold
through the ProMark Netback Pool. At December 31, 1997 the ProMark Netback Pool
had entered into fixed price contracts to sell approximately 13.6 BCF of natural
gas in 1998 at an average price of $1.83 CDN per MCF and approximately 5.4 BCF
of natural gas in 1999 at an average price of approximately $2.16 CDN per MCF.
Canadian Forest, as one of the producers in the ProMark Netback Pool, is
obligated to deliver a portion of this gas. In 1997, Canadian Forest supplied
27% of the gas for the Netback Pool.
At December 31, 1997 Saxon is obligated to deliver approximately .6 BCF of
natural gas in 1998 under an existing long-term contract. Saxon is further
obligated to deliver approximately 4.0 MMCF of natural gas per day through the
ProMark Netback Pool from January 1, 1998 through December 31, 2000.
22
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 4A. EXECUTIVE OFFICERS OF FOREST
The following information with respect to the executive officers of Forest is
furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
<TABLE>
Years with
Name (A) Age Forest Office (B)
-------- --- ------ ----------
<S> <C> <C> <C>
William L. Dorn* 49 26 Chairman of the Board and Chairman of the
Executive Committee. Chief Executive Officer
until December 1995. President until
November 1993. Chairman of the Nominating
Committee. Member of the Board of Directors
since 1982. Chairman of the Board of
Directors of Saxon Petroleum Inc.
Robert S. Boswell* 48 12 President since November 1993 and Chief
Executive Officer since December 1995. Vice
President until November 1993 and Chief
Financial Officer until December 1995.
Member of the Board of Directors since 1986.
Employed by the Company since October 1989.
Member of the Company's Executive Committee.
Director of C.E. Franklin Ltd. and Saxon
Petroleum Inc.
David H. Keyte 41 10 Executive Vice President and Chief Financial
Officer since November 1997. Vice President
and Chief Financial Officer since December
1995. Vice President and Chief Accounting
Officer from December 1993 until December
1995. Prior thereto Corporate Controller.
Chairman of the Company's Employee Benefits
Committee. Director of Saxon Petroleum Inc.
Forest D. Dorn 43 20 Senior Vice President-Gulf Coast Region since
November 1997. Vice President-Gulf Coast
Region since August 1996. Vice President
from February 1991 and General Business
Manager from December 1993 to August 1996.
24
<PAGE>
Years with
Name (A) Age Forest Office (B)
-------- --- ------ ----------
Neal A. Stanley 50 1 Senior Vice President-Western Region since
November 1997. Vice President-Western Region
since August 1996. Prior thereto President
of Teton Oil and Gas Corporation.
V. Bruce Thompson 50 3 Senior Vice President-Marketing and
Administration and General Counsel since
November 1997. Vice President and General
Counsel since August 1994. Vice President -
Legal of Mid-America Dairymen, Inc. from
November 1993 to August 1994. Chief of Staff
for Oklahoma Congressman James M. Inhofe
until November 1993. Member of Company's
Employee Benefits Committee.
Donald H. Stevens 45 - Vice President-Capital Markets and Strategic
Initiatives since August 1997. Prior thereto
Vice President-Corporate Relations and
Capital Markets of Barrett Resources
Corporation.
Daniel G. Blanchard 37 3 Treasurer since November 1997 and Assistant
Treasurer since September 1994.
Daniel L. McNamara 52 26 Secretary and Corporate Counsel. Member of
the Company's Employee Benefits Committee.
Joan C. Sonnen 44 8 Controller since December 1993. Prior
thereto Director of Financial Accounting and
Reporting. Member of Company's Employee
Benefits Committee.
</TABLE>
- ----------------
*Also a Director
(A) William L. Dorn and Forest D. Dorn are brothers.
(B) The term of office of each officer is one year from the date of his or her
election immediately following the last annual meeting of shareholders and
until the officer's respective successor has been elected and qualified or
until his or her earlier death, resignation or removal from office
whichever occurs first. Each of the named persons has held the office
indicated since the last annual meeting of shareholders, except as
otherwise indicated.
25
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
Forest Oil Corporation has one class of common equity securities outstanding,
its Common Stock, par value $.10 per share (Common Stock).
On February 27, 1998, the Company's 37,320,228 shares of Common Stock were held
by 1,632 holders of record.
Forest's Common Stock was listed on the New York Stock Exchange on November
18, 1997; prior thereto, it was traded on the Nasdaq National Market. The
high and low intraday sales prices of the Common Stock for each quarterly
period of the years presented are listed in the chart below. There were no
dividends declared on the Common Stock in 1996, 1997, or in the first quarter
of 1998.
<TABLE>
High Low
---- ---
<S> <C> <C>
1996
----
First Quarter $16-1/2 $10-1/2
Second Quarter 13-5/8 11-1/4
Third Quarter 14-3/4 12-1/2
Fourth Quarter 17-7/8 12-3/8
1997
----
First Quarter $19-3/8 $12-7/8
Second Quarter 15-3/8 12-1/4
Third Quarter 18-1/2 13-1/4
Fourth Quarter 19 13-3/16
1998
----
First Quarter (through March 20) $16-1/2 $13
</TABLE>
$.75 CONVERTIBLE PREFERRED STOCK
On February 7, 1997, the Company called for redemption all 2,877,673 shares of
its $.75 Convertible Preferred Stock. The redemption price was $10.00 per share
plus accumulated and unpaid dividends to and including the date of redemption
(for an aggregate redemption price of $10.06 per share). In lieu of cash
redemption, prior to the close of business on February 21, 1997, the holders of
the preferred shares had the right to convert each share into 0.7 share of
Forest's Common Stock. As of February 21, 1997, 2,783,945 shares or 96.7% of
the shares outstanding were tendered for conversion into Common Stock. The
remaining 93,728 shares that were not tendered for conversion were redeemed by
the Company at the redemption price of $10.06 per share on February 28, 1997.
DIVIDEND RESTRICTIONS
The only restrictions on Forest's present or future ability to pay dividends
are (i) the provisions of the New York Business Corporation Law (NYBCL), (ii)
certain restrictive provisions in the Indenture executed in connection with
Canadian Forest's 8 3/4% Senior Subordinated Notes due September 15, 2007
which are guaranteed by the Company and (iii) the Company's Third Amended and
Restated Credit Agreement dated February 3, 1998 with The Chase
26
<PAGE>
Manhattan Bank (Chase), as agent for a group of banks, under which the Company
is restricted in amounts it may pay as dividends (other than dividends
payable in Common Stock). Under these dividend restrictions, the Company was not
prohibited from paying cash dividends on its Common Stock as of March 1, 1998.
The Company has not paid dividends on its Common Stock during the past five
years and does not anticipate that it will do so in the foreseeable future. The
future payments of dividends, if any, on the Common Stock is within the
discretion of the Board of Directors and will depend on the Company's earnings,
capital requirements, financial condition and other relevant factors. There is
no assurance that Forest will pay any dividends. For further information
regarding the Company's equity securities and its ability to pay dividends on
its Common Stock, see Notes 5, 8 and 9 of Notes to Consolidated Financial
Statements.
27
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected data regarding the Company on a
historical basis as of and for each of the years in the five-year period ended
December 31, 1997. This data should be read in conjunction with Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto.
<TABLE>
Years Ended December 31,
------------------------------------------------------------------
1997 1996 1995 1994 (1) 1993 (2)
---- ---- ---- -------- --------
(In Thousands Except Per Share Amounts and Volumes)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Revenue:
Marketing and processing $184,399 187,374 - - -
Oil and gas sales 155,242 128,713 82,275 114,541 102,883
-------- ------- -------- ------- -------
Total revenue $339,641 316,087 82,275 114,541 102,883
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary items $ 3,089 1,139 (17,996) (67,853) (9,355)
Net earnings (loss) $ (9,270) 3,305 (17,996) (81,843) (21,213)
Weighted average number of common shares outstanding 33,669 25,062 7,360 5,619 4,399
Net earnings (loss) attributable to common stock $(9,459) 1,147 (20,156) (84,004) (23,463)
Basic earnings (loss) per share:
Earnings (loss) attributable to common stock
before cumulative effect of changes in
accounting principles and extraordinary items $ .09 (.04) (2.74) (12.46) (2.64)
Cumulative effect of changes in accounting
principles - - - (2.49) (.26)
Extraordinary items (.37) .09 - - (2.44)
-------- ------- -------- ------- -------
Net earnings (loss) attributable to common stock $ (.28) .05 (2.74) (14.95) (5.34)
Diluted earnings (loss) per share:
Earnings (loss) attributable to common
stock before cumulative effect of changes in
accounting principles and extraordinary items $ .08 (.04) (2.74) (12.46) (2.64)
Cumulative effect of changes in accounting principles - - - (2.49) (.26)
Extraordinary items (.35) .09 - - (2.44)
-------- ------- -------- ------- -------
Net earnings (loss) attributable to common stock $ (.27) .05 (2.74) (14.95) (5.34)
Total assets $647,782 563,458 321,043 324,832 426,755
Long-term debt $254,760 168,859 193,879 207,054 194,307
Other long-term liabilities $ 51,787 53,560 27,139 28,166 27,053
Deferred revenue $ - 7,591 15,137 35,908 67,228
Shareholders' equity $261,827 242,443 44,297 6,086 88,156
</TABLE>
28
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
<TABLE>
Years Ended December 31,
Pro Forma -----------------------------------------------
1997 (3) 1997 1996 1995 1994 (1) 1993 (2)
-------- ---- ---- ---- -------- --------
(In Thousands Except per Share Amounts and Volumes)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Annual production (4):
Gas (MMCF) 49,035 42,496 33,342 48,048 41,114
Liquids (MBBLS) 3,207 2,749 1,173 1,543 1,493
Average price received (4):
Gas (per MCF) (5) $ 2.06 1.89 1.77 1.90 1.88
Liquids (per Barrel) $ 16.92 17.59 15.86 14.83 16.97
Capital expenditures, net of asset sales 147,130 234,556 44,913 29,839 168,169
Proved Reserves (4) (6):
Gas (MMCF) 487,291 378,315 337,250 238,128 246,996 273,382
Liquids (MBBLS) 37,250 24,636 24,014 10,541 7,532 8,198
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves (6) $705,137 439,570 559,869 256,917 207,549 262,176
Total discounted future net cash flows
relating to proved oil and gas reserves,
including amounts attributable to
volumetric production payments (6) $705,137 439,570 562,995 265,393 230,149 299,053
</TABLE>
- ----------------
(1) Effective January 1, 1994 the Company changed its method of accounting for
oil and gas sales from the sales method to the entitlements method. See
Note 1 of Notes to Consolidated Financial Statements.
(2) Effective January 1, 1993, the Company adopted the provisions of Statements
of Financial Accounting Standards No. 106 and No. 109. These statements
required the Company to accrue the expected cost of postretirement benefits
and to adopt the liability method of accounting for income taxes,
respectively.
(3) The pro forma data as of December 31, 1997 gives effect to the Louisiana
Acquisition as if it occurred on that date. See Note 2 of Notes to
Consolidated Financial Statements.
(4) Includes amounts attributable to required deliveries under volumetric
production payments. See Notes 6 and 17 of Notes to Consolidated Financial
Statements.
(5) Amounts shown for 1995 exclude the effects of a gas contract settlement.
Including such amount, the average sales price for 1995 was $1.90 per MCF.
For further information regarding the gas contract settlement, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 14 of Notes to Consolidated Financial Statements.
(6) The 1997, 1996 and 1995 amounts include 100% of the reserves owned by
Saxon, a consolidated subsidiary in which the Company holds a majority
interest. See Note 2 of Notes to Consolidated Financial Statements.
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
The net loss for 1997 was $9,270,000 compared to net earnings of $3,305,000
in 1996. The net loss for 1997 includes an extraordinary loss on the
extinguishment of debt of $12,359,000 related to the tender offer for the
Company's 11 1/4% Senior Subordinated Notes and a $4,051,000 noncash loss on
currency translation relating to $125,000,000 of the 8 3/4% Notes which were
issued by Canadian Forest in September, 1997. Earnings for the 1996 period
include an extraordinary gain on extinguishment of debt of $2,166,000.
Earnings from operations in 1997 were $30,655,000 compared to $28,491,000 in
1996. The improved earnings from operations for 1997 were attributable
primarily to higher natural gas prices and increased production resulting
from the Company's successful drilling programs in 1996 and 1997.
Net earnings for 1996 were $3,305,000 compared to a net loss of $17,996,000
in 1995. The improved earnings from continuing operations in 1996 were
attributable primarily to increased natural gas and liquids prices, as well
as increased natural gas and liquids production as a result of the
acquisitions of Saxon Petroleum Inc. (Saxon) and Canadian Forest, which were
completed in December 1995 and January 1996, respectively, and to the
contribution made by ProMark, which was also acquired in January 1996.
The Company's marketing and processing revenue decreased by 2% to
$184,399,000 in 1997 from $187,374,000 in 1996 and the related marketing and
processing expense decreased by 2% to $175,847,000 in 1997 from $178,706,000
in the previous year. The gross margin reported for marketing and processing
activities was $8,552,000 in 1997 which is comparable to $8,668,000 in 1996.
The Company's oil and gas sales revenue increased by 21% to $155,242,000 in 1997
from $128,713,000 in 1996. Production volumes for natural gas in 1997 increased
15% from 1996 due primarily to discoveries in the Gulf of Mexico being brought
onto production. The average sales price received for natural gas in 1997
increased 9% compared to the average sales price received in 1996. Production
volumes for liquids (consisting of oil, condensate and natural gas liquids) were
17% higher in 1997 than in 1996 due primarily to new production from Gulf of
Mexico and Canadian properties. The average sales price received by the Company
for its liquids production during 1997 decreased 4% compared to the average
sales price received during 1996.
Oil and gas sales revenue increased to $128,713,000 in 1996 from $82,275,000 in
1995, or by approximately 56%. Oil and gas sales in 1995 included $4,263,000
of income associated with a gas contract settlement with Columbia Gas
Transmission (Columbia). The Company had entered into gas sales contracts with
Columbia which were rejected by Columbia in connection with its bankruptcy
proceedings. The income related to the settlement with Columbia represented
approximately 5% of total oil and gas sales in 1995. Natural gas and liquids
volumes increased 27% and 134% in 1996, respectively, primarily as a result of
the Canadian acquisitions and new production from the Company's offshore Gulf of
Mexico platform at High Island 116, partially offset by anticipated production
declines in the United States. The average sales price received for natural gas
in 1996 increased 7% compared to 1995, exclusive of the effects of income
associated with the gas contract settlement. The average sales price received
for liquids production in 1996 increased 11% compared to 1995.
Oil and gas production expense of $36,284,000 in 1997 increased 13% from
$32,199,000 in 1996 due primarily to expenses relating to new production from
Gulf of Mexico properties, temporary transportation expenses associated with the
Bigoray field in Alberta and the inclusion of twelve months of costs for
Canadian Forest in 1997 versus only eleven months in 1996. On an MCFE basis
(MCFE means thousands of cubic feet of natural gas equivalents, using conversion
ratio of one barrel of oil to six MCF of natural gas), production expense was
$.53 per MCFE in 1997 compared to $.55 in 1996.
30
<PAGE>
Oil and gas production expense increased 43% to $32,199,000 in 1996 from
$22,463,000 in 1995 due primarily to production expense associated with the
newly-acquired Canadian properties. On an MCFE basis, production expense was
$.55 per MCFE in 1996 compared to $.56 in 1995.
Oil and gas sales to Enron and certain of its affiliates (Enron Affiliates), the
Company's largest customer, represented approximately 18% of oil and gas sales
in 1997, compared to 25% in 1996 and 38% in 1995. The decreases during these
periods are attributable primarily to the decreases in delivery requirements
pursuant to volumetric production payments. The Company's spot market sales to
Enron Affiliates were approximately 11 BCFE in both 1997 and 1996 and 8 BCFE in
1995.
31
<PAGE>
The production volumes, weighted average sales prices and production expenses
for the years ended December 31, 1997, 1996 and 1995 for Forest and its
subsidiaries were as follows:
<TABLE>
Year Ended December 31, 1997
-------------------------------------------------------------------
Gulf Total Total
Coast Western U.S. Canada Company
----- ------- ---- ------ -------
<S> <C> <C> <C> <C> <C>
NATURAL GAS
Total production (MMCF) (1) 31,383 2,635 34,018 15,017 49,035
Sales price received (per MCF) $ 2.55 2.32 2.53 1.46 2.20
Effects of energy swaps (per MCF) (2) (.22) - (.21) - (.14)
-------- ----- ------ ------ ------
Average sales price (per MCF) $ 2.33 2.32 2.32 1.46 2.06
LIQUIDS
Oil and condensate:
Total production (MBBLS) 1,027 110 1,137 1,498 2,635
Sales price received (per BBL) $ 18.04 19.63 18.20 18.07 18.13
Effects of energy swaps (per BBL) (2) (.25) - (.23) (.08) (.15)
-------- ----- ------ ------ ------
Average sales price (per BBL) $ 17.79 19.63 17.97 17.99 17.98
Natural gas liquids:
Total production (MBBLS) 121 9 130 442 572
Average sales price (per BBL) $ 10.55 11.56 10.62 12.42 12.01
Total liquids production (MBBLS) 1,148 119 1,267 1,940 3,207
Average sales price (per BBL) $ 17.03 19.02 17.21 16.72 16.92
Total production (MMCFE) 38,271 3,349 41,620 26,657 68,277
Average sales price (per MCFE) $ 2.42 2.51 2.42 2.04 2.27
Operating expense (per MCFE) .46 1.02 .50 .58 .53
-------- ----- ------ ------ ------
Netback (per MCFE) $ 1.96 1.49 1.92 1.46 1.74
-------- ----- ------ ------ ------
-------- ----- ------ ------ ------
</TABLE>
(1) Total natural gas production includes scheduled deliveries under volumetric
production payments, net of royalties, of 801 MMCF. Natural gas
delivered pursuant to volumetric production payment agreements represented
approximately 2% of total natural gas production. On June 30, 1997 the
Company repurchased its last remaining volumetric production payment. For
further information concerning volumes and prices recorded under volumetric
production payments, see Notes 6 and 17 of Notes to Consolidated Financial
Statements.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 13,990 MMCF
and hedged oil and condensate volumes were 949,000 barrels. The aggregate
net loss under energy swap agreements was $7,439,000 for the period and was
accounted for as a reduction of oil and gas sales.
32
<PAGE>
<TABLE>
Year Ended December 31, 1996
--------------------------------------------------------------------
Gulf Total Total
Coast Western U.S. Canada Company
----- ------- ---- ------ -------
<S> <C> <C> <C> <C> <C>
NATURAL GAS
Total production (MMCF) (1) 24,969 3,655 28,624 13,872 42,496
Sales price received (per MCF) $ 2.39 2.17 2.36 1.41 2.06
Effects of energy swaps (per MCF) (2) (.26) - (.23) (.04) (.17)
------- ----- ------ ------ ------
Average sales price (per MCF) $ 2.13 2.17 2.13 1.37 1.89
LIQUIDS
Oil and condensate:
Total production (MBBLS) (3) 831 133 964 1,308 2,272
Sales price received (per BBL) $ 19.88 20.92 20.03 20.64 20.38
Effects of energy swaps (per BBL) (2) (1.24) - (1.07) (1.82) (1.50)
------- ----- ------ ------ ------
Average sales price (per BBL) $ 18.64 20.92 18.96 18.82 18.88
Natural gas liquids:
Total production (MBBLS) 132 8 140 337 477
Average sales price (per BBL) $ 10.29 13.63 10.48 11.87 11.46
Total liquids production (MBBLS) 963 141 1,104 1,645 2,749
Average sales price (per BBL) $ 17.50 20.50 17.88 17.40 17.59
Total production (MMCFE) 30,747 4,501 35,248 23,742 58,990
Average sales price (per MCFE) $ 2.27 2.41 2.29 2.00 2.18
Operating expense (per MCFE) .53 .75 .56 .52 .55
------- ----- ------ ------ ------
Netback (per MCFE) $ 1.74 1.66 1.73 1.48 1.63
------- ----- ------ ------ ------
------- ----- ------ ------ ------
</TABLE>
(1) Total natural gas production includes scheduled deliveries under volumetric
production payments, net of royalties, of 3,168 MMCF. Natural gas
delivered pursuant to volumetric production payment agreements represented
approximately 7% of total natural gas production. For further information
concerning volumes and prices recorded under volumetric production
payments, see Notes 6 and 17 of Notes to Consolidated Financial Statements.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 12,741 MMCF
and hedged oil and condensate volumes were 895,600 barrels. The aggregate
net loss under energy swap agreements was $10,422,000 for the period and
was accounted for as a reduction of oil and gas sales.
(3) An immaterial amount of oil production was covered by scheduled deliveries
under volumetric production payments.
33
<PAGE>
<TABLE>
Year Ended
December 31, 1995
-----------------
U.S.
-----------------
<S> <C>
NATURAL GAS
Total production (MMCF) (1) 33,342
Sales price received (per MCF) (2) $ 1.65
Effects of energy swaps (per MCF) (3) .12
-------
Average sales price (per MCF) (2) $ 1.77
LIQUIDS
Oil and condensate:
Total production (MBBLS) (4) 1,121
Sales price received (per BBL) $ 16.36
Effects of energy swaps (per BBL) (3) (.50)
-------
Average sales price (per BBL) $ 15.86
Natural gas liquids:
Total production (MBBLS) 52
Average sales price (per BBL) $ 15.81
Total liquids production (MBBLS) 1,173
Average sales price (per BBL) $ 15.86
Total production (MMCFE) 40,380
Average sales price (per MCFE) $ 2.04
Operating expense (per MCFE) .56
-------
Netback (per MCFE) $ 1.48
-------
-------
</TABLE>
(1) Total natural gas production includes scheduled deliveries under volumetric
production payments, net of royalties, of 9,120 MMCF. Natural gas
delivered pursuant to volumetric production payment agreements represented
approximately 27% of total natural gas production. For further information
concerning volumes and prices recorded under volumetric production
payments, see Notes 6 and 17 of Notes to Consolidated Financial Statements.
(2) Amounts shown for 1995 exclude the effects of a gas contract settlement.
Including such amount, the sales price received and average sales price for
natural gas in 1995 were $1.78 and $1.90 per MCF, respectively. For
further information regarding the gas contract settlement, see Note 14 of
Notes to Consolidated Financial Statements.
(3) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged natural gas volumes were 10,146 MMCF
and hedged oil and condensate volumes were 498,000 barrels. The aggregate
net gain under energy swap agreements was $3,536,000 for the period and
was accounted for as an increase in oil and gas sales.
(4) An immaterial amount of oil production was covered by scheduled deliveries
under volumetric production payments.
34
<PAGE>
General and administrative expense increased 24% to $16,864,000 in 1997 compared
to $13,623,000 in 1996 due primarily to a larger number of employees who were
hired to support the Company's increased operations and its expanded exploration
and development programs. General and administrative expense increased 50% to
$13,623,000 in 1996 compared to $9,081,000 in 1995 due primarily to the effect
of Canadian acquisitions. The capitalization rate was approximately 33% in 1997
compared to 36% in 1996 and 43% in 1995. Changes in the capitalization rate
result from changes in the percentage of employees' time spent working directly
on exploration and development projects.
Total overhead costs (capitalized and expensed general and administrative costs)
were $24,993,000 in 1997, $21,396,000 in 1996 and $15,857,000 in 1995. Total
overhead costs were approximately 17% higher in 1997 compared to 1996 due
primarily to the larger number of employees described above. Direct exploration
and development expenditures in 1997 were approximately $140,000,000 compared to
approximately $77,000,000 in 1996. Total overhead costs were approximately 35%
higher in 1996 compared to 1995 due primarily to the addition of the Canadian
operations. The following table summarizes the total overhead costs incurred
during the periods:
<TABLE>
Years Ended December 31,
-----------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Overhead costs capitalized $ 8,129 7,773 6,776
General and administrative costs expensed (1) 16,864 13,623 9,081
------- ------ ------
Total overhead costs $24,993 21,396 15,857
------- ------ ------
------- ------ ------
Number of salaried employees at end of year 202 179 115
------- ------ ------
------- ------ ------
</TABLE>
(1) Includes $2,992,000 and $2,555,000 in 1997 and 1996, respectively, related
to marketing and processing operations.
Depreciation and depletion expense increased 27% to $79,991,000 in 1997 from
$63,068,000 in 1996 due to higher production and higher per-unit expense. The
depletion rate increased to $1.12 per MCFE in 1997 compared to $1.01 per MCFE in
1996, primarily as a result of higher per-unit development costs in the Gulf of
Mexico due to increased costs for services. Depreciation and depletion expense
increased 45% to $63,068,000 in 1996 from $43,592,000 in 1995 due to the
increase in production, offset by a decrease in the depletion rate per unit of
production. The depletion rate decreased to $1.01 per MCFE in 1996 compared to
$1.06 per MCFE in 1995, resulting from the addition of lower cost Canadian
production, partially offset by higher anticipated future costs for services in
the United States.
At December 31, 1997 the Company had undeveloped properties with a cost basis of
approximately $41,226,000 in the U.S. and $19,675,000 in Canada which were not
subject to depletion, compared to $30,046,000 in the U.S. and $13,870,000 in
Canada at December 31, 1996 and $28,380,000 in the U.S. at December 31, 1995.
The increase in 1997 compared to 1996 is due primarily to acquisitions of
undeveloped acreage in both the U.S. and Canada in 1997. The increase in 1996
compared to 1995 is due primarily to the acquisition of undeveloped properties
in the Canadian Forest purchase.
The Company was not required to record a writedown of the carrying value of its
United States or Canadian oil and gas properties in 1997, 1996 or 1995.
Writedowns of the full cost pools in the United States and Canada may be
required , however, if prices decline, undeveloped property values decrease,
estimated proved reserve volumes are revised downward or costs incurred in
exploration, development, or acquisition activities in the respective full cost
pools exceed the discounted future net cash flows from the additional reserves,
if any, attributable to each of the cost pools.
35
<PAGE>
The average spot price received by the Company for natural gas produced in
the Gulf Coast decreased from $2.61 per MCF at December 31, 1997 to
approximately $2.26 per MCF at March 1, 1998. The West Texas Intermediate
price for crude oil decreased from $14.75 per barrel at December 31, 1997 to
approximately $12.25 per barrel at March 1, 1998. The average price received
for natural gas produced in Canada decreased from $2.10 CDN per MMBTU at
December 31, 1997 to approximately $1.75 CDN per MMBTU at March 1, 1998. The
average price received for crude oil produced in Canada decreased from $22.00
CDN per barrel at December 31, 1997 to approximately $18.90 CDN per barrel at
March 1, 1998.
Other income of $1,289,000 in 1997 included adjustments of royalty
liabilities in the U.S. and Canada. In the U.S., approximately $2,100,000 of
accrued royalties were reversed as a result of court decisions in Oklahoma.
In Canada, income of approximately $595,000 was recognized by Canadian Forest
following resolution of prior year crown royalty issues. The amount of
future crown royalty adjustments in Canada cannot be determined at this time,
but is not expected to be material to the Company's cash flow, results of
operations or financial position. Partially offsetting the favorable royalty
adjustments in 1997 was approximately $1,400,000 of expense recorded in the
U.S. as a result of a market value adjustment to the carrying value of land
purchased in 1982. In addition, Saxon recorded approximately $750,000 of
expense related to the potential sale of the company. Other income of
$1,387,000 in 1996 included the reversal of a $1,136,000 liability for
royalties on the proceeds from the gas contract settlement with Columbia.
Other income was $181,000 in 1995.
Interest expense of $21,403,000 in 1997 decreased $1,904,000 or 8% compared
to 1996 due primarily to the extinguishment of the nonrecourse secured loan
with JEDI in the fourth quarter of 1996 and the redemption of the Company's
11 1/4% Senior Subordinated Notes in September and October of 1997, offset in
part by interest charges on the 8 3/4% Notes and increased interest charges
on higher average outstanding balances under bank credit facilities
throughout most of 1997. Interest expense of $23,307,000 in 1996 decreased
$2,016,000 or 8% compared to 1995 due primarily to the restructuring and
extinguishment of the nonrecourse secured loan and lower effective interest
on the dollar denominated production payment.
Translation loss on subordinated debt of $4,051,000 in 1997 relates to
translation of the 8 3/4% Notes issued by Canadian Forest in September 1997,
and is attributable to the decline in the value of the Canadian dollar
relative to the U.S. dollar during the fourth quarter of 1997. The Company
is required to recognize the noncash foreign currency translation gains or
losses related to the 8 3/4% Notes because the debt is denominated in U.S.
dollars and the functional currency of Canadian Forest is the Canadian dollar.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically addressed its long-term liquidity needs through the
issuance of debt and equity securities, when market conditions permit, and
through the use of bank credit facilities and cash provided by operating
activities.
In 1996, 1997 and early 1998, the Company completed several transactions that
improved its financial position.
On January 31, 1996 the Company and Saxon sold 13,200,000 shares of Common Stock
for $11.00 per share in a public offering (the 1996 Public Offering). Of this
amount, 1,060,000 shares were sold by Saxon and 12,140,000 shares were sold by
Forest. The net proceeds to Forest from the issuance of the shares totaled
approximately $125,000,000 after deducting issuance costs and underwriting fees,
and were used, along with an additional approximately $8,300,000 drawn under the
Company's Credit Facility, to complete the purchase of Canadian Forest and
ProMark. The net proceeds to Saxon of approximately $11,000,000 were used to
reduce its bank debt.
On August 1, 1996 Anschutz exercised an option to purchase 2,250,000 shares of
Common Stock for $26,200,000 or approximately $11.64 per share. Proceeds
received by Forest were used primarily to fund a portion of 1996 capital
expenditures.
On November 5, 1996 the Company exchanged 2,000,000 shares of Common Stock plus
approximately $13,500,000 in cash to extinguish approximately $43,000,000 of
nonrecourse secured debt owed to JEDI. In connection with this transaction,
Anschutz acquired 1,628,888 shares of Common Stock by exercising warrants 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.
36
<PAGE>
On November 14, 1996 the Company filed a shelf registration (the Shelf
Registration Statement) with the Securities and Exchange Commission to issue up
to $250,000,000 in one or more forms of debt or equity securities. Except as
otherwise provided in an applicable prospectus supplement, the net proceeds from
the sale of the securities will be used for the acquisition of oil and gas
properties, capital expenditures, the repayment of subordinated debentures or
other debt, repayments of borrowings under revolving credit agreements, or for
other general corporate purposes.
On February 7, 1997 the Company called for redemption all 2,877,673 shares of
its $.75 Convertible Preferred Stock. In response to its call for redemption,
2,783,945 shares or 96.7% of the shares outstanding were tendered for conversion
into Common Stock on or before the February 21, 1997 deadline. The remaining
93,728 preferred shares were redeemed by the Company at the redemption price of
$10.06 per share (at a total cost of $942,904) on February 28, 1997. Lehman
Brothers Inc. purchased 65,616 shares of Common Stock issued pursuant to the
Shelf Registration Statement to fund the cash requirement of the redemption in
accordance with the terms of its standby purchase agreement with Forest. This
conversion and redemption eliminated all outstanding preferred stock from the
Company's capital structure and eliminated approximately $2,200,000 of annual
preferred dividend payments.
On August 28, 1997 Anschutz acquired 3,500,000 shares of Common Stock through
the exercise of a warrant for $8.60 per share resulting in cash proceeds to
Forest of $30,100,000. The original exercise price was $10.50 per share. The
reduction in the exercise price offered to Anschutz reflected an approximate 10%
present value discount computed to the warrants' expiration date of July 27,
1999. Proceeds from the exercise were used to reduce borrowings under the
Company's bank credit facilities.
On September 29, 1997, pursuant to a tender offer, $90,233,000 of the
Company's outstanding $100,000,000 aggregate principal amount of 11 1/4%
Senior Subordinated Notes due 2003 (the 11 1/4% Notes) was tendered by the
holders of the 11 1/4% Notes. The purchase price for each $1,000 principal
amount of 11 1/4% Notes validly tendered and accepted was $1,096.96. On
October 17, 1997 an additional $1,091,000 aggregate principal amount of 11
1/4% Notes was tendered at a purchase price of $1,090.00 for each $1,000.00
principal amount. As a result of the tender offer, Forest recorded an
extraordinary loss of approximately $12,359,000 relating to the excess of the
tender price over the carrying amount of the 11 1/4% Notes, net of related
unamortized debt issuance costs.
On September 29, 1997 Canadian Forest completed an offering of $125,000,000
of 8 3/4% Notes, which were sold at 99.745% of par and guaranteed on a senior
subordinated basis by the Company. A portion of the proceeds was used to
fund the tender offer described above, a portion was used to repay the
outstanding balance under the Canadian Credit facility and the remainder was
used for working capital and to fund capital expenditures. The effects of
the tender and new offering are expected to result in estimated annual cash
savings of approximately $5,000,000 to $6,000,000 related to interest and
taxes.
On February 2, 1998 Canadian Forest issued $75,000,000 principal amount of
8 3/4% Notes, an add-on to the Company's $125,000,000 principal amount of
8 3/4% Notes that were issued in September 1997. The Company received net
proceeds of approximately $75,000,000, which were used to provide funds for
the acquisition of oil and gas properties in Louisiana described below.
On February 3, 1998 the Company purchased 13 oil and gas properties located
onshore Louisiana (the Louisiana Acquisition) for total consideration of
approximately $230,776,000. The consideration consisted of approximately
$216,557,000 in cash, funded primarily from the Company's bank credit
facility; the issuance of $75,000,000 principal amount of 8 3/4% Notes
described above; and 1,000,000 shares of the Company's Common Stock.
The Company also has an agreement in principle with Anschutz whereby the
Company will issue to Anschutz 5,950,000 shares of the Company's Common Stock
in exchange for certain oil and gas assets. The consummation of the Anschutz
Transaction is subject to the completion of a definitive agreement and
approval of the transaction by the Company's shareholders, other
37
<PAGE>
than Anschutz, at the Company's annual shareholders' meeting in May, 1998.
The oil and gas assets include Anschutz's interest in the Anschutz Ranch East
Field, certain Canadian properties and other international projects. There
are approximately 80 BCFE of proved reserves associated with the Anschutz
Transaction.
Many of the factors which may affect the Company's future operating
performance and long-term liquidity are beyond the Company's control
including, but not limited to, oil and natural gas prices, governmental
actions and taxes, the availability and attractiveness of properties for
acquisition, the adequacy and attractiveness of financing and operational
results. The Company continues to examine alternative sources of long-term
capital, including bank borrowings, the issuance of debt instruments, the
sale of common stock, preferred stock or other equity securities of the
Company, the issuance of net profits interests, sales of non-strategic
assets, prospects and technical information, or joint venture financing.
Availability of these sources of capital and, therefore, the Company's
ability to execute its operating strategy will depend upon a number of
factors, some of which are beyond the control of the Company. In addition,
the prices the Company receives for its future oil and natural gas production
and the level of the Company's production will significantly impact future
operating cash flows. No prediction can be made as to the prices the Company
will receive for its future oil and gas production. At March 1, 1998 the
Company had four offshore Gulf of Mexico wells whose combined production
represents approximately 17% of the Company's consolidated daily
deliverability. The Company's production, revenue and cash flow could be
adversely affected if production from these properties decreases to a
significant degree.
BANK CREDIT FACILITIES. At December 31, 1997 the Company and its
subsidiaries, Canadian Forest and ProMark, had a $250,000,000 global credit
facility (the Global Credit Facility) which provided for a global borrowing
base of $130,000,000 through a syndicate of banks led by The Chase Manhattan
Bank and The Chase Manhattan Bank of Canada. The borrowing base is subject
to semi-annual redeterminations. Under the Global Credit Facility, the
Company can allocate the global borrowing base between the United States and
Canada, subject to specified limitations. Funds borrowed under the Global
Credit Facility can be used for general corporate purposes. Under the terms
of the Global Credit Facility, the Company, Canadian Forest and ProMark are
subject to certain covenants and financial tests, including restrictions or
requirements with respect to working capital, cash flow, additional debt,
liens, asset sales, investments, mergers, cash dividends and reporting
responsibilities.
The Global Credit Facility is secured by a lien on, and a security interest
in, a portion of the Company's U.S. proved oil and gas properties, related
assets, pledges of accounts receivable, and a pledge of 66% of the capital
stock of Canadian Forest. The Global Credit Facility is also indirectly
secured by substantially all of the assets of Canadian Forest.
On February 3, 1998, the Company amended the Global Credit Facility. The
primary purpose of the amendment was to increase the credit facility to
$300,000,000 and the borrowing base to $260,000,000 in order to finance the
Louisiana Acquisition. Under the amended Global Credit Facility, the maximum
credit facility allocations in the United States and Canada are $275,000,000
and $25,000,000, respectively. The global borrowing base is currently
allocated $250,000,000 to the United States and $10,000,000 to Canada.
At February 28, 1998, the outstanding borrowings under the Global Credit
Facility were $224,900,000 in the U.S. and there were no outstanding
borrowings in Canada. The Company has used the Global Credit Facility for
Letters of Credit in the amount of $233,000 in the U.S. $4,522,000 CDN in
Canada.
In addition to the credit facilities described above, Saxon has a credit
facility (the Saxon Credit Facility) with a borrowing base of $39,800,000
CDN. The loan is subject to semi-annual review and has demand features;
however, repayments are not required provided that borrowings are not in
excess of the borrowing base and Saxon complies with other existing
covenants. At February 28, 1998 the outstanding balance under this facility
was $37,310,000 CDN.
WORKING CAPITAL. The Company had a working capital surplus of approximately
$22,062,000 at December 31, 1997 compared to a deficit of approximately
$12,649,000 at December 31, 1996. The surplus at December 31, 1997 is
38
<PAGE>
due primarily to unapplied proceeds of $12,530,000 in Canada from the
offering of the 8 3/4% Notes which was completed on September 29, 1997.
These funds will be used in Canada to fund a portion of the 1998 capital
expenditure program and for general corporate purposes.
In the U.S., the Company periodically reports working capital deficits at the
end of a period. Such working capital deficits are principally the result of
accounts payable for capitalized exploration and development costs. Settlement
of these payables is funded by cash flow from the Company's operations or, if
necessary, by drawdowns on the Company's long-term bank credit facilities. For
cash management purposes, drawdowns on the credit facilities are not made until
the due dates of the payables.
CASH FLOW. Historically, one of the Company's primary sources of capital has
been net cash provided by operating activities. Net cash provided by
operating activities decreased to $60,535,000 in 1997 compared to $70,442,000
in 1996 due primarily to increased production as well as higher natural gas
prices being more than offset by funds used for the settlement of volumetric
production payment obligations. The Company used $151,638,000 for investing
activities in 1997 compared to $226,870,000 in 1996. The 1996 outlays
included $136,191,000 for the acquisition of Canadian Forest, whereas the
1997 outlays consist primarily of exploration and development costs. Cash
provided by financing activities in 1997 was $101,233,000 in 1996 compared to
$161,876,000 in 1996. The 1997 period included cash inflows of $121,479,000
from the issuance of the 8 3/4% Notes, $30,100,000 proceeds from the exercise
of a warrant by Anschutz and net bank borrowings of $53,059,000, offset by
$100,303,000 used for the redemption of a portion of the Company's 11 1/4%
Notes. The 1996 period included $136,073,000 of net proceeds from a public
offering of Common Stock (the 1996 Public Offering).
Net cash provided by operating activities increased to $70,442,000 in 1996
compared to a net use of cash for operating activities of $5,452,000 in 1995.
The increase is attributable primarily to higher natural gas and liquids prices,
increased natural gas and liquids production as a result of the Saxon and
Canadian Forest acquisitions, the contribution made by ProMark and an increase
in accounts payable during 1996. The Company used $226,870,000 for investing
activities in 1996 compared to $17,710,000 in 1995. The increase is due
primarily to the use of funds to acquire Canadian Forest and higher capital
expenditures. Cash provided by financing activities was $161,876,000 in 1996
compared to $23,579,000 in 1995. The increase is due primarily to the net
proceeds received from the 1996 Public Offering and the exercise by Anschutz of
options and warrants.
39
<PAGE>
CAPITAL EXPENDITURES. The Company's expenditures for property acquisition,
exploration and development for the past three years were as follows:
<TABLE>
Years Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Property acquisition costs (1):
Proved properties $ 7,499 140,875 26,487
Undeveloped properties 880 18,080 320
-------- ------- ------
8,379 158,955 26,807
Exploration costs:
Direct costs 61,851 40,831 11,528
Overhead capitalized 3,587 2,608 1,211
-------- ------- ------
65,438 43,439 12,739
Development costs:
Direct costs 77,836 36,559 7,633
Overhead capitalized 4,542 5,165 5,565
-------- ------- ------
82,378 41,724 13,198
-------- ------- ------
$156,195 244,118 52,744
-------- ------- ------
-------- ------- ------
</TABLE>
(1) 1996 amounts consist primarily of the allocation of purchase price to the
oil and gas properties acquired in the purchase of Canadian Forest. 1995
amounts consist primarily of the allocation of purchase price to the oil
and gas properties acquired in the purchase of Saxon.
The Company's budgeted 1998 expenditures for exploration and development are
approximately $130,000,000. The Company intends to meet its 1998 capital
expenditure financing requirements using cash flows generated by operations,
sales of non-strategic assets and borrowings under existing lines of credit.
There can be no assurance, however, that the Company will have access to
sufficient capital to meet its capital requirements. The planned levels of
capital expenditures could be reduced if the Company experiences lower than
anticipated net cash provided by operations or other liquidity needs or could be
increased if the Company experiences increased cash flow or accesses additional
sources of capital.
In addition, while the Company intends to continue a strategy of acquiring
reserves that meet its investment criteria, no assurance can be given that the
Company can locate or finance any property acquisitions.
DISPOSITIONS OF NON-STRATEGIC ASSETS. As a part of its operating strategy, the
Company also conducts an ongoing disposition program of its non-strategic
assets. Assets with little value or which are not consistent with the Company's
ongoing operating strategy are identified for sale or trade. At the present
time, the Company has offered for sale property packages in each of its
operating regions. Properties offered for sale comprise approximately 38.7
BCFE or 5% of the Company's current reserve base.
During 1997, the Company disposed of properties with estimated proved reserves
of approximately 4.1 BCF of natural gas and 257,000 barrels of oil for total net
proceeds of $9,669,000.
During 1996, the Company disposed of properties with estimated proved reserves
of approximately 1.5 BCF of natural gas and 628,000 barrels of oil for total net
proceeds of $6,916,000. In addition, Saxon received proceeds of approximately
$10,959,000 representing the liquidation of its preferred shares in Archean
Energy Ltd. These shares,
40
<PAGE>
which were received through a series of transactions relating to the 1992
sale of the Company's Canadian oil and gas properties, were transferred to
Saxon by Forest in 1995.
In 1995 the Company disposed of properties with estimated proved reserves of
approximately 2.4 BCF of natural gas and 6,000 barrels of oil for total net
proceeds of $8,715,000.
INVESTMENT IN SAXON PETROLEUM INC. The board of directors of Saxon has
created a special committee of independent directors, which has engaged a
third party to assess the asset base of Saxon and to determine strategic
alternatives to maximize shareholder value. The Company anticipates that
this assessment may result in a transaction in which Forest would either sell
its entire interest in Saxon or seek to acquire all or a portion of the
minority interest. No assurance can be given as to whether any such
transaction will occur or as to the terms thereof.
LONG-TERM SALES CONTRACTS. A significant portion of Canadian Forest's
natural gas production is sold through the ProMark Netback Pool. At December
31, 1997 the ProMark Netback Pool had entered into fixed price contracts to
sell approximately 13.6 BCF of natural gas in 1998 at an average price of
$1.83 CDN per MCF and approximately 5.4 BCF of natural gas in 1999 at an
average price of approximately $2.16 CDN per MCF. Canadian Forest, as one of
the producers in the ProMark Netback Pool, is obligated to deliver a portion
of this gas. In 1997 Canadian Forest supplied 27% of the gas for the Netback
Pool.
HEDGING PROGRAM. In addition to the volumes of natural gas and oil sold
under long-term sales contracts, the Company also uses energy swaps and other
financial agreements to hedge against the effects of fluctuations in the
sales prices for oil and natural gas produced. In a typical swap agreement,
the Company receives the difference between a fixed price per unit of
production and a price based on an agreed upon third-party index if the index
price is lower. If the index price is higher, the Company pays the
difference. The Company's current swaps are settled on a monthly basis. At
December 31, 1997 the Company had natural gas swaps for an aggregate of
approximately 33 BBTU (billion British Thermal Units) per day of natural gas
during 1998 at fixed prices ranging from $1.09 per MMBTU (million British
Thermal Units) on an Alberta Energy Company "C" (AECO "C") basis to $3.66 per
MMBTU on a New York Mercantile Exchange (NYMEX) basis and an aggregate of
approximately 3 BBTU per day of natural gas during 1999 at fixed prices
ranging from $2.02 to $2.71 per MMBTU (NYMEX basis). The weighted average
hedged price for natural gas under such agreements is $2.17 and $2.21 per
MMBTU in 1998 and 1999, respectively. At December 31, 1997 the Company had
oil swaps for an aggregate of 1,323 barrels per day of oil during 1998 at
fixed prices ranging from $20.00 to $20.62 per barrel (NYMEX basis). The
weighted average hedged price for oil under such agreements is $20.54 per
barrel.
Subsequent to December 31, 1997 the Company entered into eight additional
natural gas swaps. The swaps are for 36,000 MMBTU of natural gas per day
from March 1998 to November 1998 at fixed prices ranging from $1.62 per
MMBTU (AECO "C", U.S. $ basis) to $2.35 per MMBTU (NYMEX basis), with a
weighted average price of $2.29 per MMBTU.
YEAR 2000 ISSUES. In 1996, the Company commenced a year 2000 date conversion
project. The project addresses the effects the year 2000 will have on the
Company's software applications and analyzes upgrades and purchases that may
be required. The Company has completed its analysis of its land, accounting
and oil and gas reserves applications and expects to complete analysis of
its other applications by June 1998. The estimated cost of hardware and
software upgrades and purchases that may be required and the time required
for implementation are expected to be determined at that time. Based upon
the findings through March 1, 1998, the estimated costs of upgrades and
purchases are not expected to be significant.
RECENT ACCOUNTING PRONOUNCEMENTS. In June of 1997, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (Statement No. 130) and No. 131, Disclosures
About Segments of an Enterprise and Related Information (Statement No. 131),
effective for years beginning after December 15, 1997. Statement No. 130
establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements.
Statement No. 131 establishes standards for reporting information about
operating segments and the methods by which such segments
41
<PAGE>
were determined. The Company has not yet adopted Statement No. 130 or
Statement No. 131. In February 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits (Statement No.
132), effective for years beginning after December 15, 1997. Statement No.
132 revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement of recognition of those
plans. The Company will comply with the reporting and display requirements
of these statements when required.
42
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item begins on the following page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
We have audited the accompanying consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Forest
Oil Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows 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
February 10, 1998
44
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
DECEMBER 31,
1997 1996
--------- --------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,191 8,626
Accounts receivable 65,720 55,462
Other current assets 4,649 4,996
--------- --------
Total current assets 88,560 69,084
Net property and equipment, at cost,
full cost method (Notes 5 and 6) 521,293 458,242
Goodwill and other intangible assets, net 26,243 29,439
Other assets 11,686 6,693
--------- --------
$ 647,782 563,458
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5) $ - 2,091
Accounts payable 59,719 69,493
Accrued interest 4,152 4,584
Other current liabilities 2,627 5,565
--------- --------
Total current liabilities 66,498 81,733
Long-term debt (Notes 3 and 5) 254,760 168,859
Other liabilities 17,020 19,844
Deferred revenue (Note 6) - 7,591
Deferred income taxes 34,767 33,716
Commitments and contingencies
(Notes 10, 11 and 12)
Minority interest (Note 2) 12,910 9,272
Shareholders' equity (Notes 2, 3, 5, 8 and 9):
Preferred stock - 15,827
Common stock, 36,320,236 shares in 1997
(30,541,505 shares in 1996) 3,632 3,053
Capital surplus 485,686 438,556
Accumulated deficit (223,460) (214,190)
Foreign currency translation (4,031) (803)
--------- --------
Total shareholders' equity 261,827 242,443
--------- --------
$ 647,782 563,458
--------- --------
--------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
45
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
YEARS ENDED DECEMBER 31,
1997 1996 1995
------ ------ ------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Revenue:
Marketing and processing $184,399 187,374 -
Oil and gas sales:
Gas 100,993 80,111 59,084
Gas contract settlement (Note 14) - - 4,263
Oil, condensate and natural gas liquids 54,249 48,602 18,928
------- ------- -------
Total oil and gas sales 155,242 128,713 82,275
------- ------- -------
Total revenue 339,641 316,087 82,275
Operating expenses:
Marketing and processing 175,847 178,706 -
Oil and gas production 36,284 32,199 22,463
General and administrative 16,864 13,623 9,081
Depreciation and depletion 79,991 63,068 43,592
------- ------- -------
Total operating expenses 308,986 287,596 75,136
------- ------- -------
Earnings from operations 30,655 28,491 7,139
Other income and expense:
Other income, net (1,289) (1,387) (181)
Interest expense 21,403 23,307 25,323
Minority interest in earnings
(loss) of subsidiary 108 (19) -
Translation loss on subordinated debt 4,051 - -
------- ------- -------
Total other income and expense 24,273 21,901 25,142
------- ------- -------
Earnings (loss) before income taxes and
extraordinary item 6,382 6,590 (18,003)
Income tax expense (benefit) (Note 7):
Current 707 3,943 (7)
Deferred 2,586 1,508 -
------- ------- -------
3,293 5,451 (7)
Earnings (loss) before extraordinary item 3,089 1,139 (17,996)
Extraordinary item - gain (loss) on extinguishment
of debt (Notes 3 and 5) (12,359) 2,166 -
------- ------- -------
Net earnings (loss) $ (9,270) 3,305 (17,996)
------- ------- -------
------- ------- -------
Earnings (loss) attributable to common stock $ (9,459) 1,147 (20,156)
------- ------- -------
------- ------- -------
Weighted average number of common shares
outstanding 33,669 25,062 7,360
------- ------- -------
------- ------- -------
Basic earnings (loss) per common share:
Earnings (loss) attributable to common
stock before extraordinary item $ .09 (.04) (2.74)
Extraordinary item - gain (loss) on
extinguishment of debt (.37) .09 -
------- ------- -------
Earnings (loss) attributable to common stock $ (.28) .05 (2.74)
------- ------- -------
Diluted earnings (loss) per common share:
Earnings (loss) attributable to common stock
before extraordinary item $ .08 (.04) (2.74)
Extraordinary item - gain (loss)
on extinguishment of debt (.35) .09 -
------- ------- -------
Earnings (loss) attributable to common stock $ (.27) .05 (2.74)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
46
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
COMMON
SHARES TO BE ACCUMU- FOREIGN
PREFERRED COMMON CAPITAL ISSUED IN DEBT LATED CURRENCY TREASURY
STOCK STOCK SURPLUS RESTRUCTURING DEFICIT TRANSLATION STOCK
--------- ------ ------- ------------- ------- ----------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 15,845 566 192,337 - (199,499) (1,337) (1,826)
Net loss - - - - (17,996) - -
Second Series Convertible Preferred Stock,
Common Stock and Warrants issued to
Anschutz (Notes 3, 8 and 9) 8,518 376 36,106 - - - -
Warrants issued to JEDI (Note 3) - - 12,117 - - - -
Costs associated with equity issued to
Anschutz and JEDI (Note 3) - - (3,940) - - - -
Common Stock issued in acquisition of
Saxon (Notes 2 and 9) - 106 9,434 - - - (9,540)
Common Stock issued to the Retirement
Savings Plan (Note 10) - 2 (1,425) - - - 1,826
$.75 Convertible Preferred Stock
dividends paid in cash (Note 8) - - (540) - - - -
$.75 Convertible Preferred Stock dividends
paid in Common Stock (Note 8) - 16 (16) - - - -
Conversion of $.75 Convertible Preferred
Stock to Common Stock (Note 8) (4) - 4 - - - -
Common shares to be issued in JEDI
Exchange (Note 3) - - - 6,073 - - -
Unfunded pension liability (Note 10) - - (2,836) - - - -
Foreign currency translation - - - - - (70) -
--------- ------ ------- ------ --------- ------- -------
Balance December 31, 1995 24,359 1,066 241,241 6,073 (217,495) (1,407) (9,540)
Net earnings - - - - 3,305 - -
Common Stock issued, net of offering
costs and minority interest effect of
$706,000 (Note 9) - 1,214 124,613 - - - 9,540
Common Stock issued in JEDI Exchange (Note 3) - 168 5,905 (6,073) - - -
Anschutz Option exercised (Notes 3 and 9) - 225 25,962 - - - -
Anschutz A Warrant exercised (Notes 3 and 9) - 39 4,044 - - - -
Common Stock issued to JEDI (Note 3) - 200 26,736 - - - -
Public Warrants exercised (Note 9) - 2 334 - - - -
Conversion of Second Series Preferred
Stock to Common Stock (Note 8) (8,518) 124 8,394 - - - -
Employee stock options exercised (Note 9) - 3 398 - - - -
Common Stock issued to the Retirement
Savings Plan and other (Note 10) - 3 398 - - - -
$.75 Convertible Preferred Stock dividends
paid in cash (Note 8) - - (1,619) - - - -
$.75 Convertible Preferred Stock dividends
paid in Common Stock (Note 8) - 9 (9) - - - -
Conversion of $.75 Convertible Preferred
Stock to Common Stock (Note 8) (14) - 14 - - - -
Unfunded pension liability (Note 10) - - 2,145 - - - -
Foreign currency translation - - - - - 604 -
--------- ------ ------- ------ --------- ------- -------
BALANCE DECEMBER 31, 1996 15,827 3,053 438,556 - (214,190) (803) -
NET LOSS - - - - (9,270) - -
ANSCHUTZ A WARRANT EXERCISED (NOTES 3 AND 9) - 350 29,750 - - - -
$.75 CONVERTIBLE PREFERRED STOCK
REDEMPTION (NOTE 8) (15,827) 202 14,825 - - - -
COMMON STOCK ISSUED TO SUBSIDIARY (NOTE 9) - 20 2,797 - - - (2,817)
COMMON STOCK SOLD BY SUBSIDIARY (NOTE 9) - - - - - - 2,817
EMPLOYEE OPTIONS EXERCISED (NOTE 9) - 5 607 - - - -
RESTRICTED STOCK BONUS AWARDS (NOTE 9) - 2 214 - - - -
UNFUNDED PENSION LIABILITY (NOTE 10) - - (1,063) - - - -
FOREIGN CURRENCY TRANSLATION - - - - - (3,228) -
--------- ------ ------- ------ --------- ------- -------
BALANCE DECEMBER 31, 1997 $ - 3,632 485,686 - (223,460) (4,031) -
--------- ------ ------- ------ --------- ------- -------
--------- ------ ------- ------ --------- ------- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
47
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
YEARS ENDED DECEMBER 31,
1997 1996 1995
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) before extraordinary item $ 3,089 1,139 (17,996)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depreciation and depletion 79,991 63,068 43,592
Translation loss on subordinated debt 4,051 - -
Amortization of deferred debt costs 942 1,253 1,015
Deferred income tax expense 2,586 1,508 -
Interest added to principal - 3,059 574
Minority interest in net earnings (loss) of subsidiary 108 (19) -
Other, net 619 792 1,714
(Increase) decrease in accounts receivable (5,954) (17,441) 4,285
Increase in other current assets (5,168) (921) (152)
Increase (decrease) in accounts payable (1,403) 22,044 (13,848)
Increase (decrease) in accrued interest
and other current liabilities (9,970) 3,506 (3,865)
Settlement of volumetric production payment obligation (6,832) - -
Amortization of deferred revenue (1,524) (7,546) (20,771)
--------- ------- --------
Net cash provided (used) by operating activities 60,535 70,442 (5,452)
Cash flows from investing activities:
Acquisition of subsidiaries:
Current assets - (22,304) (1,437)
Property and equipment - (144,099) (26,530)
Goodwill and other intangible assets - (31,163) -
Current liabilities - 23,562 2,139
Long-term debt - 701 16,183
Other liabilities - 1,376 -
Deferred taxes - 35,575 353
Minority interest - - 8,171
--------- ------- --------
Cash paid for acquisitions of subsidiaries - (136,352) (1,121)
Capital expenditures for property and equipment (156,799) (108,332) (27,098)
Proceeds from sales of assets 9,669 17,875 8,715
(Increase) decrease in other assets, net (4,508) (61) 1,794
--------- ------- --------
Net cash used by investing activities (151,638) (226,870) (17,710)
Cash flows from financing activities:
Proceeds from bank borrowings 279,068 194,018 82,600
Repayments of bank borrowings (226,009) (176,641) (91,800)
Repayments of production payment obligation (2,592) (3,622) (2,316)
Issuance of 8 3/4% senior subordinated
notes, net of issuance costs 121,479 - -
Redemption of 11 1/4% senior subordinated notes (100,303) - -
Repayments of nonrecourse secured loan - (13,881) (1,143)
Proceeds from capital stock and warrants issued, net 2,817 136,073 41,060
Proceeds from exercise of warrants 30,100 30,606 -
Proceeds from exercise of options 2,361 1,339 -
Costs of preferred stock conversion (800) - -
Payment of preferred stock dividends (540) (1,079) (540)
Decrease in other liabilities, net (4,348) (4,937) (4,282)
--------- ------- --------
Net cash provided by financing activities 101,233 161,876 23,579
Effect of exchange rate changes on cash (565) (109) 1
--------- ------- --------
Net increase in cash and cash equivalents 9,565 5,339 418
Cash and cash equivalents at beginning of year 8,626 3,287 2,869
--------- ------- --------
Cash and cash equivalents at end of year $ 18,191 8,626 3,287
--------- ------- --------
--------- ------- --------
Cash paid during the year for:
Interest $ 20,999 15,040 22,138
Income taxes $ 4,105 3,428 -
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
48
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -------------------------------------------------------------------------------
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION - Forest Oil
Corporation is engaged in the acquisition, exploration, development,
production and marketing of natural gas and crude oil in North America. The
Company was incorporated in New York in 1924, the successor to a company
formed in 1916, and has been publicly held since 1969. The Company is active
in several of the major exploration and producing areas in and offshore the
United States and in Canada.
The consolidated financial statements include the accounts of Forest Oil
Corporation and its consolidated subsidiaries (Forest or the Company).
Significant intercompany balances and transactions are eliminated. The
Company generally consolidates all subsidiaries in which it controls over 50%
of the voting interests. Entities in which the Company does not have a
direct or indirect majority voting interest are generally accounted for using
the equity method.
In the course of preparing the consolidated financial statements, management
makes various assumptions and estimates to determine the reported amounts of
assets, liabilities, revenue and expenses, and in the disclosures of
commitments and contingencies. Changes in these assumptions and estimates
will occur as a result of the passage of time and the occurrence of future
events and, accordingly, actual results could differ from amounts estimated.
Unless otherwise indicated, all share amounts, share prices and per share
amounts have been adjusted to give effect to a 5 to 1 reverse stock split
that was effective on January 8, 1996.
CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company
considers all debt instruments with original maturities of three months or
less to be cash equivalents.
PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting
for oil and gas properties. Separate cost centers are maintained for each
country in which the Company has operations. During 1997 and 1996, the
Company's oil and gas operations were conducted in the United States and in
Canada. During 1995, the Company's oil and gas operations were conducted
solely in the United States. All costs incurred in the acquisition,
exploration and development of properties (including costs of surrendered and
abandoned leaseholds, delay lease rentals, dry holes and overhead related to
exploration and development activities) are capitalized. Capitalized costs
applicable to each cost center are depleted using the units of production
method. A reserve is provided for estimated future costs of site
restoration, dismantlement and abandonment activities as a component of
depletion. Unusually significant investments in unproved properties,
including related capitalized interest costs, are not depleted pending the
determination of the existence of proved reserves. As of December 31, 1997,
1996 and 1995, there were undeveloped property costs of $41,226,000,
$30,046,000 and $28,380,000, respectively, which were not being depleted in
the United States and at December 31, 1997 and 1996 there were costs of
$19,675,000 and $13,870,000 which were not being depleted in Canada. Of the
undeveloped costs in the United States not being depleted at December 31,
1997, approximately 45% were incurred in 1997, 20% in 1996, 2% in 1995, 2% in
1994, 29% in 1993 and 2% in 1992. Of the undeveloped costs in Canada not
being depleted at December 31, 1997, 54% were incurred in 1997 and 46% in
1996.
Depletion per unit of production was determined based on conversion to common
units of measure using one barrel of oil as an equivalent to six thousand
cubic feet (MCF) of natural gas. Depletion per unit of production (MCFE) for
each of the Company's cost centers was as follows:
<TABLE>
United States Canada
------------- ------
<S> <C> <C>
1997 $1.24 .93
1996 1.12 .85
1995 1.06 -
</TABLE>
49
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
- -------------------------------------------------------------------------------
Pursuant to full cost accounting rules, capitalized costs less related
accumulated depletion and deferred income taxes for each cost center may not
exceed the sum of (1) the present value of future net revenue from estimated
production of proved oil and gas reserves; plus (2) the cost of properties
not being amortized, if any; plus (3) the lower of cost or estimated fair
value of unproved properties included in the costs being amortized, if any;
less (4) income tax effects related to differences in the book and tax basis
of oil and gas properties. There were no provisions for impairment of oil
and gas properties in 1997, 1996 or 1995.
Gain or loss is recognized only on the sale of oil and gas properties
involving significant reserves.
Buildings, transportation and other equipment are depreciated on the
straight-line method based upon estimated useful lives of the assets ranging
from five to forty-five years.
Net property and equipment at December 31 consists of the following:
<TABLE>
1997 1996
------ ------
(In Thousands)
<S> <C> <C>
Oil and gas properties $ 1,594,443 1,457,212
Buildings, transportation and
other equipment 11,157 10,993
----------- ----------
1,605,600 1,468,205
Less accumulated depreciation,
depletion and valuation allowance (1,084,307) (1,009,963)
----------- ----------
$ 521,293 458,242
----------- ----------
----------- ----------
</TABLE>
GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill and other intangible assets
recorded in the acquisition of the Company's gas marketing subsidiary consist
of the following at December 31, 1997 and 1996:
<TABLE>
1997 1996
------ ------
(In Thousands)
<S> <C> <C>
Goodwill $16,029 16,728
Gas marketing contracts 13,986 14,594
------- ------
30,015 31,322
Less accumulated amortization (3,772) (1,883)
------- ------
$26,243 29,439
------- ------
------- ------
</TABLE>
Goodwill is being amortized on a straight line basis over twenty years. The
amount attributed to the value of gas marketing contracts acquired is being
amortized on a straight line basis over the average life of such contracts of
twelve years.
GAS MARKETING - The Company's gas marketing subsidiary, ProMark, enters into
fixed price agreements to purchase and sell natural gas. ProMark's general
strategy for this business is to enter into offsetting purchase and sales
contracts. Net open positions relating to these contracts do occur, but have
not been significant to date. Revenue from the sale of the gas is recorded
as marketing revenue and the cost of the gas sold is recorded as marketing
expense. ProMark also provides natural gas marketing aggregation services for
third parties. Fees earned for such services are recorded as marketing
revenue as the services are performed.
50
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
- -------------------------------------------------------------------------------
OIL AND GAS SALES - The Company accounts for oil and gas sales on the
entitlements method. Under the entitlements method, revenue is recorded
based upon the Company's share of volumes sold, regardless of whether the
Company has taken its proportionate share of volumes produced. The Company
records a receivable or payable to the extent it receives less or more than
its proportionate share of the related revenue.
As of December 31, 1997 the Company had produced approximately 2.0 BCF more
than its entitled share of production. The estimated value of this imbalance
of approximately $4,332,000 is included in the accompanying consolidated
balance sheet as a short-term liability of $1,347,000 and a long-term
liability of $2,985,000.
HEDGING TRANSACTIONS - In order to minimize exposure to fluctuations in oil
and natural gas prices, the Company hedges the price of future oil and
natural gas production by entering into certain contracts and financial
arrangements. These instruments are accounted for as hedges when the
instrument is designated as a hedge of the related production and there
exists a high degree of correlation between the fair value of the instrument
and the fair value of the hedged production. The degree of correlation is
assessed periodically. In the event that an instrument does not meet the
designation or effectiveness criteria, any gain or loss on the instrument is
recognized immediately in earnings. Otherwise, gains and losses related to
hedging transactions are recognized as adjustments to the revenue recorded
for the related production. If an instrument is settled early, any gains
or losses are deferred and recognized as adjustments to the revenue recorded
for the related production. Costs associated with the purchase of certain
hedging instruments are also deferred and amortized against revenue related
to the hedged production.
INCOME TAXES - The Company uses the asset and liability method of accounting
for income taxes which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between financial accounting bases and tax bases of assets and liabilities.
FOREIGN CURRENCY TRANSLATION - The functional currency of the Company's
Canadian operations is the Canadian dollar. Assets and liabilities related
to the Company's Canadian operations are generally translated at current
exchange rates, and related translation adjustments are reported as a
component of shareholders' equity. Income statement accounts are translated
at the average rates during the period. The Company is also required to
recognize foreign currency translation gains or losses related to its 8 3/4%
Senior Subordinated Notes due 2007 (the 8 3/4% Notes) because the debt is
denominated in U.S. dollars and the functional currency of Canadian Forest is
the Canadian dollar. As a result of the decline in the value of the Canadian
dollar relative to the U.S. dollar during the fourth quarter of 1997, the
Company reported a noncash translation loss of approximately $4,051,000.
EARNINGS (Loss) PER SHARE - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
Earnings per Share (Statement No. 128) effective for periods ending after
December 15, 1997. Statement No. 128 changes the computation, presentation
and disclosure requirements for earnings per share for entities with publicly
held common stock or potential common stock. Under such requirements the
Company is required to present both basic earnings per share and diluted
earnings per share. Basic earnings (loss) per share is computed by dividing
net earnings (loss) attributable to common stock by the weighted average
number of common shares outstanding during each period, excluding treasury
shares. Net earnings (loss) attributable to common stock represents net
earnings (loss) less preferred stock dividends of $189,000 in 1997, $2,158,000
in 1996 and $2,160,000 in 1995.
Diluted earnings (loss) per share is computed by adjusting the average number
of common shares outstanding for the dilutive effect, if any, of convertible
preferred stock, stock options and warrants. The effect of potentially
dilutive securities is based on earnings (loss) before extraordinary items.
The Company adopted the provisions of Statement No. 128 as of December 31,
1997. As prescribed by Statement No. 128, the Company has restated prior
periods' earnings per share of common stock, including interim earnings per
share of common stock, in the period of adoption.
51
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
- -------------------------------------------------------------------------------
The following sets forth the calculation of basic and diluted earnings per
share for income before extraordinary items for the years ended December 31:
<TABLE>
1997 1996 1995
------ ------ ------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Income (loss) before extraordinary items $ 3,089 1,139 (17,996)
Less: Preferred stock dividends (189) (2,158) (2,160)
------- ------ -------
Income (loss) before extraordinary items
available to common stockholders $ 2,900 (1,019) (20,156)
------- ------ -------
------- ------ -------
Weighted average common shares
outstanding during the period 33,669 25,062 7,360
Basic earnings (loss) per share
before extraordinary items $ 0.09 (0.04) (2.74)
------- ------ -------
------- ------ -------
Weighted average common shares outstanding
during the period 33,669 25,062 7,360
Add dilutive effects of:
$.75 Convertible preferred stock 326 - -
Employee options 229 - -
Anschutz warrants 737 - -
------- ------ -------
Weighted average common shares outstanding
during the period including the effects
of dilutive securities 34,961 25,062 7,360
------- ------ -------
------- ------ -------
Diluted earnings (loss) per share before
extraordinary items $ 0.08 (0.04) (2.74)
------- ------ -------
------- ------ -------
</TABLE>
The following securities were antidilutive in the periods presented:
<TABLE>
1997 1996 1995
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Employee options - 81 -
Anschutz warrants - 815 106
JEDI (Anschutz) option - 167 -
$.75 Convertible preferred stock - 2,014 -
Anschutz preferred stock - 1,032 534
----- ----- ----
Total antidilutive potential
common shares - 4,109 640
----- ----- ----
----- ----- ----
</TABLE>
RECLASSIFICATIONS - Certain amounts in prior years' financial statements have
been reclassified to conform to the 1997 financial statement presentation.
52
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(2) ACQUISITIONS:
- -------------------------------------------------------------------------------
SAXON PETROLEUM INC.:
During 1995, the Company completed acquisitions totaling $26,807,000. The
most significant of these was the purchase on December 20, 1995 of a 56%
economic (49% voting) interest in Saxon Petroleum Inc. (Saxon) for
approximately $22,000,000. Saxon is a Canadian exploration and production
company with headquarters in Calgary, Alberta and operations concentrated in
western Alberta. In the transaction, Forest received from Saxon 40,800,000
voting common shares, 12,300,000 nonvoting common shares which are
convertible to voting shares at any time, 15,500,000 convertible preferred
shares and warrants to purchase 5,300,000 common shares. In exchange, Forest
transferred to Saxon its preferred shares of Archean Energy, Ltd., issued to
Saxon 1,060,000 Common Shares of Forest and paid Saxon $1,500,000 CDN. The
preferred shares of Archean Energy, Ltd. were recorded at their historical
carrying value of $11,301,000. The Forest Common Shares issued to Saxon were
recorded at their estimated fair value determined by reference to the quoted
market price of the shares immediately preceding the announcement of the
acquisition.
Since Forest has majority voting control over Saxon as a result of the voting
common shares that it owns and proxies that it holds, it has accounted for
Saxon as a consolidated subsidiary from the date of its acquisition. The
Company did not record any production or results of operations of Saxon for
the period from December 20 to December 31, 1995 as the results of operations
for such period were not significant.
The Forest Common Shares held by Saxon were recorded as treasury stock by
Forest at December 31, 1995. In January 1996, Saxon sold these shares in a
public offering of Forest Common Stock and used the proceeds to reduce its
bank debt.
In September 1996, the preferred shares of Archean were redeemed for cash at
their approximate carrying value.
On January 21, 1997 Forest converted its preferred shares of Saxon into
27,192,983 nonvoting common shares. Through December 31, 1997, pursuant to an
equity participation agreement, Forest acquired 5,569,542 voting common shares
and 2,380,608 nonvoting common shares of Saxon in exchange for 196,856 Common
Shares of Forest. Such shares were subsequently sold by Saxon. Also in 1997,
Forest's wholly-owned subsidiary Canadian Forest acquired 993,600 voting
common shares of Saxon in exchange for approximately $497,000 CDN. These
transactions increased Forest's economic interest in Saxon to 65%.
The board of directors of Saxon has created a special committee of independent
directors which has engaged a third party to assess the asset base of Saxon
and to determine strategic alternatives to maximize shareholder value. The
Company anticipates that this assessment may result in a transaction in which
Forest would either sell its entire interest in Saxon or seek to acquire all
or a portion of the minority interest. No assurance can be given as to
whether any such transaction will occur or as to the terms thereof.
CANADIAN FOREST OIL LTD.:
On January 31, 1996 the Company acquired ATCOR Resources Ltd. of Calgary,
Alberta for approximately $136,000,000, including acquisition costs of
approximately $1,000,000. The purchase was funded by the net proceeds of a
Common Stock offering and approximately $8,300,000 drawn under the Company's
bank credit facility. The exploration and production business of ATCOR was
renamed Canadian Forest Oil Ltd. (Canadian Forest). Canadian Forest's
principal reserves and producing properties are located in Alberta and
British Columbia, Canada.
As part of the Canadian Forest acquisition, Forest also acquired ATCOR's
natural gas marketing business which was renamed Producers Marketing Ltd.
(ProMark). Goodwill and other intangibles recorded in the acquisition
included approximately $15,000,000 associated with certain natural gas
marketing contracts, which is being amortized over the average life of the
contracts of 12 years, and approximately $17,000,000 of goodwill associated
with the gas marketing business acquired which is being amortized over 20
years.
53
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(2) ACQUISITIONS (CONTINUED):
- -------------------------------------------------------------------------------
The consolidated balance sheet of Forest includes the accounts of Saxon and
Canadian Forest at December 31, 1997 and 1996. The consolidated statements of
operations include the results of operations of Saxon effective January 1,
1996 and the results of operations of Canadian Forest effective February 1,
1996.
Summarized consolidated financial information for Canadian Forest as of
December 31, 1997 and for the year then ended, and for the period from January
31, 1996 (acquisition date) to December 31, 1996 is as follows:
<TABLE>
1997 1996
------ ------
(In Thousands)
SUMMARIZED CONSOLIDATED BALANCE SHEET INFORMATION:
<S> <C> <C>
ASSETS
Current assets $ 35,630 29,511
Net property and equipment 117,394 137,278
Goodwill and other intangible
assets, net 26,243 29,439
Other assets 3,320 -
-------- -------
$182,587 196,228
-------- -------
-------- -------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities $ 24,029 29,880
Intercompany payable - 32,500
8 3/4% Senior Subordinated Notes 124,690 -
Other liabilities 396 805
Deferred income taxes 36,282 32,912
Shareholders' equity (deficit) (2,810) 100,131
-------- -------
$182,587 196,228
-------- -------
-------- -------
SUMMARIZED CONSOLIDATED STATEMENTS
OF OPERATIONS:
Revenue $214,045 224,757
-------- -------
-------- -------
Earnings (loss) before income taxes $ (3,321) 9,685
-------- -------
-------- -------
Net earnings (loss) $ (4,952) 4,739
-------- -------
-------- -------
</TABLE>
The Company prepares ceiling test computations on a country-by-country basis
and, accordingly, has not prepared such computation for Canadian Forest on a
stand-alone basis. The Company has not presented separate financial
statements and other disclosures concerning Canadian Forest because management
has determined that such information is not material to the holders of the 8
3/4% Notes.
LOUISIANA ACQUISITION:
On February 3, 1998 the Company purchased 13 oil and gas properties located
onshore Louisiana (the Louisiana Acquisition) for total consideration of
approximately $230,776,000. The consideration consisted of approximately
$216,557,000 in cash, funded primarily from the Company's bank credit
facility, and from the issuance of $75,000,000 principal amount of 8 3/4%
Notes and 1,000,000 shares of the Company's Common Stock.
54
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(2) ACQUISITIONS (CONTINUED):
- -------------------------------------------------------------------------------
The following unaudited pro forma consolidated statement of operations
information assumes that the Louisiana Acquisition occurred as of January 1,
1997:
<TABLE>
Pro Forma Year Ended
December 31, 1997
--------------------
(In Thousands Except
Per Share Amounts)
<S> <C>
Revenue:
Marketing and processing $184,399
Oil and gas sales 185,682
--------
Total revenue $370,081
--------
--------
Earnings before income taxes
and extraordinary item $ 997
--------
--------
Net loss $(14,655)
--------
--------
Basic loss per share $ (.43)
--------
--------
Diluted loss per share $ (.41)
--------
--------
</TABLE>
(3) ANSCHUTZ AND JEDI TRANSACTIONS:
- -------------------------------------------------------------------------------
During 1995 and 1996, the Company consummated transactions with The Anschutz
Corporation (Anschutz) and with Joint Energy Development Investments Limited
Partnership (JEDI), a Delaware limited partnership the general partner of
which is an affiliate of Enron Corp. (Enron).
Pursuant to a purchase agreement between the Company and Anschutz, Anschutz
purchased 3,760,000 shares of the Company's Common Stock and 620,000 shares
of a new series of preferred stock which were convertible into 1,240,000
shares of Common Stock for a total consideration of $45,000,000. The
Preferred Stock had a liquidation preference of $18.00 per share and received
dividends ratably with the Common Stock. In addition, Anschutz received a
warrant that entitled it to purchase 3,888,888 shares of the Company's Common
Stock for $10.50 per share (the A Warrant). The A Warrant was scheduled to
expire July 27, 1998.
The Anschutz investment was made in two closings. At the first closing,
which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000 at
8% per annum. The loan was nonrecourse to the Company and was secured by oil
and gas properties owned by the Company, the preferred stock of Archean Energy
Ltd., and a cash collateral account with an initial balance of $2,000,000. At
the second closing, which occurred in July 1995, Anschutz converted the loan
into 1,100,000 shares of Common Stock and the shares issued were recorded at
the carrying amount of the loan ($9,900,000). At the second closing, Anschutz
purchased an additional 2,660,000 shares of Common Stock, the convertible
preferred stock and the A Warrant for $35,100,000. The total proceeds
received by the Company at the second closing were allocated based on the
relative fair market values of the Common Stock ($18,272,000), convertible
preferred stock ($8,518,000) and the A Warrant ($8,310,000) issued. The
Company also entered into a shareholders agreement with Anschutz pursuant to
which Anschutz agreed to certain voting, acquisition, and transfer limitations
regarding its shares of Common Stock for five years after the second closing.
55
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(3) ANSCHUTZ AND JEDI TRANSACTIONS:
- -------------------------------------------------------------------------------
At the second closing on July 27, 1995, Forest and JEDI restructured JEDI's
existing loan which had a principal balance of approximately $62,368,000
before unamortized discount of $4,984,000. As a part of the restructuring,
the existing JEDI loan balance was divided into two tranches: a $40,000,000
tranche, which bore interest at the rate of 12.5% per annum and was due and
payable in full on December 31, 2000; and an approximately $22,400,000
tranche, which did not bear interest and was due and payable in full on
December 31, 2002. JEDI also relinquished the net profits interest that it
held in certain properties of the Company. In consideration, JEDI received a
warrant (the B Warrant) that entitled it to purchase 2,250,000 shares of the
Company's Common Stock for $10.00 per share. The B Warrant was recorded at
its estimated fair value. The fair value of the B Warrant was estimated to
be approximately $12,100,000, representing the amount determined using the
Black-Scholes Option Pricing Model, based on the market value of the stock at
the date of the transaction, less a discount of 10% to reflect the size of
the block of shares to be issued and the estimated brokerage fees on the
ultimate disposition of the shares.
Also at the second closing, JEDI granted an option to Anschutz (the Anschutz
Option), pursuant to which Anschutz was entitled to purchase from JEDI up to
2,250,000 shares of the Company's Common Stock at a purchase price per share
equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to
the date of exercise of the option, or (b) $15.50. The Anschutz Option was
scheduled to terminate on July 27, 1998. JEDI was to satisfy its obligations
under the Anschutz Option by exercising the B Warrant. The Company also
agreed to use the proceeds from the exercise of the A Warrant to pay
principal and interest on the $40,000,000 tranche of the JEDI loan.
As a result of the loan restructuring and the issuance of the B Warrant, the
Company reduced the recorded amount of the related liability to approximately
$45,493,000. No gain or loss was recorded on the loan restructuring since
the estimated fair value of the restructured loan and the B Warrant was
approximately equal to the original loan balance.
In December 1995, JEDI exchanged the $22,400,000 tranche and the B Warrant
for 1,680,000 shares of Common Stock (the JEDI Exchange). The fair value of
the 1,680,000 shares of Common Stock was estimated to be $15,400,000 based on
the quoted market price of the Common Stock at the date of the transaction,
less a discount of 35% to reflect the shareholder agreement with JEDI that
limited JEDI's ability to vote the shares or to transfer the shares before
July 27, 1998, the size of the block of stock and the estimated brokerage
fees on the ultimate disposition of the shares. No gain or loss was recorded
on the exchange since the estimated fair value of the Common Stock issued
less the estimated fair value of the B Warrant reacquired was approximately
equal to the carrying amount of the $22,400,000 tranche.
Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under
the Anschutz Option. Under the Anschutz Option, the Company was then
obligated to issue shares directly to Anschutz that previously would have
been issued to JEDI pursuant to the B Warrant.
On August 1, 1996, The Anschutz Corporation exercised the Anschutz Option to
purchase 2,250,000 shares of Common Stock for $26,200,000 or approximately
$11.64 per share. Proceeds received by Forest were used primarily to fund a
portion of 1996 capital expenditures.
On November 5, 1996, the Company exchanged 2,000,000 shares of Common Stock
plus approximately $13,500,000 cash to extinguish approximately $43,000,000
of nonrecourse secured debt then owed to JEDI. In connection with this
transaction, Anschutz acquired 1,628,888 shares of Common Stock by exercising
a portion of the A Warrant to purchase 388,888 shares of Common Stock at
$10.50 per share and by converting 620,000 shares of Forest's Second Series
Preferred Stock into 1,240,000 shares of Common Stock. The term of the
remaining 3,500,000 warrants held by Anschutz was extended to July 27, 1999.
The fair value of the shares of Common Stock issued to JEDI was estimated
based on the quoted market price of the Common Stock at the date of the
transaction, less a discount of 7-1/2% to reflect the lock-up agreement with
JEDI that limited JEDI's ability to transfer the shares before May 31, 1997,
the size of the block of shares to be issued and the estimated brokerage fees
on the
56
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(3) ANSCHUTZ AND JEDI TRANSACTIONS:
- -------------------------------------------------------------------------------
ultimate disposition of the shares. The fair value of the Common Stock
issued and the cash paid to JEDI, including related expenses of the
transaction, was less than the carrying amount of the debt extinguished.
Accordingly, the Company recorded an extraordinary gain on extinguishment of
debt in the fourth quarter of 1996 of approximately $2,166,000.
On August 28, 1997 Anschutz acquired 3,500,000 shares of Common Stock through
the exercise of the A Warrant for $8.60 per share resulting in cash proceeds
to Forest of $30,100,000. The original exercise price was $10.50 per share.
The reduction in the exercise price offered to Anschutz reflected an
approximate 10% present value discount computed to the warrants' expiration
date of july 27, 1999. Proceeds from the exercise were used to reduce
borrowings under the Company's bank credit facilities.
(4) INVESTMENT IN AFFILIATE:
- -------------------------------------------------------------------------------
In 1992, the Company sold its Canadian assets and related operations to
CanEagle Resources Corporation (CanEagle). In the transaction, the Company
received cash, net of expenses, and provided financing. On June 24, 1994
CanEagle sold a significant portion of its oil and gas properties to a third
party. In conjunction with this transaction, the Company received cash and
exchanged its investment in CanEagle for shares of preferred stock of a newly
formed entity, Archean energy, Ltd. (Archean). The Company accounted for the
proceeds from the 1994 transaction as a reduction in the carrying value of
its investment in CanEagle. The preferred shares of Archean were recorded at
an amount equal to the remaining carrying value of the Company's investment
in CanEagle.
The Company accounted for its investment in Archean (and CanEagle prior to
June 24, 1994) in a manner analagous to equity accounting. Losses were
recognized to the extent that losses were attributable to the Company's
interest. Earnings were recognized only if realization was assured. Under
this method, no earnings or losses were recognized in 1996 or 1995.
In December 1995, in connection with the Saxon acquisition, the Company
transferred its Archean preferred stock to Saxon and the Company continued to
account for the investment in Archean at its historical carrying value. In
September 1996, the preferred shares of Archean were redeemed for cash at
their approximate carrying value.
(5) LONG-TERM DEBT:
- -------------------------------------------------------------------------------
Long-term debt at December 31 consists of the following:
<TABLE>
1997 1996
------ ------
(In Thousands)
<S> <C> <C>
U.S. Credit Facility $ 85,550 26,400
Canadian Credit Facility - 32,500
Saxon Credit Facility 25,840 -
Production payment obligation 10,004 12,596
11 1/4% Senior Subordinated Notes 8,676 99,421
8 3/4% Senior Subordinated Notes 124,690 -
-------- ------
254,760 170,917
Less current portion - (2,058)
-------- ------
LONG-TERM DEBT $254,760 168,859
-------- ------
-------- ------
</TABLE>
57
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(5) LONG-TERM DEBT (CONTINUED):
- -------------------------------------------------------------------------------
U.S. AND CANADIAN FOREST CREDIT FACILITIES: At December 31, 1997 the Company
and its subsidiaries, Canadian Forest and ProMark, had a $250,000,000 global
credit facility (the Global Credit Facility) which provided for a global
borrowing base of $130,000,000 through a syndicate of banks led by the Chase
Manhattan Bank and the Chase Manhattan Bank of Canada. The borrowing base is
subject to semi-annual redeterminations. Under the Global Credit Facility,
the Company can allocate the global borrowing base between the United States
and Canada, subject to specified limitations. Funds borrowed under
the Global Credit Facility can be used for general corporate purposes. Under
the terms of the Global Credit Facility, the Company, Canadian Forest and
ProMark are subject to certain covenants and financial tests, including
restrictions or requirements with respect to working capital, cash flow,
additional debt, liens, asset sales, investments, mergers, cash dividends and
reporting responsibilities.
The Global Credit Facility is secured by a lien on, and a security interest
in, a portion of the Company's U.S. proved oil and gas properties, related
assets, pledges of accounts receivable and a pledge of 66% of the capital
stock of Canadian Forest. The Global Credit Facility is also indirectly
secured by substantially all of the assets of Canadian Forest.
On February 3, 1998, the Company amended the Global Credit Facility. the
primary purpose of the amendment was to increase the credit facility to
$300,000,000 and the borrowing base to $260,000,000 in order to finance the
Louisiana Acquisition. Under the amended Global Credit Facility, the maximum
credit facility allocations in the United States and Canada are $275,000,000
and $25,000,000, respectively. The borrowing base is currently allocated
$250,000,000 to the United States and $10,000,000 to Canada.
At December 31, 1997 the outstanding U.S. balance under the Global Credit
Facility was $85,550,000 with a weighted average interest rate of 7.42% per
annum and there was no outstanding Canadian balance under the Global Credit
Facility. The Company had also used the Global Credit Facility for a Canadian
letter of credit in the amount of $4,522,000 CDN.
SAXON CREDIT FACILITY:
Saxon has a credit facility with a borrowing base of $39,800,000 CDN. The
loan is subject to semi-annual review and has demand features; however,
repayments are not required provided that borrowings are not in excess of the
borrowing base and Saxon complies with other existing covenants. At December
31, 1997 the outstanding balance under this facility was $36,957,000 CDN.
PRODUCTION PAYMENT OBLIGATION:
The dollar-denominated production payment was entered into in 1992 to finance
property acquisitions. The original amount of the dollar-denominated
production payment was $37,550,000, which was recorded as a liability of
$28,805,000 after a discount to reflect a market rate of interest of 15.5%.
At December 31, 1997 the remaining principal amount was $14,895,000 and the
recorded liability was $10,004,000. Under the terms of this production
payment, the Company must make a monthly cash payment which is the greater of
a base amount or 85% of net proceeds from the subject properties located in
the United States, as defined, except that the amount required to be paid in
any given month shall not exceed 100% of the net proceeds from the subject
properties. The Company
58
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(5) LONG-TERM DEBT (CONTINUED):
- -------------------------------------------------------------------------------
retains a management fee equal to 10% of sales from the properties, which is
deducted in the calculation of net proceeds. The Company's estimate as of
December 31, 1997, based on expected production and prices, budgeted capital
expenditure levels and expected discount amortization, is that projected
payments will decrease the recorded liability by approximately $195,000 in
1998, $80,000 in 1999, $1,055,000 in 2000, $1,028,000 in 2001 and
$1,418,000 in 2002. Properties to which approximately 3% of the Company's
estimated proved reserves are attributable, on an MCFE basis, are dedicated
to this production payment financing.
11-1/4% SENIOR SUBORDINATED NOTES:
On September 8, 1993 the Company completed a public offering of $100,000,000
aggregate principal amount of 11-1/4% Senior Subordinated Notes due September
1, 2003 (the 11-1/4% Notes). On September 29, 1997, pursuant to a tender offer,
$90,233,000 of the Company's outstanding $100,000,000 aggregate principal amount
of 11-1/4% Notes was tendered by the holders. The purchase price for each
$1,000 principal amount of 11-1/4% Notes validly tendered and accepted was
$1,096.96. On October 17, 1997 an additional $1,091,000 aggregate principal
amount of 11-1/4% Notes was tendered at a purchase price of $1,090.00 for each
$1,000.00 principal amount. As a result of these purchases, Forest recorded an
extraordinary loss of approximately $12,359,000 relating to the excess of the
tender price over the carrying amount of the 11-1/4% Notes, net of related
unamortized debt issuance costs and original issue discount. The 11-1/4%
Notes are callable on or after September 1, 1998 at 105.688% of principal
amount.
8-3/4% SENIOR SUBORDINATED NOTES:
On September 29, 1997 Canadian Forest completed an offering of $125,000,000
of 8-3/4% Senior Subordinated Notes due 2007 (the 8-3/4% Notes), which were
sold at 99.745% of par and guaranteed on a senior subordinated basis by the
Company. A portion of the proceeds was used to fund the tender offer
described above, a portion was used to repay the outstanding balance under
the Canadian Credit Facility and the remainder was used for working capital
and to fund capital expenditures.
The Company is required to recognize foreign currency translation gains or
losses related to the 8-3/4% Notes because the debt is denominated in U.S.
dollars and the functional currency of Canadian Forest is the Canadian
dollar. As a result of the decline in the value of the Canadian dollar
relative to the U.S. dollar during the fourth quarter of 1997, the Company
reported a noncash translation loss of approximately $4,051,000.
On February 2, 1998 Canadian Forest issued $75,000,000 principal amount of
8-3/4% Notes, an add-on to the Company's issue of 8-3/4% Notes that were
issued in September 1997. The Company received net proceeds of approximately
$75,000,000 which were used to provide funds for the Louisiana Acquisition.
(6) DEFERRED REVENUE:
- -------------------------------------------------------------------------------
From 1991 to 1994, the Company sold volumetric production payments to Enron
to fund capital expenditures and property acquisitions.
On June 30, 1997 the Company purchased from Enron the obligation related to
its last remaining volumetric production payment. The purchase price of
approximately $6,832,000 plus expenses was funded by advances under the
Company's Credit Facility.
59
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(6) DEFERRED REVENUE (CONTINUED):
- -------------------------------------------------------------------------------
Amounts received under the production payments were recorded as deferred
revenue. Volumes associated with amortization of deferred revenue for the
years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
Net sales volumes
attributable to production
Volumes delivered (1) Payment deliveries (2)
----------------------- --------------------------
Natural Gas Oil Natural Gas oil
(MMCF) (MBBLS) (MMCF) (MBBLS)
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
1997 951 - 801 -
1996 3,721 87 3,168 74
1995 11,045 173 9,120 145
</TABLE>
(1) Amounts settled in cash in lieu of volumes were $700,000, $1,641,000
and $2,433,000 for the years ended December 31, 1997, 1996, and 1995,
respectively.
(2) Represents volumes required to be delivered to Enron affiliates net of
estimated royalty volumes.
(7) INCOME TAXES:
The income tax expense (benefit) is different from amounts computed by
applying the statutory Federal income tax rate for the following reasons:
<TABLE>
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Tax expense (benefit) at 35% of income (loss)
before income taxes and extraordinary item $ 2,234 2,300 (6,367)
Change in the valuation allowance for deferred
tax assets attributable to income (loss) before
income taxes and extraordinary item (1,819) (367) 5,732
Canadian earnings taxed at a higher effective rate 85 1,068 -
Canadian Crown payments (net of Alberta Royalty
Tax Credit) not deductible for tax purposes 3,181 2,799 -
Canadian resource allowance (3,995) (3,005) -
Non-deductible depletion and amortization 1,934 1,694 -
Expiration of tax carryforwards 1,041 643 535
Unrealized foreign exchange losses and other 632 319 93
------- ------ ------
Total income tax expense (benefit) $ 3,293 5,451 (7)
------- ------ ------
------- ------ ------
</TABLE>
Deferred income taxes generally result from recognizing income and expenses at
different times for financial and tax reporting. In the U.S., the largest
current difference is the tax effect of the capitalization of certain
development, exploration and other costs under the full cost method of
accounting, recording proceeds from the sale of properties in the full cost
pool, and the provision for impairment of oil and gas properties for financial
accounting purposes. In Canada, differences result in part from accelerated
cost recovery of oil and gas capital expenditures for tax purposes.
60
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(7) INCOME TAXES (CONTINUED):
- -------------------------------------------------------------------------------
The components of the net deferred tax liability at December 31, 1997 and
1996 are as follows:
<TABLE>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 266 296
Accrual for retirement benefits 865 1,128
Accrual for medical benefits 2,134 2,220
Accrual for sales recorded on the entitlement method 1,538 1,499
Accrual for interest rate swaps 169 509
Investment in subsidiaries 4,971 -
Deferred revenue 938 -
Net operating loss carryforward 41,329 51,393
Depletion carryforward 6,958 6,958
Investment tax credit carryforward 1,539 2,576
Alternative minimum tax credit carryforward 2,201 2,187
Unrealized foreign exchange losses 1,402 -
Other 390 613
-------- --------
Total gross deferred tax assets 64,700 69,379
Less valuation allowance (48,417) (45,910)
-------- --------
Net deferred tax assets 16,283 23,469
Deferred tax liabilities:
Property and equipment (45,612) (51,129)
Deferred income on long term contracts (5,243) (6,014)
Other (195) (42)
-------- --------
Total gross deferred tax liabilities (51,050) (57,185)
-------- --------
Net deferred tax liability $(34,767) (33,716)
-------- --------
-------- --------
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1997 and 1996 was an increase of $2,507,000 and $786,000, respectively, which
resulted from:
<TABLE>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Increase (decrease) in the valuation allowance for deferred
tax assets attributable to income (loss) before income
taxes and extraordinary item $(1,819) 1,544
Increase (decrease) in the valuation allowance attributable
to the extraordinary loss (gain) 4,326 (758)
-------- -------
Net increase in the valuation allowance $ 2,507 786
-------- -------
-------- -------
</TABLE>
61
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(7) INCOME TAXES (CONTINUED):
- -------------------------------------------------------------------------------
The Alternative Minimum Tax (AMT) credit carryforward available to reduce
future U.S. Federal regular taxes aggregated $2,201,000 at December 31, 1997.
This amount may be carried forward indefinitely. U.S. Federal regular and
AMT net operating loss carryforwards at December 31, 1997 were $111,473,000
and $106,506,000, respectively, and will expire in the years indicated below:
<TABLE>
Regular AMT
------- -------
(In Thousands)
<S> <C> <C>
2000 $ 3,590 3,987
2005 8,307 -
2008 28,999 31,799
2009 22,817 22,964
2010 45,737 46,059
2011 268 -
2012 1,755 1,697
-------- -------
$111,473 106,506
-------- -------
-------- -------
</TABLE>
AMT net operating loss carryforwards can be used to offset 90% of AMT income
in future years.
Investment tax credit carryforwards available to reduce future U.S. Federal
income taxes aggregated $1,539,000 at December 31, 1997 and expire at
various dates through the year 2001. Percentage depletion carryforwards
available to reduce future U.S. Federal taxable income aggregated $19,879,000
at December 31, 1997. This amount may be carried forward indefinitely.
Canadian net operating losses available to reduce future Canadian Federal
income taxes were $5,173,000 ($7,399,000 CDN) at December 31, 1997 and will
expire in the years indicated below:
<TABLE>
(In Thousands)
<S> <C>
1998 $ 4,734
2000 234
2003 205
----------
$ 5,173
----------
----------
</TABLE>
Canadian tax pools relating to the exploration, development and production of
oil and natural gas which are available to reduce future Canadian Federal
income taxes aggregated approximately $52,783,000 ($75,491,000 CDN) for
Canadian Forest and $57,824,000 ($82,700,000 CDN) for Saxon at December
31, 1997. These tax pool balances are deductible on a declining balance
basis ranging from 10% to 100% of the balance annually. The amounts may be
carried forward indefinitely.
The availability of some of these U.S. Federal tax attributes to reduce
current and future U.S. taxable income of the Company is subject to various
limitations under the Internal Revenue Code. In particular, the Company's
ability to utilize such tax attributes could be limited due to the occurrence
of an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code resulting from the Anschutz transaction in 1995 and the public
stock issuance in 1996. Under the general provisions of Section 382 of the
Code, the Company's net operating loss carryforwards will be subject to an
annual limitation as to their use of approximately $5,700,000. Even though
the Company is limited in its ability to use the net operating loss
carryovers under these provisions of Section 382, it may be entitled to use
these net operating loss carryovers to offset (a) gains recognized in the
five years following the ownership change on the disposition of certain
assets, to the extent that the value of the assets disposed of exceeds their
tax basis on the date of the ownership change or (b) any item of income which
is properly taken into account in the five years following the ownership
change but which is attributable to periods before the ownership change
(built-in gain). The ability of the Company to use these net operating loss
carryovers to offset built-in gain first requires that the Company have total
built-in gains at the time of the ownership change which are greater than a
threshold amount. In addition, the use of these net operating loss
carryforwards to offset built-in gain cannot exceed the amount of the total
built-in gain. The Company has not finalized its calculation of the amount
of built-in gains at
62
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(7) INCOME TAXES (CONTINUED):
- -------------------------------------------------------------------------------
the date of the ownership change, but estimates that its ability to fully
utilize its net operating loss carryforwards may be limited by these provisions.
Due to limitations in the Internal Revenue Code, other than the Section 382
limitations discussed above, the Company believes it is unlikely that it will
be able to use any significant portion of its investment tax credit
carryforwards before they expire.
(8) PREFERRED STOCK:
- -------------------------------------------------------------------------------
$.75 CONVERTIBLE PREFERRED STOCK: The Company had 10,000,000 shares of $.75
Convertible Preferred Stock authorized, par value $.01 per share, of which
there were 2,877,673 shares outstanding at December 31, 1996 with an aggregate
liquidation preference of $28,776,730.
The Company called for redemption on February 7, 1997 all 2,877,673 shares of
its $.75 Convertible Preferred Stock. The redemption price was $10.00 per share
plus accumulated and unpaid dividends to and including the date of redemption
(for an aggregate redemption price of $10.06 per share). In lieu of cash
redemption, prior to the close of business on February 21, 1997 the holders of
the preferred shares had the right to convert each share into 0.7 share of
Forest's Common Stock. As of February 21, 1997, 2,783,945 shares or 96.7% of
the shares outstanding were tendered for conversion into Common Stock. The
remaining 93,728 shares that were not tendered for conversion were redeemed by
the Company at the redemption price of $10.06 per share on February 28, 1997.
SECOND SERIES PREFERRED STOCK: At December 31, 1995 the Company had 620,000
shares of Second Series Preferred Stock authorized, par value $.01 per share,
of which there were 620,000 shares outstanding with an aggregate liquidation
preference of $11,160,000. On November 5, 1996 all 620,000 shares of the
Second Series Preferred Stock were converted into 1,240,000 shares of Common
Stock.
(9) COMMON STOCK:
- -------------------------------------------------------------------------------
COMMON STOCK: The Company has 200,000,000 shares of Common Stock authorized,
par value $.10 per share. On January 5, 1996 a 5-to-1 reverse stock split
was approved by the Company's shareholders. The reverse split became
effective on January 8, 1996. Unless otherwise indicated, all share amounts
have been adjusted to give effect to the 5-to-1 reverse stock split.
In March 1997 and May 1997, pursuant to its Equity Participation Agreement
with Saxon, Forest exercised its right to purchase from the treasury of Saxon
7,950,150 shares (2,380,608 non-voting) of common stock. In consideration,
Forest issued 196,856 shares of Forest Common Stock to Saxon valued at $14.31
per share. The shares issued by Forest to Saxon were classified as treasury
shares prior to their sale by Saxon in October 1997.
On January 31, 1996 13,200,000 shares of Common Stock were sold for $11.00
per share in a public offering. Of this amount 1,060,000 shares were sold by
Saxon and 12,140,000 were sold by Forest. The net proceeds to Forest and
Saxon from the issuance of shares totaled approximately $136,000,000 after
deducting issuance costs and underwriting fees.
In October 1993, the Board of Directors adopted a shareholders' rights plan
(the Plan) and entered into the Rights Agreement. The Company paid a
dividend distribution of one Preferred Share Purchase Right (the Rights) on
each outstanding share of the Company's Common Stock. The Rights are
exercisable only if a person or group acquires
63
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(9) COMMON STOCK (CONTINUED):
- -------------------------------------------------------------------------------
20% or more of the Company's Common Stock or announces a tender offer which
would result in ownership by a person or group of 20% or more of the Common
Stock. Each right initially entitles each shareholder to buy 1/100th of a
share of a new series of Preferred Stock at an exercise price of $30.00,
subject to adjustment upon certain occurrences. Each 1/100th of a share of
such new Preferred Stock that can be purchased upon exercise of a Right has
economic terms designed to approximate the value of one share of Common
Stock. The Rights will expire on October 29, 2003, unless extended or
terminated earlier. In connection with the Anschutz transaction, the Company
amended the Rights Agreement to exempt from the provisions of the Rights
Agreement shares of Common Stock acquired by Anschutz and JEDI in the
Anschutz and JEDI transactions, including shares later acquired pursuant to
the conversion of the Second Series Preferred Stock and the exercise of the A
Warrant and the Anschutz Option. The amendment to the Rights Agreement did
not exempt other shares of Common Stock acquired by Anschutz or JEDI from the
provisions of the Rights Agreement.
WARRANTS:
At December 31, 1995 the Company had outstanding 1,244,715 warrants to purchase
shares of its Common Stock (the Public Warrants). Each Public Warrant entitled
the holder to purchase one-fifth of a share of Common Stock at a price of $3.00
and was noncallable. During 1996, 112,185 warrants were exercised to purchase
22,437 shares of Common Stock. On October 1, 1996 the remaining Public Warrants
expired.
In December 1995, the Company assumed JEDI's obligations under the Anschutz
Option. On August 1, 1996 Anschutz exercised the Anschutz Option for
$26,200,000 or approximately $11.64 per share and Anschutz received 2,250,000
shares of Common Stock.
At December 31, 1996 the Company had outstanding the A Warrant that was held
by Anschutz. At that date, the A Warrant entitled the holder to purchase
3,500,000 shares of Common Stock at a price of $10.50 per share. The Warrant
was scheduled to expire on July 27, 1999. On November 5, 1996 Anschutz
exercised a portion of the A Warrant and purchased 388,888 shares of Common
Stock at $10.50 per share. On August 28, 1997 Anschutz acquired 3,500,000
shares of Common Stock through the exercise of the A Warrant for $8.60 per
share resulting in cash proceeds to Forest of $30,100,000. The reduction in
the exercise price offered to Anschutz reflects an approximate 10% present
value discount computed to the warrants' expiration date of July 27, 1999.
Proceeds from the exercise were used to reduce borrowings under the Company's
bank credit facilities.
At December 31, 1997 the Company had no outstanding warrants.
STOCK INCENTIVE PLAN:
In November 1997, three executive officers of the Company received conditional
restricted stock awards in lieu of stock option grants. The restricted stock
awarded is subject to certain conditions and is subject to a two-year
restriction on transfer. If prior to January 1, 1999 the closing price of
the Company's Common Stock during any twenty-consecutive-trading-day period
as reported on the New York Stock Exchange is at least $22.00 per share, a
total of 230,000 shares will be earned under the conditions of the restricted
stock awards. Additional shares will be earned for each $1.00 increase in
such average price to a maximum of 850,000 shares if the average price is
$30.00 or higher.
During 1997, the Company issued 17,617 shares of restricted Common Stock to
officers and employees as a portion of the bonuses earned for the year ended
December 31, 1996. The shares vested immediately upon issuance, but are
subject to a two-year restriction on transfer.
STOCK OPTIONS:
In March 1992, the Company adopted the 1992 Stock Option Plan under which
non-qualified stock options may be granted to key employees and non-employee
directors. The aggregate number of shares of Common Stock which the Company
may issue under options granted pursuant to this plan may not exceed 10% of
the total number of shares outstanding or issuable at the date of grant
pursuant to outstanding rights, warrants, convertible or exchangeable
securities or other options. The exercise price of an option may not be less
than 85% of the fair market value of one share of the Company's Common Stock
on the date of grant. The options vest 20% on the date of grant and an
additional 20% on each grant anniversary date thereafter.
64
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(9) COMMON STOCK (CONTINUED):
- -------------------------------------------------------------------------------
The following table summarizes the activity in the Company's stock-based
compensation plan for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
Weighted
Average Number of
Number of Exercise Shares
Shares Price Exercisable
--------- -------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1995 628,000 $20.46 461,200
Granted at fair value 1,383,900 12.74
Exercised (35,120) 11.42
Cancelled (515,200) 20.47
--------- ------
Outstanding at December 31, 1996 1,461,580 13.37 362,460
GRANTED AT FAIR VALUE 433,000 16.98
EXERCISED (43,720) 12.09
CANCELLED (61,500) 12.79
--------- ------
OUTSTANDING AT DECEMBER 31, 1997 1,789,360 $14.29 669,620
--------- ------
--------- ------
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
-------------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number of Contractual Exercise Number of Exercise
Exercise Price Shares Life Price Shares Price
-------------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$11.25 483,660 8.10 $11.25 169,620 $11.25
$12.38-13.94 124,000 8.83 12.64 40,000 12.64
$14.00 627,200 8.84 14.00 250,400 14.00
$14.25-17.50 496,500 9.07 16.79 151,600 16.17
$25.00 58,000 4.75 25.00 58,000 25.00
----------- --------- ---- ------ ------- -----
$11.25-25.00 1,789,360 8.57 $14.29 669,620 $14.67
----------- --------- ---- ------ ------- -----
----------- --------- ---- ------ ------- -----
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost is recognized for options
granted at a price equal to the fair market value of the common stock. Had
compensation cost for the Company's stock-based compensation plan been
determined using the fair value of the options at the grant date, the
Company's net loss for the years ended December 31, 1997 and 1996 would have
been $11,864,000 and $2,230,000, respectively, and the basic loss per share
would have been $.36 and less than $.01 per share, respectively. There were
no stock options granted in 1995; accordingly, no compensation cost would have
been recognized in that year.
The fair value of each option granted in 1997 and 1996 was estimated using
the Black-Scholes option pricing model. The following assumptions were used
in 1997: expected option life of 5 years; risk free interest rates ranging
from 5.752% to 6.839%; estimated volatility of 55.74%; and dividend yield of
zero percent. The weighted average fair market value of options granted
during 1997 was estimated to be $9.20 per share based on these assumptions.
The following assumptions were used in 1996: expected option life of 5
years; risk free interest rates ranging from 5.261% to 6.022%; estimated
volatility of 59.95%; and dividend yield of zero percent. The weighted
average fair market value of options granted during 1996 was estimated to be
$7.22 per share based on these assumptions.
65
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(10) EMPLOYEE BENEFITS
- -------------------------------------------------------------------------------
PENSION PLANS:
The Company has a qualified defined benefit pension plan which covers its United
States employees (Pension Plan). The Pension Plan has been curtailed and all
benefit accruals were suspended effective May 31, 1991.
The benefits under the Pension Plan are based on years of service and the
employee's average compensation during the highest consecutive sixty-month
period in the fifteen years prior to retirement. No contribution was made to
the Plan in 1997, 1996 or 1995.
The following table sets forth the Pension Plan's funded status and amounts
recognized in the Company's consolidated financial statements at December 31:
<TABLE>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
(all benefits are vested) $(26,700) (25,959)
-------- -------
-------- -------
Projected benefit obligation for service rendered to date $(26,700) (25,959)
Plan assets at fair market value, consisting primarily of
listed stocks, bonds and other fixed income obligations 24,808 24,897
-------- -------
Unfunded pension liability (1,892) (1,062)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 3,051 2,012
-------- -------
Pension asset recognized in the balance sheet $ 1,159 950
-------- -------
-------- -------
</TABLE>
For 1997, the discount rate used in determining the actuarial present value
of the projected benefit obligation was 7.25% and the expected long-term rate
of return on assets was 9%. For 1996, the discount rate used in determining
the actuarial present value of the projected benefit obligation was 7.75% and
the expected long-term rate of return on assets was 9%. For 1995 the
discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.25% and the expected long-term rate of
return on assets was 9%.
The components of net pension expense (benefit) for the years ended December
31, 1997, 1996 and 1995 are as follows:
<TABLE>
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net pension expense (benefit) included the
following components:
Interest cost on projected benefit obligation $ 1,931 1,926 2,049
Actual return on plan assets (2,386) (3,056) (3,243)
Net amortization and deferral 247 1,098 1,234
------- ------ ------
Net pension expense (benefit) $ (208) (32) 40
------- ------ ------
------- ------ ------
</TABLE>
66
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(10) EMPLOYEE BENEFITS (CONTINUED):
- -------------------------------------------------------------------------------
The Company has a non-qualified unfunded supplementary retirement plan that
provides certain officers with defined retirement benefits in excess of
qualified plan limits imposed by Federal tax law. Benefit accruals under this
plan were suspended effective May 31, 1991 in connection with suspension of
benefit accruals under the Pension Plan. At December 31, 1997 the projected
benefit obligation under this plan totaled $618,000, which amount is included in
other liabilities in the accompanying balance sheet. The projected benefit
obligation is determined using the same discount rate as is used for
calculations for the Pension Plan.
As a result of suspension of benefit accruals under the Pension Plan and the
supplementary retirement plan, the Company records as a liability the unfunded
pension liability attributable to these plans. Changes in the minimum unfunded
pension liability are recorded as adjustments to capital surplus.
Canadian Forest's employees are members of a non-contributory defined benefit
pension plan (Canadian Pension Plan). The benefits under the Canadian Pension
Plan are based on years of service, the employee's average annual compensation
during the highest consecutive sixty month period of pensionable service and the
employee's age at retirement. Canadian Forest's contribution to the Canadian
Pension Plan was $47,000 in 1996. No contribution was made to the Canadian
Pension Plan in 1997.
The following table sets forth the Canadian Pension Plan's funded status and
amounts recognized in the Company's consolidated financial statements at
December 31:
<TABLE>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
(all benefits are vested) $(4,362) (4,119)
------- ------
------- ------
Projected benefit obligation for service rendered to date $(4,362) (4,119)
Plan assets at fair market value, consisting primarily of
listed stocks, bonds and other fixed income obligations 5,171 4,922
------- ------
Pension surplus 809 803
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions (983) (915)
------- ------
Pension liability recognized in the balance sheet $ (174) (112)
------- ------
------- ------
</TABLE>
For 1997 and 1996, the discount rate used in determining the actuarial
present value of the projected benefit obligation was 7% and the expected
long-term rate of return on assets was 7%.
67
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(10) EMPLOYEE BENEFITS (CONTINUED):
- -------------------------------------------------------------------------------
The components of net pension expense for the year ended December 31 are as
follows:
<TABLE>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Net pension expense included the
following components:
Interest cost on projected benefit obligation $ 465 456
Actual return on plan assets (325) (310)
Net amortization and deferral (51) (69)
----- ----
Net pension expense $ 89 77
----- ----
----- ----
</TABLE>
RETIREMENT SAVINGS PLANS:
The Company sponsors a qualified tax deferred savings plan in accordance with
the provisions of Section 401(k) of the Internal Revenue Code for its U.S.
employees. Employees may defer up to 10% of their compensation, subject to
certain limitations. The Company matches the employee contributions up to 5%
of employee compensation. In the first six months of 1995, Company
contributions were made using treasury stock. In the last six months of 1995
and in the first nine months of 1996, Company contributions were made by
issuing authorized but unissued shares of Common Stock. In the last three
months of 1996 and all of 1997, Company contributions were made in cash. The
expense associated with the Company's contribution was $482,000 in 1997,
$399,000 in 1996 and $423,000 in 1995.
Canadian Forest also provides a savings plan which is available to all of its
employees. Employees may contribute up to 4% of their salary, subject to
certain limitations, with Canadian Forest matching the employee contribution
in full. Certain limitations are in effect with respect to withdrawals from
the plan. Canadian Forest's contribution to the plan was $117,000 in 1997
and $95,000 in 1996.
EXECUTIVE RETIREMENT AGREEMENTS:
The Company entered into agreements in December 1990 (the Agreements) with
certain former executives and directors (the Retirees) whereby each executive
retired from the employ of the Company as of December 28, 1990. Pursuant to
the terms of the Agreements, the Retirees are entitled to receive
supplemental retirement payments from the Company in addition to the amounts
to which they are entitled under the Company's retirement plan. In addition,
the Retirees and their spouses are entitled to lifetime coverage under the
Company's group medical and dental plans, tax and other financial services,
and payments by the Company in connection with certain club membership dues.
The Retirees also continued to participate in the Company's royalty bonus
program until December 31, 1995. The Company has also agreed to maintain
certain life insurance policies in effect at December 1990, for the benefit
of each of the Retirees.
The Company's obligation to one retiree under a revised retirement agreement
was payable in Common Stock or cash, at the Company's option, in May of each
year from 1993 through 1996 at approximately $190,000 per year with the
balance of $149,000 paid in May 1997. The Agreements for the other six
Retirees provide for supplemental retirement payments totaling approximately
$970,000 in 1998 and approximately $770,000 per year in 1999 and 2000.
The $2,090,000 present value of the amounts due under the agreements,
discounted at 13%, is included in other current and long-term liabilities.
LIFE INSURANCE:
The Company provides life insurance benefits for certain key employees and
retirees under split dollar life insurance plans. The premiums for the life
insurance policies were $921,000 in each of the years 1997, 1996 and 1995, of
which $831,000 is for policies for retired executives. Under the life
insurance plans, the Company is assigned a portion of the benefits which is
designed to recover the premiums paid.
68
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(10) EMPLOYEE BENEFITS (CONTINUED):
- -------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS:
The Company accrues expected costs of providing postretirement benefits to
employees, their beneficiaries and covered dependents in accordance with
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (Statement No. 106).
The following table sets forth the status of the postretirement benefit plan and
the amounts recognized in the Company's consolidated financial statements at
December 31:
<TABLE>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Retired participants $4,963 4,522
Active participants fully eligible for benefits 286 256
Other active participants 1,312 1,101
------ -----
Accumulated postretirement benefit obligation (APBO) 6,561 5,879
Plan assets at fair market value - -
------ -----
APBO in excess of plan assets 6,561 5,879
Unrecognized loss (764) (166)
------ -----
Accrued postretirement benefit liability $5,797 5,713
------ -----
------ -----
</TABLE>
The discount rates used in determining the actuarial present value of the
APBO at December 31, 1997, 1996 and 1995 were 7.25%, 7.75% and 7.25%,
respectively.
The components of postretirement benefit expense for the years ended December
31, 1997, 1996 and 1995 are as follows:
<TABLE>
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service cost $147 131 83
Interest cost on APBO 454 418 421
---- ---- ----
Postretirement benefit cost $601 549 504
---- ---- ----
---- ---- ----
</TABLE>
For 1997, a 1% increase in health care cost trends would have increased the
APBO by $922,000 and the service and interest cost by $85,000.
69
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(11) COMMITMENTS AND CONTINGENCIES:
- -------------------------------------------------------------------------------
Future rental payments for office facilities and equipment under the
remaining terms of noncancelable leases are $1,526,000, $1,425,000,
$1,225,000, $1,145,000 and $1,151,000 for the years ending December 31, 1998
through 2002, respectively.
Net rental payments applicable to exploration and development activities and
capitalized in the oil and gas property accounts aggregated $1,120,000 in
1997, $1,050,000 in 1996 and $972,000 in 1995. Net rental payments charged
to expense amounted to $4,149,000 in 1997, $3,336,000 in 1996 and $3,529,000
in 1995. Rental payments include the short-term lease of vehicles. There are
no leases which are accounted for as capital leases.
A significant portion of Canadian Forest's natural gas production is sold
through the ProMark Netback Pool. At December 31, 1997 the ProMark Netback
Pool had entered into fixed price contracts to sell approximately 13.6 BCF of
natural gas in 1998 at an average price of $1.83 CDN per MCF and
approximately 5.4 BCF of natural gas in 1999 at an average price of
approximately $2.16 CDN per MCF. Canadian Forest, as one of the producers in
the ProMark Netback Pool, is obligated to deliver a portion of this gas. In
1997 Canadian Forest supplied 27% of the gas for the Netback Pool.
As part of ProMark's gas marketing activities, ProMark has entered into fixed
price contracts to purchase and to resell natural gas through 1999. ProMark
has commitments to purchase and commitments to resell approximately 125,000
MCF per day through October 31, 1998 and approximately 7,000 MCF per day
thereafter through October 31, 1999. The Company could be exposed to loss in
the event that a counterparty to these agreements failed to perform in
accordance with the terms of the agreements.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
(12) FINANCIAL INSTRUMENTS:
- -------------------------------------------------------------------------------
ENERGY SWAPS AND COLLARS:
In order to hedge against the effects of declines in oil and natural gas
prices on the Company's future oil and gas production, the Company enters
into energy swap agreements with third parties and accounts for the
agreements as hedges based on analogy to the criteria set forth in Statement
of Financial Accounting Standards No. 80, "Accounting for Futures Contracts."
In a typical swap agreement, the Company receives the difference between a
fixed price per unit of production and a price based on an agreed-upon third
party index if the index price is lower. If the index price is higher, the
Company pays the difference. The Company's current swaps are settled on a
monthly basis. For the years ended December 31, 1997, 1996 and 1995, the
Company's gains (losses) under its swap agreements were $(7,439,000),
$(10,422,000) and $3,536,000, respectively. The Company also enters into
collar agreements with third parties that are accounted for as hedges. A
collar agreement is similar to a swap agreement, except that the Company
receives the difference between the floor price and the index price only if
the index price is below the floor price, and the Company pays the difference
between the ceiling price and the index price only if the index price is
above the ceiling price.
70
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(12) FINANCIAL INSTRUMENTS (CONTINUED):
- -------------------------------------------------------------------------------
The following table summarizes outstanding energy swaps at December 31, 1997:
<TABLE>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
UNITED STATES(1)
Natural Gas Swaps:
Contract volumes (BBTU) 10,435 1,056 793 660 37
Weighted average price (per MMBTU) $ 2.33 2.21 2.15 2.19 2.80
Oil Swaps:
Contract volumes (MBBLS) 180 - - - -
Weighted average price (per barrel) $20.50 - - - -
CANADA(2)
Natural Gas Swaps:
Contract volumes (BBTU) 1,647 - - - -
Weighted average price (per MMBTU) $1.21 - - - -
Oil Swaps:
Contract volumes (MBBLS) 303 - - - -
Weighted average price (per barrel) $20.57 - - - -
</TABLE>
(1) Settled on the basis of New York Mercantile Exchange prices.
(2) Settled on the basis of Alberta Energy Company "C" U.S. dollar prices.
71
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Subsequent to December 31, 1997 the Company entered into eight additional
natural gas swaps. The swaps are for 36,000 MMBTU of natural gas per day
from March 1998 to November 1998 at fixed prices ranging from $1.62 per
MMBTU (AECO "C", U.S. $ basis) to $2.35 per MMBTU (NYMEX basis), with a
weighted average price of $2.29 per MMBTU.
The Company also uses basis swaps in connection with energy swaps to fix the
differential between the NYMEX price and the index price at which the hedged
gas is to be sold. At December 31, 1997 there were three basis swaps in
place, for a weighted average volume of approximately 11,000 MMBTU/day
through December 1998. Subsequent to December 31, 1997, the Company entered
into two additional basis swaps through September 1998, for a weighted
average volume of approximately 14,000 MMBTU/day.
The Company is exposed to off-balance-sheet risks associated with swap
agreements arising from movements in the prices of oil and natural gas and
from the unlikely event of non-performance by the counterparties to the swap
agreements.
72
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(12) FINANCIAL INSTRUMENTS (CONTINUED):
- -------------------------------------------------------------------------------
When the Company purchased Canadian Forest in January 1996, interest rate
swaps were in place to hedge the interest rate on Canadian Forest's bank debt.
These swaps which expire in 1998, fix the interest rate on approximately
$30,000,000 CDN of long-term debt. Prior to September 1997, amounts received
or paid upon monthly settlement were recorded as adjustments to the interest
expense related to the debt. Following the September 1997 repayment of
Canadian Forest's bank debt, however, the swaps are required to be marked to
market and any gains or losses resulting from changes in the market value
recorded in earnings.
Set forth below is the estimated fair value of certain on- and off-balance
sheet financial instruments, along with the methods and assumptions used to
estimate such fair values as of December 31, 1997:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE:
The carrying amount of these instruments approximates fair value due to their
short maturity.
PRODUCTION PAYMENT OBLIGATION:
The fair value of the Company's production payment obligation has been
estimated as approximately $9,400,000 by discounting the projected future
cash payments required under the agreement by 8.567%.
SENIOR SUBORDINATED NOTES:
The fair value of the Company's 8 3/4% Senior Subordinated Notes was
approximately $126,250,000, based upon quoted market prices of the Notes.
The fair value of the Company's 11 1/4% Senior Subordinated Notes was
approximately $9,327,000, based upon quoted market prices of the Notes.
INTEREST RATE SWAP AGREEMENTS:
The fair value of the Company's interest rate swap agreements was a loss of
approximately $635,000, which amount has been recorded as a liability at
December 31, 1997.
ENERGY SWAP AGREEMENTS:
The fair value of the Company's energy swap agreements was a gain of
approximately $2,324,000, based upon the estimated net amount the Company
would receive to terminate the agreements.
BASIS SWAP AGREEMENTS:
The fair value of the Company's basis swap agreements was a gain of
approximately $48,000, based upon the estimated net amount the Company would
receive to terminate the agreements.
(13) MAJOR CUSTOMERS:
- -------------------------------------------------------------------------------
The Company's sales to individual customers which exceeded 10% of the
Company's total revenue in 1995 (exclusive of the effects of energy swaps and
hedges) are shown below. No single customer accounted for more than 10% of
total revenue in 1997 or in 1996.
<TABLE>
1995
--------------
(In Thousands)
<S> <C>
Enron Affiliates $30,916
Chevron USA Production Company 11,893
</TABLE>
The amount shown for Enron Affiliates includes oil and natural gas sales to
Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation,
Cactus Funding Corporation, Cactus Hydrocarbon III Limited Partnership, Enron
Gas Services Corporation and Enron Reserve Acquisition. Approximately
$17,217,000 represents sales recorded for deliveries under volumetric
production payments.
73
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(14) GAS CONTRACT SETTLEMENT:
- -------------------------------------------------------------------------------
The Company had gas sales contracts with Columbia Gas Transmission (Columbia)
which were rejected by Columbia in 1991 in connection with its bankruptcy
proceedings. The Company had a secured claim of approximately $1,600,000
relating to Columbia's failure to pay the contract price for a period of time
prior to the rejection of the contracts. The Company also had an unsecured
claim relating to the rejection of the gas purchase contracts. In 1995, the
creditors reached agreement with Columbia regarding settlement of the various
claims. The Company received the amount recorded as a receivable from
Columbia and also recorded approximately $4,263,000 of revenue representing
the Company's portion of the settlement amount related to its unsecured
claim, net of a provision for royalties payable.
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- -------------------------------------------------------------------------------
<TABLE>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
- ----
REVENUE $93,063 77,655 81,977 86,946
------- ------- ------- -------
------- ------- ------- -------
EARNINGS FROM OPERATIONS $10,607 2,231 6,738 11,079
------- ------- ------- -------
------- ------- ------- -------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM $ 4,522 (3,196) 583 1,180
------- ------- ------- -------
------- ------- ------- -------
NET EARNINGS (LOSS) $ 4,522 (3,196) (11,776) 1,180
------- ------- ------- -------
------- ------- ------- -------
NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON STOCK $ 4,333 (3,196) (11,776) 1,180
------- ------- ------- -------
------- ------- ------- -------
BASIC EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM $ 0.14 (0.10) 0.02 0.03
BASIC EARNINGS (LOSS) PER SHARE $ 0.14 (0.10) (0.35) 0.03
DILUTED EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM $ 0.13 (0.10) 0.02 0.03
DILUTED EARNINGS (LOSS) PER SHARE $ 0.13 (0.10) (0.34) 0.03
1996
- ----
Revenue $60,406 79,705 83,565 92,411
------- ------- ------- -------
------- ------- ------- -------
Earnings from operations $ 7,072 4,692 6,185 10,542
------- ------- ------- -------
------- ------- ------- -------
Earnings (loss) before extraordinary item $ (386) (2,901) 879 3,547
------- ------- ------- -------
------- ------- ------- -------
Net earnings (loss) $ (386) (2,901) 879 5,713
------- ------- ------- -------
------- ------- ------- -------
Net earnings (loss) attributable to common stock $ (926) (3,441) 340 5,174
------- ------- ------- -------
------- ------- ------- -------
Basic earnings (loss) per share before extraordinary item $ (0.04) (0.14) 0.01 0.10
Basic earnings (loss) per share $ (0.04) (0.14) 0.01 0.18
Diluted earnings (loss) per share before extraordinary item $ (0.04) (0.14) 0.01 0.09
Diluted earnings (loss) per share $ (0.04) (0.14) 0.01 0.16
</TABLE>
74
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(16) BUSINESS AND GEOGRAPHICAL SEGMENTS:
- -------------------------------------------------------------------------------
The Company operates in geographic segments in the United States and Canada,
and in two business segments as follows:
<TABLE>
UNITED
STATES CANADA TOTAL
------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
1997
- ----
GAS MARKETING AND PROCESSING:
REVENUE $ 863 183,536 184,399
-------- ------- -------
-------- ------- -------
DEPRECIATION AND DEPLETION EXPENSE $ - 2,343 2,343
-------- ------- -------
-------- ------- -------
OPERATING PROFIT $ 863 5,346 6,209
-------- ------- -------
-------- ------- -------
IDENTIFIABLE ASSETS $ - 48,792 48,792
-------- ------- -------
-------- ------- -------
CAPITAL EXPENDITURES $ - 30 30
-------- ------- -------
-------- ------- -------
OIL AND GAS OPERATIONS:
REVENUE $100,895 54,347 155,242
-------- ------- -------
-------- ------- -------
DEPRECIATION AND DEPLETION EXPENSE $ 52,320 25,328 77,648
-------- ------- -------
-------- ------- -------
OPERATING PROFIT $ 27,712 13,598 41,310
-------- ------- -------
-------- ------- -------
IDENTIFIABLE ASSETS $378,373 220,617 598,990
-------- ------- -------
-------- ------- -------
CAPITAL EXPENDITURES $ 98,550 57,615 156,165
-------- ------- -------
-------- ------- -------
</TABLE>
75
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(16) BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED):
- -------------------------------------------------------------------------------
<TABLE>
UNITED
STATES CANADA TOTAL
------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
1996
- ----
Gas marketing and processing:
Revenue $ 927 186,447 187,374
-------- ------- -------
-------- ------- -------
Depreciation and depletion expense $ - 2,263 2,263
-------- ------- -------
-------- ------- -------
Operating profit $ 927 5,478 6,405
-------- ------- -------
-------- ------- -------
Identifiable assets $ - 54,215 54,215
-------- ------- -------
-------- ------- -------
Capital expenditures $ - 6,183 6,183
-------- ------- -------
-------- ------- -------
Oil and gas operations:
Revenue $ 80,811 47,902 128,713
-------- ------- -------
-------- ------- -------
Depreciation and depletion expense $ 39,880 20,925 60,805
-------- ------- -------
-------- ------- -------
Operating profit $ 21,142 14,567 35,709
-------- ------- -------
-------- ------- -------
Identifiable assets $326,399 182,844 509,243
-------- ------- -------
-------- ------- -------
Capital expenditures $ 74,734 169,384 244,118
-------- ------- -------
-------- ------- -------
</TABLE>
In 1995 the Company's only business segment was oil and gas operations, which
were conducted entirely in the United States.
76
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED):
- -------------------------------------------------------------------------------
The following information is presented in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosure about Oil and Gas
Producing Activities," (Statement No. 69), except as noted.
(A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES -
The following costs were incurred in oil and gas exploration and development
activities during the years ended December 31, 1997, 1996 and 1995:
<TABLE>
UNITED
STATES CANADA TOTAL
------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
1997
- ----
PROPERTY ACQUISITION COSTS (UNDEVELOPED
LEASES AND PROVED PROPERTIES) $ 1,704 6,675 8,379
EXPLORATION COSTS 50,686 14,752 65,438
DEVELOPMENT COSTS 46,160 36,218 82,378
-------- ------- -------
TOTAL $98,550 57,645 156,195
-------- ------- -------
-------- ------- -------
1996
- ----
Property acquisition costs (undeveloped
leases and proved properties) $16,122 142,833 (1) 158,955
Exploration costs 36,696 6,743 43,439
Development costs 21,916 19,808 41,724
-------- ------- -------
Total $74,734 169,384 244,118
-------- ------- -------
-------- ------- -------
1995
- ----
Property acquisition costs (undeveloped
leases and proved properties) $ 844 25,963 (2) 26,807
Exploration costs 12,739 - 12,739
Development costs 13,198 - 13,198
-------- ------- -------
Total $26,781 25,963 52,744
-------- ------- -------
-------- ------- -------
</TABLE>
(1) Consists primarily of the oil and gas properties acquired in the purchase
of Canadian Forest.
(2) Consists of the oil and gas properties acquired in the purchase of Saxon.
(B) AGGREGATE CAPITALIZED COSTS - The aggregate capitalized costs relating
to oil and gas activities as of December 31 for the years indicated are as
follows:
<TABLE>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs related to proved properties $ 1,521,325 1,381,289 1,169,636
Costs related to unproved properties:
Costs subject to depletion 12,217 32,007 18,011
Costs not subject to depletion 60,901 43,916 28,380
----------- ---------- ----------
1,594,443 1,457,212 1,216,027
Less accumulated depletion and valuation allowance (1,075,940) (1,001,604) (941,482)
----------- ---------- ----------
----------- ---------- ----------
$ 518,503 455,608 274,545
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
77
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
(C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES - Results of operations
from producing activities for the years ended December 31, 1997, 1996 and
1995 are presented below. Income taxes are different from income taxes shown
in the Consolidated Statements of Operations because this table excludes
general and administrative and interest expense.
<TABLE>
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
1997
- ----
OIL AND GAS SALES $100,895 54,347 155,242
PRODUCTION EXPENSE 20,863 15,421 36,284
DEPLETION EXPENSE 51,741 24,708 76,449
INCOME TAX EXPENSE - 7,191 7,191
-------- ------- -------
72,604 47,320 119,924
-------- ------- -------
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES $28,291 7,027 35,318
-------- ------- -------
-------- ------- -------
1996
- ----
Oil and gas sales $80,811 47,902 128,713
Production expense 19,789 12,410 32,199
Depletion expense 39,331 20,297 59,628
Income tax expense - 6,864 6,864
-------- ------- -------
59,120 39,571 98,691
-------- ------- -------
Results of operations from producing activities $21,691 8,331 30,022
-------- ------- -------
-------- ------- -------
1995
- ----
Oil and gas sales $82,275 - 82,275
Production expense 22,463 - 22,463
Depletion expense 42,973 - 42,973
-------- ------- -------
65,436 - 65,436
-------- ------- -------
Results of operations from producing activities $16,839 - 16,839
-------- ------- -------
-------- ------- -------
</TABLE>
(D) ESTIMATED PROVED OIL AND GAS RESERVES - The Company's estimate of its
proved and proved developed future net recoverable oil and gas reserves and
changes for 1995, 1996 and 1997 follows. The Canadian reserves at December
31, 1997 and 1996 and 1995 include 100% of the reserves owned by Saxon, a
consolidated subsidiary in which the Company holds a majority interest.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions; i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangement, including energy swap agreements (see Note 12), but not on
escalations based on future conditions. Purchases of reserves in place
represent volumes recorded on the closing dates of the acquisitions for
financial accounting purposes.
78
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
Proved developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved mechanisms of primary
recovery are included as "proved developed reserves" only after testing by a
pilot project or after the operation of an installed program has confirmed
through production response that increased recovery will be achieved.
The Company's presentation of estimated proved oil and gas reserves excludes,
for 1995 and 1996, those quantities attributable to future deliveries
required under volumetric production payments (see Note 6). In order to
calculate such amounts, the Company assumed that deliveries under volumetric
production payments were made as scheduled at expected BTU factors, and that
delivery commitments were satisfied through delivery of actual volumes as
opposed to cash settlements.
On June 30, 1997 the Company purchased from Enron the obligation related to
its last remaining volumetric production payment. Net reserves of
approximately 3.1 BCFE, which were dedicated to repayment of this volumetric
production payment, reverted to the Company's interest.
The Company has also presented for 1996 and 1995, as additional information,
proved oil and gas reserves including quantities attributable to future
deliveries required under volumetric production payments. The Company
believes that this information is informative to readers of its financial
statements as the related oil and gas property costs and deferred revenue are
included on the Company's balance sheets for 1996 and 1995. This additional
information is not presented in accordance with Statement No. 69; however, the
Company believes this additional information is useful in assessing its
reserve acquisitions and financial position on a comprehensive basis.
79
<PAGE>
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
<TABLE>
LIQUIDS GAS
--------------------------- -----------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 7,313 - 7,313 231,638 - 231,638
Revisions of previous estimates (227) - (227) 2,398 - 2,398
Extensions and discoveries 18 - 18 6,861 - 6,861
Production (1,028) - (1,028) (24,222) - (24,222)
Sales of reserves in place (6) - (6) (2,438) - (2,438)
Purchases of reserves in place 59 4,338 4,397 1,435 16,218 17,653
------ ------ ------ ------- ------- -------
Balance at December 31, 1995 6,129 4,338 10,467 215,672 16,218 231,890
Volumes attributable to volumetric
production payments 74 - 74 6,238 - 6,238
------ ------ ------ ------- ------- -------
Balance at December 31, 1995, including
volumes attributable to volumetric
production payments 6,203 4,338 10,541 221,910 16,218 238,128
------ ------ ------ ------- ------- -------
------ ------ ------ ------- ------- -------
Balance at December 31, 1995 6,129 4,338 10,467 215,672 16,218 231,890
Revisions of previous estimates 335 (431) (96) (4,989) (3,446) (8,435)
Extensions and discoveries 357 4,440 4,797 32,507 7,779 40,286
Production (1,030) (1,645) (2,675) (25,456) (13,872) (39,328)
Sales of reserves in place (16) (612) (628) (1,132) (326) (1,458)
Purchases of reserves in place 23 12,126 12,149 14,653 96,572 111,225
------ ------ ------ ------- ------- -------
Balance at December 31, 1996 5,798 18,216 24,014 231,255 102,925 334,180
Volumes attributable to volumetric
production payments - - - 3,070 - 3,070
------ ------ ------ ------- ------- -------
Balance at December 31, 1996, including
volumes attributable to volumetric
production payments 5,798 18,216 24,014 234,325 102,925 337,250
------ ------ ------ ------- ------- -------
------ ------ ------ ------- ------- -------
BALANCE AT DECEMBER 31, 1996 5,798 18,216 24,014 231,255 102,925 334,180
REVISIONS OF PREVIOUS ESTIMATES 965 247 1,212 23,173 12,779 35,952
EXTENSIONS AND DISCOVERIES 876 1,688 2,564 37,759 12,005 49,764
PRODUCTION (1,267) (1,940) (3,207) (34,018) (15,017) (49,035)
SALES OF RESERVES IN PLACE (268) 11 (257) (4,349) 217 (4,132)
PURCHASES OF RESERVES IN PLACE 22 288 310 1,033 7,483 8,516
SETTLEMENT OF VOLUMETRIC PRODUCTION PAYMENT - - - 3,070 - 3,070
------ ------ ------ ------- ------- -------
BALANCE AT DECEMBER 31, 1997 6,126 18,510 24,636 257,923 120,392 378,315
------ ------ ------ ------- ------- -------
------ ------ ------ ------- ------- -------
PRO FORMA RESERVES GIVING EFFECT TO THE
LOUISIANA ACQUISITION (SEE NOTE 2) 18,709 18,510 37,219 366,382 120,392 486,774
------ ------ ------ ------- ------- -------
------ ------ ------ ------- ------- -------
</TABLE>
80
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
<TABLE>
OIL AND CONDENSATE GAS
--------------------------- --------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves at:
December 31, 1994 6,775 - 6,775 179,574 - 179,574
December 31, 1995 5,678 3,188 8,866 156,471 14,184 170,655
December 31, 1996 5,311 13,260 18,571 165,629 70,856 236,485
DECEMBER 31, 1997 5,493 14,291 19,784 179,986 109,849 289,835
Pro forma proved developed reserves
giving effect to the Louisiana Acquisition
(see Note 2) 14,527 14,291 28,818 262,724 109,849 372,573
</TABLE>
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - Future oil
and gas sales and production and development costs have been estimated using
prices and costs in effect at the end of the years indicated, except in those
instances where the sale of oil and natural gas is covered by contracts,
energy swap agreements or volumetric production payments. At December 31,
1997, 1996 and 1995, the Canadian amounts include 100% of amounts
attributable to the reserves owned by Saxon, a consolidated subsidiary in
which the Company holds a majority interest. In the case of contracts, the
applicable contract prices, including fixed and determinable escalations,
were used for the duration of the contract. Thereafter, the current spot
price was used. Future oil and gas sales also include the estimated effects
of existing energy swap agreements as discussed in Note 12.
Future income tax expenses are estimated using the statutory tax rate of 35%
in the United States and a combined Federal and Provincial rate of 44.62% in
Canada. Estimates for future general and administrative and interest expense
have not been considered.
81
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
Changes in the demand for oil and natural gas, inflation and other factors
make such estimates inherently imprecise and subject to substantial revision.
This table should not be construed to be an estimate of the current market
value of the Company's proved reserves. Management does not rely upon the
information that follows in making investment decisions.
The Company's presentation of the standardized measure of discounted future
net cash flows and changes therein excludes, for 1996 and 1995, amounts
attributable to future deliveries required under volumetric production
payments. In order to calculate such amounts, the Company has assumed that
deliveries under volumetric production payments were made as scheduled, that
production costs corresponding to the volumes delivered were incurred by the
Company at average rates for the properties subject to the production
payments, and that delivery commitments were satisfied through delivery of
actual volumes as opposed to cash settlements.
On June 30, 1997 the Company purchased from Enron the obligation related to
its last remaining volumetric production payment. Net reserves of
approximately 3.1 BCFE, which were dedicated to repayment of this volumetric
production payment, reverted to the Company's interest.
The Company has also presented for 1996 and 1995, as additional information,
the standardized measure of discounted future net cash flows and changes
therein including amounts attributable to future deliveries required under
volumetric production payments. The Company believes that this information
is informative to readers of its financial statements because the related oil
and gas property costs and deferred revenue were shown on the Company's
balance sheets for 1996 and 1995. This additional information is not
required to be presented in accordance with Statement No. 69; however, the
Company believes this additional information is useful in assessing its
reserve acquisitions and financial position on a comprehensive basis.
<TABLE>
DECEMBER 31, 1997
-------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
FUTURE OIL AND GAS SALES $ 759,556 470,121 1,229,677
FUTURE PRODUCTION AND DEVELOPMENT COSTS (273,850) (193,733) (467,583)
--------- -------- ---------
FUTURE NET REVENUE 485,706 276,388 762,094
10% ANNUAL DISCOUNT FOR ESTIMATED TIMING OF CASH FLOWS (176,507) (99,081) (275,588)
--------- -------- ---------
PRESENT VALUE OF FUTURE NET CASH FLOWS BEFORE INCOME TAXES 309,199 177,307 486,506
PRESENT VALUE OF FUTURE INCOME TAX EXPENSE (19,899) (27,037) (46,936)
--------- -------- ---------
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS $ 289,300 150,270 439,570
--------- -------- ---------
--------- -------- ---------
PRO FORMA PRESENT VALUE OF FUTURE NET CASH FLOWS BEFORE
INCOME TAXES GIVING EFFECT TO THE LOUISIANA
ACQUISITION (SEE NOTE 2) $ 579,780 177,307 757,087
--------- -------- ---------
--------- -------- ---------
PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED CASH FLOWS
GIVING EFFECT TO THE LOUISIANA ACQUISITION (SEE NOTE 2) $ 554,867 150,270 705,137
--------- -------- ---------
--------- -------- ---------
</TABLE>
Undiscounted future income tax expense was $45,911,000 in the United States and
$57,981,000 in Canada at December 31, 1997.
82
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
<TABLE>
DECEMBER 31, 1996
-------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Future oil and gas sales $ 964,943 580,563 1,545,506
Future production and development costs (258,866) (168,136) (427,002)
--------- -------- ---------
Future net revenue 706,077 412,427 1,118,504
10% annual discount for estimated timing of cash flows (250,527) (165,788) (416,315)
--------- -------- ---------
Present value of future net cash flows before income taxes 455,550 246,639 702,189
Present value of future income tax expense (71,339) (70,981) (142,320)
--------- -------- ---------
Standardized measure of discounted future net cash flows 384,211 175,658 559,869
Additional disclosures:
Amounts attributable to volumetric production payments 3,126 - 3,126
--------- -------- ---------
Total discounted future net cash flows, including amounts
attributable to volumetric production payments $387,337 175,658 562,995
--------- -------- ---------
--------- -------- ---------
</TABLE>
Undiscounted future income tax expense was $134,835,000 in the United
States and $127,833,000 in Canada at December 31, 1996.
<TABLE>
DECEMBER 31, 1995
-------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Future oil and gas sales $ 554,609 93,021 647,630
Future production and development costs (195,399) (43,060) (238,459)
--------- ------- ---------
Future net revenue 359,210 49,961 409,171
10% annual discount for estimated timing of cash flows (122,528) (19,108) (141,636)
--------- ------- ---------
Present value of future net cash flows before income taxes 236,682 30,853 267,535
Present value of future income tax expense (8,855) (1,763) (10,618)
--------- ------- ---------
Standardized measure of discounted future net cash flows 227,827 29,090 256,917
Additional disclosures:
Amounts attributable to volumetric production payments 8,476 - 8,476
--------- ------- ---------
Total discounted future net cash flows, including amounts
attributable to volumetric production payments $ 236,303 29,090 265,393
--------- ------- ---------
--------- ------- ---------
</TABLE>
Undiscounted future income tax expense was $22,316,000 in the United States and
$2,924,000 in Canada at December 31, 1995.
83
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES - An analysis of the changes in the
standardized measure of discounted future net cash flows during each of the
last three years follows. At December 31, 1997, 1996 and 1995, the Canadian
amounts include 100% of the reserves owned by Saxon, a consolidated subsidiary
in which the Company holds a majority interest.
<TABLE>
DECEMBER 31, 1997
-------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows relating
to proved oil and gas reserves, at beginning of year $ 384,211 175,658 559,869
Changes resulting from:
Sales of oil and gas, net of production costs (80,895) (38,926) (119,821)
Net changes in prices and future production costs (218,986) (110,526) (329,512)
Net changes in future development costs (22,830) (19,905) (42,735)
Extensions, discoveries and improved recovery 48,090 19,022 67,112
Previously estimated development costs incurred during the period 42,507 35,329 77,836
Revisions of previous quantity estimates 38,055 13,445 51,500
Sales of reserves in place (5,066) 301 (4,765)
Purchases of reserves in place 3,142 7,264 10,406
Settlement of volumetric production payment 3,126 - 3,126
Accretion of discount on reserves at beginning of year before
income taxes 45,926 24,664 70,590
Net change in income taxes 52,020 43,944 95,964
--------- ------- --------
Standardized measure of discounted future net cash flows relating
to proved oil and gas reserves, at end of year $ 289,300 150,270 439,570
--------- ------- --------
--------- ------- --------
Pro forma standardized measure of discounted future
net cash flows giving effect to the Louisiana
Acquisition (see Note 2) $ 554,867 150,270 705,137
--------- ------- --------
--------- ------- --------
</TABLE>
The computation of the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves at December 31, 1997 was based
on average natural gas prices of approximately $2.55 per MCF in the U.S. and
approximately $1.30 per MCF in Canada and on average liquids prices of
approximately $16.73 per barrel in the U.S. and approximately $13.71 per
barrel in Canada. Subsequent to December 31, 1997 the prices of oil and gas
decreased significantly. During March 1998, the Company was receiving average
natural gas prices of approximately $2.27 per MCF in the U.S. and
approximately $1.23 per MCF in Canada. The West Texas Intermediate price for
crude oil decreased from $14.75 per barrel at December 31, 1997 to $12.25 per
barrel at March 1, 1998. Had the lower March prices been used, the Company's
standardized measure of discounted future net cash flows relating to proved
oil and gas reserves at December 31, 1997 would have been reduced.
84
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
<TABLE>
DECEMBER 31, 1996
-------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows relating
to proved oil and gas reserves, at beginning of year $227,827 29,090 256,917
Changes resulting from:
Sales of oil and gas, net of production costs (56,768) (35,492) (92,260)
Net changes in prices and future production costs 169,975 96,547 266,522
Net changes in future development costs (14,192) (8,256) (22,448)
Extensions, discoveries and improved recovery 60,423 37,491 97,914
Previously estimated development costs incurred during the period 19,734 18,939 38,673
Revisions of previous quantity estimates (4,396) (8,054) (12,450)
Sales of reserves in place (2,405) (3,993) (6,398)
Purchases of reserves in place 21,948 115,518 137,466
Accretion of discount on reserves at beginning of year before
income taxes 24,549 3,085 27,634
Net change in income taxes (62,484) (69,217) (131,701)
-------- ------- --------
Standardized measure of discounted future net cash flows relating
to proved oil and gas reserves, at end of year 384,211 175,658 559,869
Additional disclosures:
Amounts attributable to volumetric production payments 3,126 - 3,126
--------- ------- --------
Total discounted future net cash flows relating to proved
oil and gas reserves, including amounts attributable to
volumetric production payments, at end of year $ 387,337 175,658 562,995
--------- ------- --------
--------- ------- --------
</TABLE>
The computation of the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves at December 31, 1996 was based
on average natural gas prices of approximately $3.50 per MCF in the U.S. and
approximately $2.10 per MCF in Canada and on average liquids prices of
approximately $26.25 per barrel in the U.S. and approximately $19.10 per
barrel in Canada.
85
<PAGE>
(17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- -------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
<TABLE>
DECEMBER 31, 1995
-------------------------------
UNITED
STATES CANADA TOTAL
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at beginning of
year $207,549 - 207,549
Changes resulting from:
Sales of oil and gas, net of production costs (48,090) - (48,090)
Net changes in prices and future production costs 43,991 - 43,991
Net changes in future development costs (3,392) - (3,392)
Extensions, discoveries and improved recovery 7,231 - 7,231
Previously estimated development costs incurred
during the period 7,633 - 7,633
Revisions of previous quantity estimates 127 - 127
Sales of reserves in place (3,114) - (3,114)
Purchases of reserves in place 865 30,853 31,718
Accretion of discount on reserves at beginning of year before
income taxes 23,102 - 23,102
Net change in income taxes (8,075) (1,763) (9,838)
-------- ------ -------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at end of year 227,827 29,090 256,917
Additional disclosures:
Amounts attributable to volumetric production payments 8,476 - 8,476
Total discounted future net cash flows relating to proved
oil and gas reserves, including amounts attributable to
volumetric production payments, at end of year $236,303 29,090 265,393
-------- ------ -------
-------- ------ -------
</TABLE>
The computation of the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves at December 31, 1995 was based
on average natural gas prices of approximately $2.00 per MCF in the U.S. and
approximately $.99 per MCF in Canada and on average liquids prices of
approximately $19.96 per barrel in the U.S. and approximately $16.87 per
barrel in Canada.
86
<PAGE>
PART III
For information concerning Item 10 - Directors and Executive Officers of the
Registrant, Item 11 - Executive Compensation, Item 12 - Security Ownership of
Certain Beneficial Owners and Management and Item 13 - Certain Relationships
and Related Transactions, see the definitive Proxy Statement of Forest Oil
Corporation relative to the Annual Meeting of Shareholders to be held in May,
1998 which will be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. For information concerning
Item 10 - Executive Officers of Registrant, see Part I - Item 4A.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
1. Independent Auditors' Report
2. Consolidated Balance Sheets - December 31, 1997 and 1996
3. Consolidated Statements of Operations - Years ended December
31, 1997, 1996 and 1995
4. Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1997, 1996 and 1995
5. Consolidated Statements of Cash Flows - Years ended December
31, 1997, 1996 and 1995
6. Notes to Consolidated Financial Statements - Years ended
December 31, 1997, 1996 and 1995
(2) Financial Statement Schedules
All schedules have been omitted because the information is either
not required or is set forth in the financial statements or the
notes thereto.
(3) Exhibits - Forest shall, upon written request to Daniel L.
McNamara, Corporate Secretary of Forest, addressed to Forest Oil
Corporation, 1600 Broadway, Suite 2200, Denver, CO 80202, provide
copies of each of the following Exhibits:
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil
Corporation dated October 14, 1993, incorporated herein by reference to
Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1993 (File No. 0-4597).
Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of
Incorporation dated as of July 20, 1995, incorporated herein by reference to
Exhibit 3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended
June 30, 1995 (File No. 0-4597).
Exhibit 3(i)(b) Certificate of Amendment of Restated Certificate of
Incorporation dated as of July 26, 1995, incorporated herein by reference to
Exhibit 3(i)(b) to Form 10-Q for Forest Oil Corporation for the quarter ended
June 30, 1995 (File No. 0-4597).
87
<PAGE>
Exhibit 3(i)(c) Certificate of Amendment of the Restated Certificate of
Incorporation dated as of January 5, 1996, incorporated herein by reference
to Exhibit 3(i)(c) to Forest Oil Corporation's Registration Statement on Form
S-2 (File No. 33-64949).
Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9,
1990, Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2
to By-Laws dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of
July 30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992,
Amendment No. 5 to By-Laws dated as of March 18, 1993 and Amendment No. 6 to
By-Laws dated as of September 14, 1993, incorporated herein by reference to
Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1993 (File No. 0-4597).
Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993,
incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994,
incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(c) Amendment No. 9 to By-Laws dated as of May 15, 1995,
incorporated herein by reference to Exhibit 3(ii)(c) to Form 10-Q for Forest
Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995,
incorporated herein by reference to Exhibit 3(ii)(d) to Form 10-Q for Forest
Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil
Corporation and Shawmut Bank, Connecticut, (National Association),
incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 4.2 First Supplemental Indenture dated as of February 8, 1996
among Forest Oil Corporation, 611852 Saskatchewan Ltd. and Fleet National
Bank of Connecticut (formerly known as Shawmut Bank, Connecticut, National
Association, which was formerly known as The Connecticut Bank), incorporated
herein by reference to Exhibit 4.2 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1995 (File No. 0-4597).
*Exhibit 4.3 Second Supplemental Indenture dated as of September 12, 1997
between Forest Oil Corporation, 611852 Saskatchewan Ltd. and State Street
Bank and Trust Company (as successor in interest to Fleet National Bank of
Connecticut (formerly known as Shawmut Bank Connecticut, National
Association)).
Exhibit 4.4 Indenture dated as of September 29, 1997 among Canadian
Forest Oil Ltd., Forest Oil Corporation and State Street Bank and Trust
Company, incorporated herein by reference to Exhibit 4.1 to Forest Oil
Corporation's Registration Statement on Form S-4 dated October 31, 1997 (File
No. 333-39255).
*Exhibit 4.5 Registration Agreement dated February 2, 1998 by and among
Canadian Forest Oil Ltd., Forest Oil Corporation and Morgan Stanley & Co.
Incorporated.
Exhibit 4.6 Amended and Restated Credit Agreement dated as of August 31,
1995 between Forest Oil Corporation and Subsidiaries, Borrower and Subsidiary
Guarantors and The Chase Manhattan Bank (National Association), as agent,
incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1995 (File No. 0-4597).
88
<PAGE>
*Exhibit 4.7 Third Amended and Restated Credit Agreement dated as of
February 3, 1998 between Forest Oil Corporation and Subsidiary Guarantors and
The Chase Manhattan Bank, as agent.
Exhibit 4.8 Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property Including Hydrocarbons),
and Fixture Filing dated as of December 1, 1993, incorporated herein by
reference to Exhibit 4.6 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1993 (File No. 0-4597).
Exhibit 4.9 Amendment No. 1 dated as of June 3, 1994 to the Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank (National Association), as agent, incorporated herein by reference to
Exhibit 4.9 of Form 10-K for Forest Oil Corporation for the year ended
December 31, 1994 (File No. 0-4597).
Exhibit 4.10 Amendment No. 2 dated as of August 31, 1995 to the Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank (National Association), as agent, incorporated herein by reference to
Exhibit 4.14 to Form 10-K for Forest Oil Corporation for the year ended
December 31, 1995 (File No. 0-4597).
Exhibit 4.11 Amendment No. 2 dated as of January 31, 1997 to the Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of June 3, 1994 between Forest Oil Corporation and The Chase Manhattan
Bank, as agent, incorporated herein by reference to Exhibit 4.8 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1996 (File No.
0-4597).
Exhibit 4.12 Amendment No. 3 dated as of January 31, 1997 to the Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons) and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank, as agent, incorporated herein by reference to Exhibit 4.9 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1996 (File No.
0-4597).
*Exhibit 4.13 Amendment No. 4 dated as of February 3, 1998 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank, as agent.
*Exhibit 4.14 Amendment No. 5 dated as of February 3, 1998 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property including Hydrocarbons and Fixture Filing dated
as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan
Bank, as agent).
Exhibit 4.15 Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property including Hydrocarbons)
and Fixture Filing dated as of June 3, 1994 between Forest Oil Corporation
and The Chase Manhattan Bank (National Association), as agent, incorporated
herein by reference to Exhibit 4.9 of Form 10-K for Forest Oil Corporation
for the year ended December 31, 1994 (File No. 0-4597).
Exhibit 4.16 Amendment No. 1 dated as of August 31, 1995 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property Including Hydrocarbons), and Fixture Filing
dated June 3, 1994, incorporated herein by reference to Exhibit 4.16 on Form
10-K for Forest Oil Corporation for the year ended December 31, 1995 (File
No. 0-4597).
Exhibit 4.17 Rights Agreement between Forest Oil Corporation and Mellon
Securities Trust Company, as Rights Agent dated as of October 14, 1993,
incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
89
<PAGE>
Exhibit 4.18 Amendment No. 1 dated as of July 27, 1995 to Rights
Agreement dated as of October 14, 1993 between Forest Oil Corporation and
Mellon Securities Trust Company, incorporated herein by reference to Exhibit
99.5 of Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No.
0-4597).
*Exhibit 10.1 First Amendment to Shareholders Agreement dated as of
January 24, 1996 between Forest Oil Corporation and The Anschutz Corporation.
Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated
herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.3 Form of non-qualified Executive Deferred Compensation
Agreement, incorporated herein by reference to Exhibit 10.3 to Form 10-Q for
Forest Oil Corporation for the years ended December 31, 1990 (File No.
0-4597).
Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement
Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein
by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.6 Forest Oil Corporation Stock Incentive Plan and Option
Agreement, incorporated herein by reference to Exhibit 4.1 to Form S-8 for
Forest Oil Corporation dated June 7, 1996 (File No. 0-4597).
Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision
to Exhibit 10.5, incorporated herein by reference to Exhibit 10.11 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1991 (File
No. 0-4597).
Exhibit 10.8 Form of Executive Severance Agreement, incorporated herein
by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1993 (File No. 0-4597).
Exhibit 10.9 Shareholders Agreement dated as of July 27, 1995 between
Forest Oil Corporation and The Anschutz Corporation incorporated herein by
reference to Exhibit 99.7 to Form 8-K for Forest Oil Corporation dated
October 11, 1995 (File No. 0-4597).
Exhibit 10.10 Shareholders Agreement dated as of January 24, 1996 between
Forest Oil Corporation and Joint Energy Development Investments Limited
Partnership, incorporated herein by reference to Exhibit 10.12 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1995 (File No.
0-4597).
*Exhibit 21 List of Subsidiaries of the Registrant.
*Exhibit 23 Consent of KPMG Peat Marwick LLP
*Exhibit 24 Powers of Attorney of the following Officers and Directors:
Philip F. Anschutz, Robert S. Boswell, William L. Britton, Cortlandt S.
Dietler, William L. Dorn, Jordan L. Haines, David H. Keyte, James H. Lee, J.
J. Simmons, III, Craig D. Slater, Joan C. Sonnen, Drake S. Tempest, Michael
B. Yanney.
*Exhibit 27.1 Financial Data Schedule - Fiscal Year 1997
*Exhibit 27.2 Fiancial Data Schedule - Q1, Q2, Q3 - 1997
*Exhibit 27.3 Fiancial Data Schedule - Q1, Q2, Q3 - 1996, and Fiscal Years
1996 and 1995
- --------------------
90
<PAGE>
* filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Forest during the last quarter of
1997.
91
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: March 30, 1998 By: /s/ Daniel L. McNamara
------------------------------------
Daniel L. McNamara
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signatures Title Date
---------- ---- ----
Robert S. Boswell* President and Chief Executive Officer March 30, 1998
(Robert S. Boswell) (Principal Executive Officer)
David H. Keyte* Executive Vice President and March 30, 1998
(David H. Keyte) Chief Financial Officer
(Principal Financial Officer)
Joan C. Sonnen* Controller March 30, 1998
(Joan C. Sonnen) (Principal Accounting Officer)
Philip F. Anschutz* Directors of the Registrant March 30, 1998
(Philip F. Anschutz)
Robert S. Boswell*
(Robert S. Boswell)
William L. Britton*
(William L. Britton)
Cortlandt S. Dietler*
(Cortlandt S. Dietler)
William L. Dorn*
(William L. Dorn)
Jordan L. Haines*
(Jordan L. Haines)
James H. Lee*
(James H. Lee)
J. J. Simmons, III*
(J. J. Simmons, III)
Craig D. Slater*
(Craig D. Slater)
Drake S. Tempest*
(Drake S. Tempest)
Michael B. Yanney*
(Michael B. Yanney)
*By /s/ Daniel L. McNamara March 30, 1998
---------------------------
Daniel L. McNamara
(as attorney-in-fact for
each of the persons indicated)
92
<PAGE>
EXHIBIT 4.3
SECOND SUPPLEMENTAL INDENTURE dated as of September 12, 1997,
between FOREST OIL CORPORATION, a New York corporation ("Forest"),
611852 SASKATCHEWAN LTD., a Saskatchewan, Canada corporation (the
"Subsidiary Guarantor") and STATE STREET BANK AND TRUST COMPANY (as
successor in interest to Fleet National Bank of Connecticut (formerly
known as Shawmut Bank Connecticut, National Association)), as trustee
(the "Trustee").
WHEREAS there has heretofore been executed and delivered to the Trustee
an Indenture dated as of September 8, 1993 (the "Original Indenture" and, as
it has been amended by the First Supplemental Indenture dated as of February
8, 1996 (the "First Supplemental Indenture") among Forest, the Subsidiary
Guarantor and the Trustee and may be amended or supplemented from time to
time by one or more indentures supplemental thereto entered into pursuant to
the applicable provisions thereof, the "Indenture"), providing for the
issuance of Forest's 11-1/4% Senior Subordinated Notes Due 2003 (the
"Securities");
WHEREAS there are now outstanding under the Indenture Securities in the
aggregate principal amount of $100 million;
WHEREAS Section 9.02 of the Indenture provides that Forest and the
Trustee may amend the Indenture with the written consent of the Holders of
not less than a majority in aggregate principal amount of the Securities then
outstanding;
WHEREAS Forest desires to amend certain provisions of the Indenture, as
set forth in Article One hereof;
WHEREAS the Holders of at least a majority in aggregate principal amount
of the Securities outstanding have consented to the amendments effected by
this Second Supplemental Indenture; and
WHEREAS all things necessary to make this Second Supplemental Indenture
a valid agreement, in accordance with its terms, have been done.
NOW THEREFORE, this Second Supplemental Indenture witnesseth that, for
and in consideration of the premises, it is mutually covenanted and agreed,
for the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
AMENDMENTS TO INDENTURE
SECTION 1.01. WAIVER OF AND AMENDMENTS TO ARTICLES FOUR AND FIVE. (a)
The application of the provisions of Sections 4.09, 4.10, 4.11, 4.13, 4.14,
4.15, 4.16, 4.17 and 5.01(4) of the Original Indenture are hereby waived to
the extent that such provisions might otherwise interfere with the ability of
Forest and its Affiliates to enter into agreements contemplated by, and to
consummate, (i) the Offer and Consent Solicitation as set forth in the Offer
to Purchase and Consent Solicitation Statement and accompanying Consent and
Letter of Transmittal dated as of August 28, 1997, and any amendments,
modifications or supplements thereto (the "Offer and Consent Solicitation")
and (ii) the offer and sale of one or more new issues of senior subordinated
<PAGE>
debt securities by Canadian Forest Oil Ltd. ("Canadian Forest"), a Restricted
Subsidiary of Forest, and the unconditional guarantee of Canadian Forest's
obligations thereunder by Forest and its other subsidiaries.
(b) Effective upon the date Forest accepts for purchase and pays for
all Securities validly tendered pursuant to the Offer and Consent
Solicitation (the "Payment Date"), unless, prior to that time, Forest, by
written notice to the Trustee, has terminated this Second Supplemental
Indenture, Sections 4.09, 4.10, 4.11, 4.13, 4.14, 4.15, 4.16, 4.17 and
5.01(4) of the Original Indenture are hereby amended by deleting all such
sections and all references thereto in their entirety, including without
limitation all references, direct or indirect, thereto in Section 6.01,
"Events of Default".
ARTICLE II
MISCELLANEOUS
SECTION 2.01. INSTRUMENTS TO BE READ TOGETHER. This Second Supplemental
Indenture is an indenture supplemental to and in implementation of the
Original Indenture, and said Original Indenture and this Second Supplemental
Indenture shall henceforth be read together.
SECTION 2.02. CONFIRMATION. The Indenture as amended and supplemented by
this Second Supplemental Indenture is in all respects confirmed and
preserved.
SECTION 2.03. TERMS DEFINED. Capitalized terms used in this Second
Supplemental Indenture and not otherwise defined herein shall have the
respective meanings set forth in the Original Indenture.
SECTION 2.04. HEADINGS. The headings of the Articles and Sections of
this Second Supplemental Indenture have been inserted for convenience of
reference only, and are not to be considered a part hereof and shall in no
way modify or restrict any of the terms and provisions hereof.
SECTION 2.05. GOVERNING LAW. The laws of the State of New York shall
govern this Second Supplemental Indenture.
SECTION 2.06. COUNTERPARTS. This Second Supplemental Indenture may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
SECTION 2.07. EFFECTIVENESS; TERMINATION. The provisions of this Second
Supplemental Indenture will take effect immediately upon its execution and
delivery by the Trustee in accordance with the provisions of Sections 9.02
and 9.05 of the Indenture; PROVIDED that the amendments to the Original
Indenture set forth in Section 1.01 of this Second Supplemental Indenture
shall become operative as specified in Section 1.01 hereof. Prior to the
Payment Date, Forest may terminate this Second Supplemental Indenture upon
written notice to the Trustee (it being understood that Forest may,
subsequent thereto, enter into a substitute second supplemental indenture).
<PAGE>
SECTION 2.08. ACCEPTANCE BY TRUSTEE. The Trustee accepts the amendments
to the Original Indenture effected by this Second Supplemental Indenture and
agrees to execute the trusts created by the Indenture as hereby amended, but
only upon the terms and conditions set forth in the Indenture.
SECTION 2.09. RESPONSIBILITY OF TRUSTEE. The recitals contained herein
shall be taken as the statements of Forest, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations
as to the validity or sufficiency of this Second Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed, all as of the date first written
above.
FOREST OIL CORPORATION,
Attest: By /S/ V. BRUCE THOMPSON
----------------------------
Name: V. Bruce Thompson
Title: Vice President
611852 SASKATCHEWAN LTD.
Attest: By /S/ V. BRUCE THOMPSON
----------------------------
Name: V. Bruce Thompson
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
Attest: By /S/ JAMES E. MURPHY
----------------------------
Name: James E. Murphy
Title: Vice President
<PAGE>
EXHIBIT 4.5
CANADIAN FOREST OIL LTD.
U.S.$75,000,000
8 3/4% Senior Subordinated Notes due 2007
Unconditionally Guaranteed by
FOREST OIL CORPORATION
MORGAN STANLEY & CO. INCORPORATED
REGISTRATION AGREEMENT
New York, New York
February 2, 1998
MORGAN STANLEY & CO. INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
Ladies and Gentlemen:
Canadian Forest Oil Ltd., an Alberta corporation (the "Issuer"),
proposes to issue and sell to Morgan Stanley & Co., Incorporated (the
"Purchaser"), upon the terms set forth in a Placement agreement dated the date
hereof (the "Placement Agreement"), $75,000,000 aggregate principal amount of
its 8 3/4% Senior Subordinated Notes due 2007 (the "Securities") (the "Initial
Placement") to be unconditionally guaranteed on a senior subordinated and
unsecured basis by Forest Oil Corporation, a New York corporation (the
"Company"). As an inducement to the Purchaser to enter into the Placement
Agreement and in satisfaction of a condition to your obligations thereunder,
each of the Issuer and the Company, jointly and severally, agrees with you,
(i) for your benefit and (ii) for the benefit of the holders from time to time
of the Securities (including you) (each of the foregoing a "Holder" and together
the "Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Placement Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
<PAGE>
2
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"AFFILIATE" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"EXCHANGE OFFER REGISTRATION PERIOD" means the one-year period
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"EXCHANGE OFFER REGISTRATION STATEMENT" means a registration statement
of the Issuer on an appropriate form under the Act with respect to the
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"EXCHANGING DEALER" means any Holder (which may include any of the
Purchaser) which is a broker-dealer, electing to exchange Securities acquired
for its own account as a result of market-making activities or other trading
activities, for New Securities.
"HOLDER" has the meaning set forth in the preamble hereto.
"INDENTURE" means the Indenture relating to the Securities and the New
Securities dated as of September 29, 1997, between the Issuer, the Company and
State Street Bank and Trust Company, as trustee, as the same may be amended from
time to time in accordance with the terms thereof.
"INITIAL PLACEMENT" has the meaning set forth in the preamble hereto.
<PAGE>
3
"MAJORITY HOLDERS" means the Holders of a majority of the aggregate
principal amount of securities registered under a Registration Statement.
"MANAGING UNDERWRITERS" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering.
"NEW SECURITIES" means debt securities of the Issuer identical in all
material respects to the Securities (except that the interest rate step-up
provisions and the transfer restrictions will be modified or eliminated, as
appropriate), to be issued under the Indenture.
"PROSPECTUS" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"REGISTERED EXCHANGE OFFER" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"REGISTRATION SECURITIES" has the meaning set forth in Section 3(a)
hereof.
"REGISTRATION STATEMENT" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, all amendments
and supplements to such registration statement, including, without limitation,
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SECURITIES" has the meaning set forth in the preamble hereto.
"SHELF REGISTRATION" means a registration effected pursuant to
Section 3 hereof.
<PAGE>
4
"SHELF REGISTRATION PERIOD" has the meaning set forth in Section 3(b)
hereof.
"SHELF REGISTRATION STATEMENT" means a "shelf" registration statement
of the Issuer pursuant to the provisions of Section 3 hereof which covers some
of or all the Securities or New Securities, as applicable, on an appropriate
form under Rule 415 under the Act, or any similar rule that may be adopted by
the Commission, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TRUSTEE" means the trustee with respect to the Securities and the New
Securities under the Indenture.
"UNDERWRITER" means any underwriter of securities in connection with
an offering thereof under a Shelf Registration Statement.
2. REGISTERED EXCHANGE OFFER; RESALES OF NEW SECURITIES BY EXCHANGING
DEALERS; PRIVATE EXCHANGE. (a) The Issuer and the Company shall prepare and
shall use their reasonable best efforts to file with the Commission, not later
than 75 days after the date of the original issuance of the Securities, the
Exchange Offer Registration Statement with respect to the Registered Exchange
Offer. The Issuer and the Company shall use their reasonable best efforts to
cause the Exchange Offer Registration Statement to become effective under the
Act within 135 days after the date of the original issuance of the Securities
but will not consummate the Registered Exchange Offer prior to March 15, 1998.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuer shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for New Securities (assuming that such Holder is
not an affiliate of the Issuer within the meaning of the Act, acquires the New
Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the New
Securities) to trade such New Securities from and after their receipt without
any limitations or restrictions under the registration provisions of the Act.
<PAGE>
5
(c) In connection with the Registered Exchange Offer, the Issuer and
the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) use their reasonable best efforts to keep the Registered
Exchange Offer open for not less than 30 days after the date notice thereof
is mailed to the Holders (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Issuer shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder of Securities, New Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
(e) The Purchaser, the Issuer and the Company acknowledge that,
pursuant to current interpretations by the Commission's staff of Section 5 of
the Act, and in the absence of an applicable exemption therefrom, each
Exchanging Dealer is required to deliver a Prospectus in connection with a sale
of any New Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer in exchange for Securities acquired for its own
account as a result of market-making activities or other trading activities.
Accordingly, the Issuer and the Company shall:
<PAGE>
6
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, in Annex C hereto in the underwriting
or plan of distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement, and in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; and
(ii) use their reasonable best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the
Exchange Offer Registration Period for delivery by Exchanging Dealers in
connection with sales of New Securities received pursuant to the Registered
Exchange Offer, as contemplated by Section 4(h) below.
(f) In the event that the Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of the Purchaser, the Issuer shall issue and deliver to the Purchaser or
the party purchasing New Securities registered under a Shelf Registration
Statement as contemplated by Section 3 hereof from the Purchaser, in exchange
for such Securities, a like principal amount of New Securities. The Issuer
shall seek to cause the CUSIP Service Bureau to issue the same CUSIP number for
such New Securities as for New Securities issued pursuant to the Registered
Exchange Offer.
3. SHELF REGISTRATION. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it and the Issuer are not
permitted to effect the Registered Exchange Offer as contemplated by Section 2
hereof, or (ii) for any other reason the Exchange Offer Registration Statement
is not declared effective within 135 days after the Closing Date or the
Registered Exchange Offer is not consummated within 165 days after the Closing
Date, or (iii) the Purchaser so requests with respect to Securities (or any New
Securities received pursuant to Section 2(f)) not eligible to be exchanged for
New Securities in a Registered Exchange Offer or, in the event that the
Purchaser participates in any Registered Exchange Offer, the Purchaser does not
receive freely
<PAGE>
7
tradable New Securities, or (iv) any Holder (other than the Purchaser) is not
eligible to participate in the Registered Exchange Offer or (v) in the case
of any such Holder that participates in the Registered Exchange Offer, such
Holder does not receive freely tradable New Securities in exchange for
tendered securities, other than by reason of such Holder being an affiliate
of the Issuer within the meaning of the Act (it being understood that, for
purposes of this Section 3, (x) the requirement that the Purchaser deliver a
Prospectus containing the information required by Items 507 and/or 508 of
Regulation S-K under the Act in connection with sales of New Securities
acquired in exchange for such Securities shall result in such New Securities
being not "freely tradeable" but (y) the requirement that an Exchanging
Dealer deliver a Prospectus in connection with sales of New Securities
acquired in the Registered Exchange Offer in exchange for Securities acquired
as a result of market-making activities or other trading activities shall not
result in such New Securities being not "freely tradeable"), the following
provisions shall apply:
(a) The Issuer and the Company shall as promptly as practicable (but
in no event more than 30 days after so required or requested pursuant to
this Section 3), file with the Commission and thereafter shall use their
reasonable best efforts to cause to be declared effective under the Act a
Shelf Registration Statement relating to the offer and sale of the
Securities or the New Securities, as applicable, by the Holders from time
to time in accordance with the methods of distribution elected by such
Holders and set forth in such Shelf Registration Statement (such Securities
or New Securities, as applicable, to be sold by such Holders under such
Shelf Registration Statement being referred to herein as "Registration
Securities"); PROVIDED, HOWEVER, that, with respect to New Securities
received by the Purchaser in exchange for Securities constituting any
portion of an unsold allotment, the Issuer and the Company may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or 508,
as applicable, in satisfaction of its obligations under this paragraph (a)
with respect thereto, and any such Exchange Offer Registration Statement,
as so amended, shall be referred to herein as, and governed by the
provisions herein applicable to, a Shelf Registration Statement.
<PAGE>
8
(b) The Issuer and the Company shall use their reasonable best
efforts to keep the Shelf Registration Statement continuously effective in
order to permit the Prospectus forming part thereof to be usable by Holders
for a period of two years from the date the Shelf Registration Statement is
declared effective by the Commission or such shorter period that will
terminate when all the Securities or New Securities, as applicable, covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the
"Shelf Registration Period").
4. REGISTRATION PROCEDURES. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Issuer and the Company shall furnish to you, prior to the
filing thereof with the Commission, a copy of any Shelf Registration
Statement and any Exchange Offer Registration Statement, and each amendment
thereof and each amendment or supplement, if any, to the Prospectus
included therein and shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as you or any
Holder reasonably may propose.
(b) The Issuer and the Company shall ensure that (i) any Registration
Statement and any amendment thereto and any Prospectus forming part thereof
and any amendment or supplement thereto complies in all material respects
with the Act and the rules and regulations thereunder, (ii) any
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any Prospectus forming part of
any Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
<PAGE>
9
(c) (1) The Issuer and the Company shall advise you and, in the case
of a Shelf Registration Statement, the Holders of securities covered
thereby, and, if requested by you or any such Holder, confirm such advice
in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Issuer and the Company shall advise you and, in the case of a
Shelf Registration Statement, the Holders of securities covered thereby,
and, in the case of an Exchange Offer Registration Statement, any
Exchanging Dealer which has provided in writing to the Issuer a telephone
or facsimile number and address for notices, and, if requested by you or
any such Holder or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Issuer of any notification with respect
to the suspension of the qualification of the securities included
therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of
such date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light
of the circumstances under which they were made) not misleading (which
advice shall be accompanied by an instruction to suspend
<PAGE>
10
the use of the Prospectus until the requisite changes have been made).
(d) The Issuer and the Company shall use their reasonable best
efforts to obtain the withdrawal of any order suspending the effectiveness
of any Registration Statement at the earliest possible time.
(e) The Issuer and the Company shall furnish to each Holder of
securities included within the coverage of any Shelf Registration
Statement, without charge, at least one copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing, any
documents incorporated by reference therein and all exhibits thereto
(including those incorporated by reference therein).
(f) The Issuer and the Company shall, during the Shelf Registration
Period, deliver to each Holder of securities included within the coverage
of any Shelf Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary Prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; and the Issuer and the Company consent to
the use of the Prospectus or any amendment or supplement thereto by each of
the selling Holders of securities in connection with the offering and sale
of the securities covered by the Prospectus or any amendment or supplement
thereto.
(g) The Issuer and the Company shall furnish to each Exchanging
Dealer which so requests, without charge, at least one copy of the Exchange
Offer Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Exchanging Dealer
so requests in writing, any documents incorporated by reference therein and
all exhibits thereto (including those incorporated by reference therein).
(h) The Issuer and the Company shall, during the Exchange Offer
Registration Period, promptly deliver to each Exchanging Dealer, without
charge, as many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably
<PAGE>
11
request for delivery by such Exchanging Dealer in connection with a sale
of New Securities received by it pursuant to the Registered Exchange
Offer; and the Company consents to the use of the Prospectus or any
amendment or supplement thereto by any such Exchanging Dealer, as
aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Issuer and the
Company shall register or qualify or cooperate with the Holders of
securities included therein and their respective counsel in connection with
the registration or qualification of such securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any such
Holder reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such
jurisdictions of the securities covered by such Registration Statement;
PROVIDED, HOWEVER, that the Issuer and the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then
so qualified or to take any action which would subject it to general
service of process or to taxation in any such jurisdiction where it is not
then so subject.
(j) The Issuer and the Company shall cooperate with the Holders of
Securities to facilitate the timely preparation and delivery of
certificates representing Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request prior to
sales of securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by
paragraph (c)(2)(iii) above, the Issuer and the Company shall promptly
prepare a post-effective amendment to any Registration Statement or an
amendment or supplement to the related Prospectus or file any other
required document so that, as thereafter delivered to the Purchaser, the
Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
<PAGE>
12
(l) Not later than the effective date of any such Registration
Statement hereunder, the Issuer shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the Trustee with printed certificates
for such Securities or New Securities, in a form, if requested by the
applicable Holder or Holder's Counsel, eligible for deposit with The
Depository Trust Company.
(m) The Issuer and the Company shall use their reasonable best
efforts to comply with all applicable rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make generally
available to their security holders a consolidated earnings statement
(which need not be audited) covering a twelve-month period commencing after
the effective date of the Registration Statement and ending not later than
15 months thereafter, as soon as practicable after the end of such period,
which consolidated earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
(n) The Issuer and the Company shall cause the Indenture to be
qualified under the Trust Indenture Act of 1939, as amended, on or prior to
the effective date of any Shelf Registration Statement or Exchange Offer
Registration Statement.
(o) The Issuer and the Company may require each Holder of securities
to be sold pursuant to any Shelf Registration Statement to furnish to the
Issuer and the Company such information regarding the Holder and the
distribution of such securities as the Issuer and the Company may from time
to time reasonably require for inclusion in such Registration Statement.
(p) The Issuer and the Company shall, if requested, promptly
incorporate in a Prospectus supplement or post-effective amendment to a
Shelf Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and shall
make all required filings of such Prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
<PAGE>
13
(q) In the case of any Shelf Registration Statement, the Issuer and
the Company shall enter into such agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite or
facilitate the registration or the disposition of the Securities, and in
connection therewith, if an underwriting agreement is entered into, cause
the same to contain indemnification provisions and procedures no less
favorable than those set forth in Section 6 hereof (or such other
provisions and procedures acceptable to the Majority Holders and the
Managing Underwriters, if any), with respect to all parties to be
indemnified pursuant to Section 6 hereof from Holders of Securities to the
Issuer and the Company.
(r) In the case of any Shelf Registration Statement, the Issuer and
the Company shall (i) make reasonably available for inspection by the
Holders of securities to be registered thereunder, any underwriter
participating in any disposition pursuant to such Registration Statement,
and any attorney, accountant or other agent retained by the Holders or any
such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries;
(ii) cause the Issuer's and the Company's officers, directors and employees
to supply all relevant information reasonably requested by the Holders or
any such underwriter, attorney, accountant or agent in connection with any
such Registration Statement as is customary for similar due diligence
examinations; PROVIDED, HOWEVER, that any information that is designated in
writing by the Issuer or the Company, in good faith, as confidential at the
time of delivery of such information shall be kept confidential by the
Holders or any such underwriter, attorney, accountant or agent, unless such
disclosure is made in connection with a court proceeding or required by
law, or such information becomes available to the public generally or
through a third party without an accompanying obligation of
confidentiality; (iii) make such representations and warranties to the
Holders of securities registered thereunder and the underwriters, if any,
in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings; (iv) obtain opinions of
counsel to the Issuer and the Company (which counsel and opinions (in form,
scope and substance) shall be
<PAGE>
14
reasonably satisfactory to the Managing Underwriters, if any) addressed to
each selling Holder and the underwriters, if any, covering such matters as
are customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Holders and
underwriters; (v) obtain "cold comfort" letters (or, in the case of any
person that does not satisfy the conditions for receipt of a "cold comfort"
letter specified in Statement on Auditing Standards No. 72, an
"agreed-upon procedures" letter) and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the Registration
Statement), addressed to each selling Holder of securities registered
thereunder and the underwriters, if any, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings; and (vi) deliver such
documents and certificates as may be reasonably requested by the Majority
Holders and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions contained
in the underwriting agreement or other agreement entered into by the
Issuer and the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 4(r) shall be performed (A) on the
effective date of such Registration Statement and each post-effective
amendment thereto and (B) at each closing under any underwriting or
similar agreement as and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Issuer and the Company shall (i) make reasonably available for inspection
by the Purchaser, and any attorney, accountant or other agent retained by
the Purchaser, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries;
(ii) cause the Issuer's and the Company's officers, directors and employees
to supply all relevant information reasonably requested by the Purchaser or
any such attorney, accountant or agent in connection with any such
Registration Statement as is customary
<PAGE>
15
for similar due diligence examinations; PROVIDED, HOWEVER, that any
information that is designated in writing by the Issuer or the Company, in
good faith, as confidential at the time of delivery of such information
shall be kept confidential by the Purchaser or any such attorney,
accountant or agent, unless such disclosure is made in connection with a
court proceeding or required by law, or such information becomes available
to the public generally or through a third party without an accompanying
obligation of confidentiality; (iii) make such representations and
warranties to the Purchaser, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten
offerings; (iv) obtain opinions of counsel to the Issuer and the Company
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Purchaser and its counsel), addressed to
the Purchaser, covering such matters as are customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by the Purchaser or its counsel; (v) obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to the Purchaser, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings, or if requested by the
Purchaser or its counsel in lieu of a "cold comfort" letter, an agreed-upon
procedures letter under Statement on Auditing Standards No. 35, covering
matters requested by the Purchaser or its counsel; and (vi) deliver such
documents and certificates as may be reasonably requested by such Purchaser
or its counsel, including those to evidence compliance with Section 4(k)
and with conditions customarily contained in underwriting agreements. The
foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this
Section 4(s) shall be performed (A) at the close of the Registered Exchange
Offer and (B) on the effective date of any post-effective amendment to the
Exchange Offer Registration Statement.
<PAGE>
16
5. REGISTRATION EXPENSES. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof.
6. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with any
Registration Statement, each of the Issuer and the Company, jointly and
severally, agrees to indemnify and hold harmless each Holder of securities
covered thereby (including the Purchaser and, with respect to any Prospectus
delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer), the
directors, officers, employees and agents of each such Holder and each other
person, if any, who controls any such Holder within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement as originally filed or in any
amendment thereof, or in any preliminary Prospectus or Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that neither the Issuer nor the Company will be liable in any case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Issuer or the Company by or on behalf of any such
Holder specifically for inclusion therein. This indemnity agreement will be in
addition to any liability which the Issuer or the Company may otherwise have.
Each of the Issuer and the Company also agrees, jointly and severally,
to indemnify or contribute to Losses (as defined below) of, as provided in
Section 6(d), any underwriters of Securities registered under a Shelf
Registration Statement, their officers and directors and each person who
controls such underwriters on substantially
<PAGE>
17
the same basis as that of the indemnification of the Purchaser and the
selling Holders provided in this Section 6(a) and shall, if requested by any
Holder, enter into an underwriting agreement reflecting such agreement, as
provided in Section 4(q) hereof.
(b) Each Holder of securities covered by a Registration Statement
(including the Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally and not
jointly agrees to indemnify and hold harmless the Issuer and the Company, each
of its directors and officers and each other person, if any, who controls the
Issuer or the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Issuer and the Company to each such Holder, but only with reference to written
information relating to such Holder furnished to the Issuer or the Company by or
on behalf of such Holder specifically for inclusion in the documents referred to
in the foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); PROVIDED, HOWEVER, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall
<PAGE>
18
have the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel (and local counsel) if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants
in, or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action
or (iv) the indemnifying party shall authorize the indemnified party to
employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; PROVIDED, HOWEVER, that in
no case shall the Purchaser or any subsequent Holder of any Security or New
Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission
<PAGE>
19
applicable to such Security, or in the case of a New Security, applicable to
the Security which was exchangeable into such New Security, as set forth on
the cover page of the Final Memorandum, nor shall any underwriter be
responsible for any amount in excess of the underwriting discount or
commission applicable to the securities purchased by such underwriter under
the Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Issuer and the Company
shall be deemed to be equal to the sum of (x) the total net proceeds from the
Initial Placement (before deducting expenses) as set forth on the cover page
of the Final Memorandum and (y) the total amount of additional interest which
the Issuer was not required to pay as a result of registering the securities
covered by the Registration Statement which resulted in such Losses.
Benefits received by the Purchaser shall be deemed to be equal to the total
purchase discounts received by the Purchaser from the Company or the Issuer
in connection with its purchase of the Securities under the Placement
Agreement and benefits received by any other Holders shall be deemed to be
equal to the value of receiving Securities or New Securities, as applicable,
registered under the Act. Benefits received by any underwriter shall be
deemed to be equal to the total underwriting discounts and commissions, as
set forth on the cover page of the Prospectus forming a part of the
Registration Statement which resulted in such Losses. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the indemnifying party, on the one hand,
or by the indemnified party, on the other hand, the intent of the parties and
their relative knowledge, access to information and opportunity to prevent
such untrue statement or omission. The parties agree that it would not be
just and equitable if contribution were determined by pro rata allocation or
any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of
<PAGE>
20
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 6, each
person who controls a Holder within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of such Holder
shall have the same rights to contribution as such Holder, and each person
who controls the Company within the meaning of either the Act or the Exchange
Act, each officer of the Issuer who shall have signed the Registration
Statement and each director of the Issuer or the Company shall have the same
rights to contribution as the Issuer or the Company, subject in each case to
the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder,
the Issuer or the Company or any of the officers, directors or controlling
persons referred to in this Section 6, and will survive the sale by a Holder
of securities covered by a Registration Statement.
7. MISCELLANEOUS. (a) NO INCONSISTENT AGREEMENTS. Neither the
Issuer nor the Company has, as of the date hereof, entered into, nor shall
it, on or after the date hereof, enter into, any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders
herein or otherwise conflicts with the provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Issuer and the Company have
obtained the written consent of the Holders of at least a majority of the
then outstanding aggregate principal amount of Securities (or, after the
consummation of any Exchange Offer in accordance with Section 2 hereof, of
New Securities); PROVIDED that, with respect to any matter that directly or
indirectly affects the rights of the Purchaser hereunder, the Issuer and the
Company shall obtain the written consent of the Purchaser. Notwithstanding
the foregoing (except the foregoing proviso), a waiver or consent to
departure from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders whose securities are being sold pursuant
to a Registration Statement and that does not directly or
<PAGE>
21
indirectly affect the rights of other Holders may be given by the Majority
Holders, determined on the basis of securities being sold rather than
registered under such Registration Statement.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Issuer and the Company in accordance with the provisions of this
Section 7(c), which address is, with respect to each Holder, the address
of such Holder maintained by the registrar under the Indenture, with a copy
in like manner to Morgan Stanley & Co., Incorporated by fax (212-761-0353),
and confirmed by mail to it at 1585 Broadway, New York, New York, 10036.
(2) if to you, at the address set forth in the Placement Agreement;
and
(3) if to the Issuer or the Company, at its address set forth in
the Placement Agreement.
All such notices and communications shall be deemed to have been
duly given when received.
The Purchaser or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent
by the Issuer, the Company, subsequent Holders of Securities and/or New
Securities. Each of the Issuer and the Company hereby agrees to extend the
benefits of this Agreement to any Holder of Securities and/or New Securities
and any such Holder may specifically enforce the provisions of this Agreement
as if an original party hereto.
(e) COUNTERPARTS. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall
<PAGE>
22
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.
(f) HEADINGS. The headings in this agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF).
(h) SEVERABILITY. In the event that any one of more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, it being intended that all the rights and
privileges of the parties shall be enforceable to the fullest extent
permitted by law.
(i) SECURITIES HELD BY THE ISSUER, ETC. Whenever the consent or
approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Issuer or the Company or either of
their respective Affiliates (other than subsequent Holders of Securities or
New Securities if such subsequent Holders are deemed to be Affiliates solely
by reason of their holdings of such Securities or New Securities) shall not
be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(j) JURISDICTION. Each of the Issuer and the Company agrees that
any suit, action or proceeding against the Issuer or the Company brought by
the Purchaser, the directors, officers, employees and agents of the
Purchaser, or by any person who controls the Purchaser, arising out of or
based upon this Agreement or the transactions contemplated hereby may be
instituted in any State or Federal court in The City of New York, New York,
and waives any objection which it may now or hereafter have to the laying of
venue of any such proceeding, and irrevocably submits to the non-exclusive
jurisdiction of such courts in any suit, action or proceeding. Each of the
Issuer and the Company has appointed CT Corporation System, with offices on
the date hereof at 1633 Broadway, New York, New York 10019
<PAGE>
23
as its authorized agent (the "Authorized Agent") upon whom process may be
served in any suit, action or proceeding arising out of or based upon this
Agreement or the transactions contemplated herein which may be instituted in
any State or Federal court in The City of New York, New York, by the
Purchaser, the directors, officers, employees and agents of the Purchaser, or
by any person, if any, who controls the Purchaser, and expressly accepts the
non-exclusive jurisdiction of any such court in respect of any such suit,
action or proceeding. Each of the Issuer and the Company hereby represents
and warrants that the Authorized Agent has accepted such appointment and has
agreed to act as said agent for service of process, and each of the Issuer
and the Company agrees to take any and all action, including the filing of
any and all documents that may be necessary to continue such appointment in
full force and effect as aforesaid. Service of process upon the Authorized
Agent shall be deemed, in every respect, effective service of process upon
the Issuer and the Company. Notwithstanding the foregoing, any action
arising out of or based upon this Agreement may be instituted by the
Purchaser, the directors, officers, employees and agents of the Purchaser, or
by any person who controls the Purchaser, in any court of competent
jurisdiction in Canada.
<PAGE>
24
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
CANADIAN FOREST OIL LTD.,
By: /s/ Daniel L. McNamara
--------------------------------------
Name: Daniel L. McNamara
Title: Vice President
FOREST OIL CORPORATION,
By: /s/ Daniel L. McNamara
--------------------------------------
Name: Daniel L. McNamara
Title: Secretary
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
Morgan Stanley and Co. Incorporated
By:
---------------------------------
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account pursuant
to the Registered Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Act. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Securities received in exchange for Securities
where such New Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Issuer and the
Company have agreed that, starting on the date hereof (the "Expiration Date")
and ending on the close of business 180 days after the Expiration Date, they
will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in
exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Securities. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Issuer and the
Company have agreed that, starting on the Expiration Date and ending on the
close of business 180 days after the Expiration Date, they will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all
dealers effecting transactions in the Exchange Securities may be required to
deliver a prospectus.(1)
The Issuer will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to Purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the Purchaser of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Registered Exchange Offer and any broker
or dealer that participates in a distribution of such New Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit of any such resale of New Securities and any commissions or concessions
received by any such persons may be deemed to be
- -----------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
underwriting compensation under the Act. The Letter of Transmittal states
that by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Act.
For a period of 180 days after the Expiration Date, the Issuer
and the Company will promptly send additional copies of this Prospectus and
any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed
to pay all expenses incident to the Exchange Offer (including the expenses of
one counsel for the holders of the Securities) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Act.
[If applicable, add information required by Regulation S-K
Items 507 and/or 508.]
<PAGE>
ANNEX D
RIDER A
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE
10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
-----------------------------------------------------------
Address:
--------------------------------------------------------
--------------------------------------------------------
RIDER B
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale
of such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Act.
<PAGE>
EXHIBIT 4.7
EXECUTION COUNTERPART
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- -------------------------------------------------------------------------------
FOREST OIL CORPORATION
and
SUBSIDIARY GUARANTORS
-----------------------------
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of February 3, 1998
-----------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
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- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
THIS TABLE OF CONTENTS IS NOT PART OF THE AGREEMENT TO WHICH IT IS
ATTACHED BUT IS INSERTED FOR CONVENIENCE OF REFERENCE ONLY.
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Section 1. Definitions and Accounting Matters. . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations . . . . . . . . . . . . . . 26
1.03 Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . 27
1.04 Types of Loans. . . . . . . . . . . . . . . . . . . . . . . . . 29
1.05 Designation of Subsidiaries as Restricted or Unrestricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.06 References to Subsidiaries, Restricted Subsidiaries and
Unrestricted Subsidiaries in Connection with Calculations
of Certain Financial Ratios. . . . . . . . . . . . . . . . . . 30
Section 2. Commitments, Loans, Notes and Prepayments . . . . . . . . . . . 30
2.01 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.02 Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.03 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 31
2.04 Changes of Commitments. . . . . . . . . . . . . . . . . . . . . 35
2.05 Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . . . 36
2.06 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . 36
2.07 Several Obligations; Remedies Independent . . . . . . . . . . . 36
2.08 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.09 Optional Prepayments and Conversions or Continuations of
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.10 Mandatory Prepayments and Reductions of Commitments . . . . . . 37
2.11 Allocation of Borrowing Base. . . . . . . . . . . . . . . . . . 39
Section 3. Payments of Principal and Interest. . . . . . . . . . . . . . . 40
3.01 Repayment of Loans. . . . . . . . . . . . . . . . . . . . . . . 40
3.02 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4. Payments; Pro Rata Treatment; Computations; Etc . . . . . . . . 41
4.01 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.02 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . . 42
4.03 Computations. . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.04 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . 43
4.05 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . 43
(i)
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4.06 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . 44
4.07 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . 45
Section 5. Yield Protection, Etc . . . . . . . . . . . . . . . . . . . . . 46
5.01 Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . 46
5.02 Limitation on Types of Loans. . . . . . . . . . . . . . . . . . 49
5.03 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.04 Treatment of Affected Loans . . . . . . . . . . . . . . . . . . 49
5.05 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.06 Additional Costs in Respect of Letters of Credit. . . . . . . . 51
Section 6. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.01 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.02 Obligations Unconditional . . . . . . . . . . . . . . . . . . . 52
6.03 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.04 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.05 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.06 Continuing Guarantee. . . . . . . . . . . . . . . . . . . . . . 53
6.07 Instrument for the Payment of Money . . . . . . . . . . . . . . 53
6.08 Rights of Contribution. . . . . . . . . . . . . . . . . . . . . 53
6.09 General Limitation on Guarantee Obligations . . . . . . . . . . 54
Section 7. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . 54
7.01 Conditions to Effectiveness . . . . . . . . . . . . . . . . . . 54
7.02 Initial and Subsequent Extensions of Credit . . . . . . . . . . 58
Section 8. Representations and Warranties. . . . . . . . . . . . . . . . . 59
8.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 59
8.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . . 59
8.03 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.05 Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.07 Use of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.08 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.10 Investment Company Act. . . . . . . . . . . . . . . . . . . . . 61
(ii)
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8.11 Public Utility Holding Company Act. . . . . . . . . . . . . . . 61
8.12 Material Agreements and Liens . . . . . . . . . . . . . . . . . 61
8.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 62
8.14 Subsidiaries, Etc.. . . . . . . . . . . . . . . . . . . . . . . 64
8.15 True and Complete Disclosure. . . . . . . . . . . . . . . . . . 64
8.16 Title to Properties . . . . . . . . . . . . . . . . . . . . . . 65
8.17 Acquisition Documents . . . . . . . . . . . . . . . . . . . . . 65
Section 9. Covenants of the Obligors . . . . . . . . . . . . . . . . . . . 65
9.01 Financial Statements Etc. . . . . . . . . . . . . . . . . . . . 65
9.02 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.03 Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 69
9.04 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.05 Prohibition of Fundamental Changes. . . . . . . . . . . . . . . 69
9.06 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . 71
9.07 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.08 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.09 Dividend Payments . . . . . . . . . . . . . . . . . . . . . . . 75
9.10 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . 76
9.11 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . 76
9.12 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . 77
9.13 Transactions with Affiliates. . . . . . . . . . . . . . . . . . 77
9.14 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 77
9.15 Certain Obligations Respecting Subsidiaries . . . . . . . . . . 77
9.16 Additional Subsidiary Guarantors. . . . . . . . . . . . . . . 78
9.17 Modifications and Payments of Subordinated Indebtedness and
Production Payments Indebtedness . . . . . . . . . . . . . . . 78
9.18 Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . 79
9.19 Title Opinions. . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11. The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.01 Appointment, Powers and Immunities . . . . . . . . . . . . . . . 83
11.02 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . . . 83
11.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.04 Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . 84
11.05 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 84
11.06 Non-Reliance on Agent and Other Banks. . . . . . . . . . . . . . 85
(iii)
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11.07 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.08 Resignation or Removal of Agent. . . . . . . . . . . . . . . . . 85
11.09 Consents under Other Basic Documents . . . . . . . . . . . . . . 86
11.10 Collateral Sub-Agents. . . . . . . . . . . . . . . . . . . . . . 86
11.11 Co-Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 12. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 87
12.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
12.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
12.03 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
12.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 88
12.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 89
12.06 Assignments and Participations . . . . . . . . . . . . . . . . . 89
12.07 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 91
12.08 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
12.09 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
12.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 92
12.11 Governing Law; Submission to Jurisdiction. . . . . . . . . . . . 92
12.12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 92
12.13 Treatment of Certain Information . . . . . . . . . . . . . . . . 92
12.14 Intercreditor Agreement. . . . . . . . . . . . . . . . . . . . . 93
12.15 Acknowledgement of Priority of Indebtedness. . . . . . . . . . . 94
(iv)
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SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Hazardous Materials
SCHEDULE III - Subsidiaries and Investments
EXHIBIT A - Form of Note
EXHIBIT B - Form of Security Agreement
EXHIBIT C - Form of Opinion of Counsel to
the Obligors
EXHIBIT D - Form of Opinion of Special
Counsel to Chase
EXHIBIT E - Form of Mortgage
EXHIBIT F - Form of Pledge Agreement
EXHIBIT G - Form of Confidentiality Agreement
(v)
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THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of February 3,
1998, between: FOREST OIL CORPORATION, a corporation duly organized and
validly existing under the laws of the State of New York (the "COMPANY");
each of the Subsidiaries of the Company that becomes a guarantor pursuant to
Section 9.16 hereof (individually, a "SUBSIDIARY GUARANTOR" and,
collectively, the "SUBSIDIARY GUARANTORS" and, together with the Company, the
"OBLIGORS"); each of the lenders that is a signatory hereto identified under
the caption "BANKS" on the signature pages hereto or which, pursuant to
Section 12.06(b) hereof, shall become a "Bank" hereunder (individually, a
"BANK" and, collectively, the "BANKS"); and THE CHASE MANHATTAN BANK, a New
York bank, as administrative agent for the Banks (in such capacity, together
with its successors in such capacity, the "AGENT").
The Company, the Existing Banks (as defined below) and the Agent
are parties to a Second Amended and Restated Credit Agreement dated as of
January 31, 1997 (as heretofore modified and supplemented and in effect on
the date of this Agreement, (the "ORIGINAL CREDIT AGREEMENT")). The parties
hereto wish to amend and restate the Original Credit Agreement in its
entirety, all on the terms and conditions hereinafter set forth.
Each of the Obligors has requested the Banks to make loans to the
Company in an aggregate principal amount not exceeding $275,000,000 at any
one time outstanding to provide working capital, for other general corporate
purposes of the Company and each of its Subsidiaries and for the Acquisition
(as hereinafter defined). The Company and the Subsidiary Guarantors are
engaged as an integrated group in the O&G Business (as hereinafter defined)
and in related businesses, and in furnishing the required supplies, services,
equipment, credit and other facilities for such integrated operation. The
integrated operation requires financing on such a basis that credit supplied
to the Company be made available from time to time to the Subsidiary
Guarantors, as required for the continued successful operation of the
Obligors, separately, and the integrated operation as a whole. Each of the
Obligors expects to derive benefit, directly or indirectly, from the loans so
made to the Company, both in its separate capacity and as a member of the
integrated group, since the successful operation of each of the Obligors is
dependent on the continued successful performance of the functions of the
integrated group as a whole.
Accordingly, the parties hereto agree to amend and restate the
Original Credit Agreement so that, amended and restated, it reads in its
entirety as provided herein.
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or
in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and VICE VERSA):
(vi)
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"ACQUISITION" shall mean the acquisition by the Company of certain
oil and gas properties from a private company in south Louisiana.
"ACQUISITION DOCUMENTS" shall mean the Purchase Agreement, the
Escrow Agreement dated as of January 6, 1998 by the Company, the counterparty
thereto and Whitney National Bank, and each other document executed pursuant
to the foregoing.
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an administrative
questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company
and, if such Person is an individual, any member of the immediate family
(including parents, spouse, children and siblings) of such individual and any
trust whose principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any such member
or trust. As used in this definition, "CONTROL" (including, with its
correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise),
PROVIDED that, in any event, any Person that owns directly or indirectly
securities having 10% or more of the voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no
individual shall be an Affiliate solely by reason of his or her being a
director, officer or employee of the Company or any of its Subsidiaries and
(b) none of the Restricted Subsidiaries of the Company shall be, for purposes
of this definition, Affiliates of the Company.
"ALLOCATED CANADIAN BORROWING BASE" shall mean, as of any date, an
amount in Dollars designated as such from time to time by the Company
pursuant to Section 2.11 hereof.
"ALLOCATED U.S. BORROWING BASE" shall mean an amount equal to the
Borrowing Base then in effect MINUS the Allocated Canadian Borrowing Base.
"AMENDMENT FEE LETTER" shall mean the fee letter agreement dated as
of January 26, 1998 between the Company and the Agent.
"ANSCHUTZ" shall mean The Anschutz Corporation, a Kansas
corporation.
"APPLICABLE COMMITMENT FEE RATE" shall mean for any period during
which the Usage Ratio is within the range specified under "Usage Ratio" in
the following schedule, the percentage per annum set forth opposite the range
in such schedule:
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<TABLE>
RANGE OF APPLICABLE COMMITMENT
USAGE RATIO FEE RATE (BPS PER ANNUM)
- ----------- ------------------------
<S> <C>
less than or equal to .330:1.00 30.0
greater than .330:1.00 but less than or equal
to 0.660:1.00 35.0
greater than .660:1.00 37.5
</TABLE>
"APPLICABLE LENDING OFFICE" shall mean, for each Bank and for each
Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such
Bank) designated for such Type of Loan in the Administrative Questionnaire of
such Bank or such other office of such Bank (or of an affiliate of such Bank)
as such Bank may from time to time specify to the Agent and the Company as
the office by which its Loans of such Type are to be made and maintained.
"APPLICABLE MARGIN" shall mean, with respect to each Type of Loan
for any period during which the Usage Ratio is within the range specified
under "Usage Ratio" in the following schedule, the percentage per annum set
forth opposite the range in such schedule, provided that the "Applicable
Margin" shall be increased or reduced, as applicable, on the date of the
borrowing of a Loan or the issuance of a Letter of Credit, or the repayment
of a Loan or expiration of a Letter of Credit, as the case may be, which
results in the Usage Ratio shifting from one range to another but that the
"Applicable Margin" for any Eurodollar Loan outstanding prior to such date
shall remain the same until the end of the Interest Period for such
Eurodollar Loan:
<TABLE>
APPLICABLE MARGIN (BPS)
RANGE OF -----------------------
USAGE RATIO BASE RATE LOANS EURODOLLAR LOANS
- ----------- --------------- ----------------
<S> <C> <C>
less than or equal to .330:1.00 0.0 100.0
greater than .330:1.00 but less than
or equal to .660:1.00 25.0 125.0
greater than .660:1.00 50.0 150.0
</TABLE>
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978,
as amended from time to time.
"BANKS" shall mean (a) on the date hereof, the Banks having
Commitments as indicated on the signature pages hereof and (b) thereafter,
the Banks from time to time holding Loans and (if the same have not expired
or been terminated) Commitments after giving effect to any assignments
thereof permitted by Section 12.06 hereof.
"BASE RATE" shall mean, for any day, a rate per annum equal to the
higher of (a) the Federal Funds Effective Rate for such day plus 1/2 of 1%
and (b) the Prime Rate for such day. Each change in any interest rate
provided for herein based upon the Base Rate resulting
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from a change in the Base Rate shall take effect at the time of such change
in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates
based upon the Base Rate.
"BASIC DOCUMENTS" shall mean, collectively, this Agreement, the
Notes, the Letter of Credit Documents, the Security Documents, the
Intercreditor Agreement, the Canadian Guarantee and the Acquisition Documents.
"BORROWING BASE" has the meaning given to such term in Section
1.03(b) hereof.
"BORROWING BASE DEFICIENCY" has the meaning given to such term in
Section 2.10(a) hereof.
"BORROWING BASE REPORTS" shall mean collectively, (i) Reserve
Evaluation Reports, (ii) Canadian Forest Reserve Evaluation Reports and (iii)
Canadian Net Back Pool Reports and "BORROWING BASE REPORT" shall mean any
thereof.
"BUSINESS DAY" shall mean (a) any day on which commercial banks are
not authorized or required to close in New York City and (b) if such day
relates to a borrowing of, a payment or prepayment of principal of or
interest on, a Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a notice by the Company with respect to any such borrowing, payment,
prepayment, Conversion or Interest Period, any day on which dealings in
Dollar deposits are carried out in the London interbank market.
"CANADIAN AGENT" shall mean The Chase Manhattan Bank of Canada, as
administrative agent under the Funding Credit Agreement; provided that if the
Canadian Lenders make loans directly to Canadian Forest Oil, the "Canadian
Agent" shall mean the Agent under the Credit Agreement pursuant to which such
loans are made.
"CANADIAN FOREST OIL" shall mean Canadian Forest Oil Ltd., an
Alberta corporation.
"CANADIAN FOREST OIL CREDIT AGREEMENT" shall mean the Amended and
Restated Credit Agreement dated as of July 17, 1996 among Canadian Forest
Oil, the Subsidiaries of Canadian Forest Oil that may become Subsidiary
Borrowers thereunder and Funding Co., as the same may be modified and
supplemented and in effect from time to time; provided that if the Canadian
Lenders make loans directly to Canadian Forest Oil, the "Canadian Forest Oil
Credit Oil Agreement" shall mean the Credit Agreement pursuant to which such
loans are made as the same may be modified and supplemented and in effect
from time to time.
"CANADIAN FOREST RESERVE EVALUATION REPORT" shall mean the report
defined in the Funding Credit Agreement as the "Reserve Evaluation Report"
prepared for Canadian Forest Oil.
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"CANADIAN FOREST SENIOR SUBORDINATED DEBT" shall mean the
Indebtedness of Canadian Forest Oil evidenced by and in respect of the
Canadian Forest Senior Subordinated Notes issued pursuant to the Canadian
Forest Senior Subordinated Debt Documents.
"CANADIAN FOREST SENIOR SUBORDINATED DEBT DOCUMENTS" shall mean all
documents and agreements executed and delivered in connection with the
issuance of the Canadian Forest Senior Subordinated Notes, including the
Indenture dated as of September 29, 1997 (as amended by a First Supplemental
Indenture dated as of February 2, 1998) among the Company, as guarantor,
Canadian Forest Oil, as issuer, and State Street Bank and Trust Company, as
trustee, as the same shall, subject to Section 9.17 hereof, be modified and
supplemented and in effect from time to time.
"CANADIAN FOREST SENIOR SUBORDINATED NOTES" shall mean Canadian
Forest Oil's 8 3/4% Senior Subordinated Notes due 2007 in an aggregate
principal amount not to exceed $200,000,000.
"CANADIAN GUARANTEE" shall mean the Guarantee dated as of August
19, 1997 executed by the Company in favor of the Canadian Agent and the
Canadian Lenders party to the Funding Credit Agreement, as the same may be
modified and supplemented and in effect from time to time; provided that if
the Canadian Lenders make loans directly to Canadian Forest Oil, the
"Canadian Guarantee" shall mean the Guarantee pursuant to which the Company
guarantees such loans and other obligations of Canadian Forest Oil thereunder.
"CANADIAN LENDERS" shall have the meaning ascribed thereto in the
Intercreditor Agreement.
"CANADIAN LOAN DOCUMENTS" shall mean have the meaning ascribed
thereto in the Intercreditor Agreement.
"CANADIAN NET BACK POOL REPORT" shall mean the report defined in
the Funding Credit Agreement as the "Net Back Pool Report".
"CAPITAL EXPENDITURES" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Company or any of its
Restricted Subsidiaries in connection with the acquisition and exploitation
of, or the exploration for or development or production of, hydrocarbon
reserves or to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to
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use) Property to the extent such obligations are required to be classified
and accounted for as a capital lease on a balance sheet of such Person under
GAAP, and, for purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in accordance with GAAP.
"CAPITAL STOCK" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated)
of corporate stock or partnership interests and any and all warrants, options
and rights with respect thereto (whether or not currently exercisable),
including each class of common stock and preferred stock of such Person.
"CASH FLOW" shall mean, for any period, for the Company and the
Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), the sum of the following: the total
sales revenue from natural gas, oil and other hydrocarbon products for such
period PLUS cash dividend payments, if any, by an Unrestricted Subsidiary to
the Company or a Restricted Subsidiary in an aggregate amount in excess of
the aggregate amount of the Investments in such Unrestricted Subsidiary by
the Company and the Restricted Subsidiaries during such period PLUS the total
Net Cash Payments (excluding the fair market value of non-cash consideration)
received by the Company and its Restricted Subsidiaries during such period
PLUS the total cash proceeds received by the Company as a result of any
Equity Issuance (other than Disqualified Stock of the Company) that has been
utilized to repay any Indebtedness (to the extent permitted pursuant to the
terms of this Agreement) of the Company PLUS the total cash proceeds received
from any Disposition, including any Disposition of Unrestricted Properties to
the extent the proceeds of such Disposition are applied during such period in
satisfaction of the obligations described in clause (b) of this definition
PLUS the net proceeds received from the issuance of any Debt to the extent
such net proceeds are applied during such period in satisfaction of the
obligations described in clause (b) of this definition MINUS (a) the revenue
attributable to Volumetric Production Payments for such period, (b) the
amounts paid in satisfaction of obligations under Dollar-Denominated
Production Payments for such period, (c) oil and gas production expenses for
such period and (d) total overhead costs paid or required to be paid in cash
during such period (whether or not capitalized, but net of credits related to
such expenses).
"CASUALTY EVENT" shall mean, with respect to any Property of any
Person, any loss of or damage to, or any condemnation or other taking of,
such Property for which such Person or any of its Subsidiaries receives
insurance proceeds, or proceeds of a condemnation award or other compensation.
"CHANGE OF CONTROL" shall mean any event or series of events by
which: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) (other than Anschutz) is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of 40% or more
of the total voting power of the Voting Stock of the Company; (ii) the
Company consolidates with or merges or amalgamates with or into another
Person or
<PAGE>
-7-
conveys, transfers, or leases all or substantially all of its assets to any
other Person, or any Person consolidates with, or merges or amalgamates with
or into the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for
cash, securities or other property, other than any such transaction where (a)
the outstanding Voting Stock of the Company is changed into or exchanged for
Voting Stock of the surviving corporation which is not Disqualified Stock and
(b) the holders of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, not less than a majority of the
Voting Stock of the surviving corporation immediately after such transaction;
(iii) the shareholders of the Company approve any plan of liquidation or
dissolution of the Company; or (iv) during any period of 12 consecutive
months, individuals who at the beginning of such period constituted the board
of directors of the Company (or whose nomination for election by the
shareholders of the Company was approved by a vote of not less than a
majority of the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the board of directors of the Company then in office.
"CHASE" shall mean The Chase Manhattan Bank.
"CLOSING DATE" shall mean December 1, 1993, the date upon which the
initial extension of credit was made hereunder.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COLLATERAL ACCOUNT" shall have the meaning assigned to such term
in Section 4.01 of the Security Agreement.
"COMBINED COMMITMENTS" shall have the meaning ascribed thereto in
the Intercreditor Agreement.
"COMBINED MAJORITY LENDERS" shall have the meaning ascribed thereto
in the Intercreditor Agreement.
"COMBINED OBLIGATIONS" shall mean, at any time, the Loans
outstanding at such time hereunder PLUS the Letter of Credit Liabilities at
such time PLUS the Funding Credit Agreement Obligations at such time.
"COMBINED SUPERMAJORITY LENDERS" shall mean Banks and Canadian
Lenders having greater than 75% of the aggregate amount of the Combined
Commitments at such time.
"COMMITMENT" shall mean, for each Bank, the obligation of such Bank
to make Loans in an aggregate principal amount up to but not exceeding (a) in
the case of a Bank that is a party to this Agreement as of the date hereof,
the amount set opposite the name of such Bank on
<PAGE>
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the signature pages hereof under the caption "Commitment" or (b) in the case
of any other Bank, the aggregate amount of the Commitments of other Banks
acquired by it pursuant to Section 12.06(b) hereof (in each case, as the same
may be reduced from time to time pursuant to Section 2.04 hereof or increased
or reduced from time to time pursuant to said Section 12.06(b)).
"COMMITMENT PERCENTAGE" shall mean, with respect to any Bank, the
ratio of the amount of the Commitment of such Bank to the aggregate amount of
the Commitments of all of the Banks.
"COMMITMENT TERMINATION DATE" shall mean August 19, 2001.
"COMMODITY HEDGING AGREEMENT" shall mean, for any Person, an
agreement or arrangement between such Person and one or more financial
institutions or other entities providing for the transfer or mitigation of
risks of fluctuations in prices of hydrocarbons, either generally or under
specific circumstances.
"CONSOLIDATED SUBSIDIARY" shall mean, for any Person, each
Subsidiary of such Person (whether now existing or hereafter created or
acquired) the financial statements of which are (or should have been)
consolidated with the financial statements of such Person in accordance with
GAAP.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.09 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 2.09 hereof of one Type of Loans into another Type of
Loans, which may be accompanied by the transfer by a Bank (at its sole
discretion) of a Loan from one Applicable Lending Office to another.
"DEFICIENCY NOTICE" shall have the meaning assigned to such term in
Section 2.10(a) hereof.
"DEFAULT" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"DETERMINATION DATE" shall mean (i) each May 1 and October 15 of
each year prior to the Commitment Termination Date and (ii) 45 days after
each other date, if any, on which a Borrowing Base Report is delivered to the
Agent as contemplated hereby.
"DETERMINATION PERIOD" shall mean (i) initially, the period
commencing on the date hereof and ending on the first Determination Date
thereafter and, (ii) each period commencing on a Determination Date and
ending on the day next preceding the next succeeding
<PAGE>
-9-
Determination Date.
"DISPOSITION" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by the
Company or any of its Restricted Subsidiaries to any Person (other than by
any such Restricted Subsidiary to the Company or any other Restricted
Subsidiary, or by the Company to a Restricted Subsidiary), excluding any
sale, assignment, transfer or other disposition of (i) any Property sold or
disposed of in the ordinary course of business and on ordinary business
terms, (ii) any Unrestricted Properties and (iii) any capital stock of Saxon.
"DISQUALIFIED STOCK" means any Capital Stock of the Company or any
Restricted Subsidiary of the Company which, by its terms (or by the terms of
any security into which it is convertible or for which it is exchangeable),
or upon the happening of any event or with the passage of time, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at the option of the holder thereof, in whole or in part, on
or prior to the Commitment Termination Date or which is exchangeable or
convertible into debt securities of the Company or any Restricted Subsidiary
of the Company, except to the extent that such exchange or conversion rights
cannot be exercised prior to the Commitment Termination Date.
"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or any of its Restricted Subsidiaries or of any
warrants, options or other rights to acquire the same (or to make any
payments to any Person, such as "phantom stock" payments, where the amount
thereof is calculated with reference to the fair market or equity value of
the Company or any of its Restricted Subsidiaries), but excluding dividends
payable solely in shares of common stock of the Company.
"DOLLAR-DENOMINATED PRODUCTION PAYMENTS" shall mean production
payment obligations of the Company or any of its Restricted Subsidiaries
which are payable from a specified share of proceeds received from production
from specific Properties, together with all undertakings and obligations in
connection therewith.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, (a)
any written or oral notice, claim, demand or other communication
(collectively, a "CLAIM") by any other Person alleging or asserting such
Person's liability for investigatory costs, cleanup costs, governmental
response costs, damages to natural resources or other Property, personal
injuries, fines or penalties arising out of, based on or resulting from (i)
the presence, or Release into the environment, of any Hazardous Material at
any location, whether or not owned by such Person, or (ii) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law. The term "Environmental Claim" shall include, without
limitation, any
<PAGE>
-10-
claim by any governmental authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from the presence of Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders
or decrees, in each case as now or hereafter in effect, relating to the
regulation or protection of human health, safety or the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or toxic or hazardous substances or wastes into the
indoor or outdoor environment, including, without limitation, ambient air,
soil, surface water, ground water, wetlands, land or subsurface strata, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or toxic or hazardous substances or wastes.
"EQUITY ISSUANCE" shall mean (a) any issuance or sale by the
Company or any of its Restricted Subsidiaries after the date of this
Agreement of (i) any of its Capital Stock, (ii) any warrants or options
exercisable in respect of its Capital Stock or (iii) any other security or
instrument representing an equity interest (or the right to obtain any equity
interest) in the Company or any of its Restricted Subsidiaries or (b) the
receipt by the Company or any of its Restricted Subsidiaries after the date
of this Agreement of any capital contribution (whether or not evidenced by
any equity security issued by the recipient of such contribution); PROVIDED
that Equity Issuance shall not include (x) any such issuance or sale by any
Restricted Subsidiary of the Company to the Company or any other Wholly Owned
Subsidiary of the Company which is a Restricted Subsidiary, (y) any capital
contribution by the Company or any Wholly Owned Subsidiary of the Company
which is a Restricted Subsidiary to any other Restricted Subsidiary of the
Company or (z) any warrants or options issued to directors, officers or
employees of the Company and its Restricted Subsidiaries pursuant to any
employee benefit plans, incentive plans or similar programs established in
the ordinary course of business.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights
or agreements of any kind (including, without limitation, any stockholders'
or voting trust agreements) for the issuance, sale, registration or voting
of, or outstanding securities convertible into, any additional shares of
Capital Stock of any class, or partnership or other ownership interests of
any type in, such Person.
"EQUIVALENT AMOUNT" shall have the meaning ascribed thereto in the
Funding Credit Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
<PAGE>
-11-
"ERISA AFFILIATE" shall mean any corporation or trade or business
that is a member of any group of organizations (a) described in Section
414(b) or (c) of the Code of which the Company is a member and (b) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Company is a member.
"EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar
Loan for any Interest Period therefor, the rate per annum quoted by Chase at
approximately 11:00 a.m. London time (or as soon thereafter as practicable)
on the date two Business Days prior to the first day of such Interest Period
for the offering by Chase to leading banks in the London interbank market of
Dollar deposits having a term comparable to such Interest Period and in
amounts comparable to the principal amount of the Eurodollar Loan to be made
by Chase for such Interest Period. If Chase is not participating in any
Eurodollar Loan during any Interest Period therefor, the Eurodollar Base Rate
for such Loan for such Interest Period shall be determined by reference to
the amount of the Loan that Chase would have made or had outstanding had it
been participating in such Loan during such Interest Period.
"EURODOLLAR LOANS" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Eurodollar
Base Rate" in this Section 1.01.
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Agent to be equal to the
Eurodollar Base Rate for such Loan for such Interest Period divided by 1
minus the Reserve Requirement for such Loan for such Interest Period.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 10 hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"EXISTING BANKS" shall mean the financial institutions party to the
Original Credit Agreement.
"EXISTING LOANS" shall mean the "Loans" under, and as defined in,
the Original Credit Agreement.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal
to the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers
on such day, as published by the Federal Reserve Bank of
<PAGE>
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New York on the Business Day next succeeding such day, PROVIDED that (a) if
the day for which such rate is to be determined is not a Business Day, the
Federal Funds Effective Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day and (b) if such rate is not so published for any
Business Day, the Federal Funds Effective Rate for such Business Day shall be
the average rate charged to Chase on such Business Day on such transactions
as determined by the Agent.
"FOREST DEBENTURE" shall mean the Limited Recourse Demand Debenture
and Negative Pledge, dated as of April 1, 1997, of the Company in the
original principal amount of C$80,000,000, payable to Funding Co. and
assigned to The Chase Manhattan Bank of Canada, as administrative agent and
its successors and assigns, as the same shall be modified and supplemented
and in effect from time to time.
"FOREST GUARANTEE" shall mean the Limited Recourse Secured
Guarantee dated as of April 1, 1997 by the Company in favor of Funding Co.
and assigned to The Chase Manhattan Bank of Canada, as administrative agent
and its successors and assigns, as the same shall be modified and
supplemented and in effect from time to time.
"FOREST PLEDGED PROPERTIES" shall mean the property which is from
time to time the subject of the Lien created by the Forest Debenture.
"FOREST PURCHASE AGREEMENT" shall mean the Petroleum, Natural Gas
and General Rights Conveyance made effective as of April 1, 1997 between
Canadian Forest Oil, as seller, and the Company, as Purchaser.
"FUNDING CO." shall mean 611852 Saskatchewan Ltd., a corporation
organized under the laws of Saskatchewan.
"FUNDING CREDIT AGREEMENT" shall mean the Second Amended and
Restated Credit Agreement dated as of April 1, 1997 among Funding Co., the
Canadian Lenders and the Canadian Agent, as amended by Amendment No. 1 dated
as of August 19, 1997, Amendment No. 2 dated as of December 26, 1996,
Amendment No. 3 dated as of January 6, 1998 and Amendment No. 4 dated as of
January 30, 1998 and the Intercreditor Agreement, and as the same may be
further modified, supplemented, amended and/or restated from time to time;
provided that if the Canadian Lenders make loans directly to Canadian Forest
Oil, references to the "Funding Credit Agreement" shall be deemed to be
references to the Canadian Forest Oil Credit Agreement pursuant to which such
loans are made, as the same may be modified and supplemented and in effect
from time to time.
"FUNDING CREDIT AGREEMENT OBLIGATIONS" shall mean (i) the Loans
provided for in Section 2.01 of the Funding Credit Agreement, (ii) the
Swingline Loans provided for in Section 2.05 of the Funding Credit Agreement,
(iii) the Letter of Credit Liabilities under the Funding Credit Agreement and
(iv) the Bankers' Acceptance Liabilities under the Funding Credit
<PAGE>
-13-
Agreement.
"FUTURE NET REVENUES" shall mean, for any period, the future gross
revenues attributable to all or a part (as specified herein) of Proved
Reserves constituting part of the Hydrocarbon Properties for such period less
the sum for such period of all projected Operating Expenses and Capital
Expenditures with respect thereto, as set forth in the related Borrowing Base
Report, and less (without duplication) all amounts projected to be applied to
the discharge of any Production Payment and to the unearned balance of any
advance payment received under any contract to be performed relating to such
Proved Reserves.
"GAAP" shall mean generally accepted accounting principles applied
on a basis consistent with those which, in accordance with the last sentence
of Section 1.02(a) hereof, are to be used in making the calculations for
purposes of determining compliance with this Agreement.
"GOVERNMENT AUTHORITY" shall mean any federal, state, municipal,
local, territorial, or other governmental subdivision, department,
commission, board, bureau, agency, regulatory authority, instrumentality,
judicial or administrative body, domestic or foreign.
"GUARANTEE" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of,
or otherwise to be or become contingently liable under or with respect to,
the Indebtedness, other obligations, net worth, working capital or earnings
of any Person or any production or revenues generated by (or any capital or
other expenditures incurred in connection with the acquisition and
exploitation of, exploration for, development of or production from) any
hydrocarbon reserves, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an
agreement to purchase, sell or lease (as lessee or lessor) Property,
products, materials, supplies or services primarily for the purpose of
enabling a debtor to make payment of such debtor's obligations or an
agreement to assure a creditor against loss, and including, without
limitation, causing a bank, surety company or other financial institution or
similar entity to issue a letter of credit, surety bond or other similar
instrument for the benefit of another Person, but excluding endorsements for
collection or deposit in the ordinary course of business. The terms
"GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning.
"HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or
petroleum products, flammable explosives, radioactive materials, asbestos in
any form that is or could become friable, urea formaldehyde foam insulation,
and transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls (PCB's), (b) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes",
"toxic substances", "toxic pollutants", "contaminants", "pollutants" or words
of similar import under any Environmental Law and (c) any other chemical or
other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated under any Environmental Law.
<PAGE>
-14-
"HYDROCARBON PROPERTIES" shall mean interests which one or more of
the Obligors have from time to time in hydrocarbon reserves from which
hydrocarbons may be severed or extracted in commercially feasible quantities
which hydrocarbon reserves have been given value by the Banks in determining
the Borrowing Base.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
purchase or repurchase the same or similar Property from such Person); (b)
obligations of such Person to pay the deferred purchase or acquisition price
of Property or services, other than trade accounts payable (other than for
borrowed money) arising, and accrued expenses incurred, in the ordinary
course of business so long as such trade accounts payable are payable within
90 days of the date the respective goods are delivered or the respective
services are rendered; (c) obligations of others secured by a Lien on the
Property of such Person, whether or not the respective obligations so secured
has been assumed by such Person; (d) obligations of such Person in respect of
letters of credit, surety bonds or similar instruments issued or accepted by
banks, surety companies and other financial institutions for account of such
Person; (e) Capital Lease Obligations of such Person; (f) obligations of such
Person in respect of obligations of the types specified in other clauses of
this definition as a general partner or joint venturer of any partnership or
joint venture (other than in respect of obligations incurred in the ordinary
course of business); (g) upon the failure of such Person to perform or
fulfill any warranties or guaranties of, or similar obligations relating to,
production or payment contained in any Non-Recourse Debt, the maximum amount
of the obligation of such Person in respect of such warranties, guaranties or
similar obligations; (h) the unearned balance of any advance payment received
by such Person under any contract to be performed in excess of $250,000 in
the aggregate (other than as provided in clause (i) below); (i) the unearned
balance of any advance payment received by such Person under any contract to
be performed in excess of $2,000,000 in the aggregate resulting from
transactions in the ordinary course of such Person's business; and (j)
Indebtedness of others Guaranteed by such Person.
"INDEPENDENT PETROLEUM ENGINEER" shall mean (a) Ryder Scott Company
Petroleum Engineers or McDaniel & Associates (b) such other firm of
independent petroleum engineers expert in the matters required to be
performed in connection with the preparation and delivery of a Reserve
Evaluation Report and satisfactory to the Majority Banks.
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement
dated as of August 19, 1997 between the Agent and the Canadian Agent as the
same may be modified, supplemented, amended and/or restated and in effect
from time to time.
"INTEREST COVERAGE RATIO" shall mean, for any period, the ratio of
(a) Cash Flow for such period to (b) Interest Expense for such period.
<PAGE>
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"INTEREST EXPENSE" shall mean, for any period, interest expense for
the Company and the Restricted Subsidiaries for such period (determined on a
consolidated basis without duplication in accordance with GAAP) including,
without limitation, the following: all interest in respect of Indebtedness
accrued or capitalized during such period (whether or not actually paid
during such period) (other than interest paid in common stock of the Company)
and the net amounts payable (or minus the net amounts receivable) under
Interest Rate Protection Agreements of such Persons accrued during such
period (whether or not actually paid or received during such period), but
excluding the non-cash amortization of deferred debt issuance costs and
original issue discount for such period and the interest expense attributable
to Dollar-Denominated Production Payments of the Company in existence on the
Closing Date for such period.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan,
each period commencing on the date such Eurodollar Loan is made or Converted
from a Base Rate Loan or the last day of the next preceding Interest Period
for such Loan and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the applicable Borrower
may select as provided in Section 4.05 hereof, except that each Interest
Period that commences on the last Business Day of a calendar month (or on any
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i)
if any Interest Period would otherwise end after the Commitment Termination
Date, such Interest Period shall end on the Commitment Termination Date; (ii)
each Interest Period that would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the
next preceding Business Day); and (iii) notwithstanding clause (i) above, no
Interest Period shall have a duration of less than one month and, if the
Interest Period for any Eurodollar Loan would otherwise be a shorter period,
such Loan shall not be available as a Eurodollar Loan hereunder for such
period.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between
such Person and one or more financial institutions or other entities
providing for the transfer or mitigation of interest risks, either generally
or under specific contingencies.
"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of
any securities at a time when such securities are not owned by the Person
entering into such short sale); (b) the making of any deposit with, or
advance, loan or other extension of credit to, any other Person (including
the purchase of Property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such Property to such Person,
but excluding any such advance, loan or extension of credit having a term not
exceeding 90 days representing the
<PAGE>
-16
purchase price of inventory or supplies sold by such Person in the ordinary
course of business); (c) the entering into of any Guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of any
other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person; or (d) the entering into of any Interest
Rate Protection Agreement or Commodity Hedging Agreement.
"ISSUING BANK" shall mean Chase, as the issuer of Letters of Credit
under Section 2.03 hereof, together with its successors and assigns in such
capacity.
"LENDER GROUP" shall have the meaning ascribed thereto in the
Intercreditor Agreement.
"LETTER OF CREDIT" shall have the meaning assigned to such term in
Section 2.03 hereof.
"LETTER OF CREDIT DOCUMENTS" shall mean, with respect to any Letter
of Credit, collectively, any application therefor and any other agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to
such Letter of Credit or (b) any collateral security for any of such
obligations, each as the same may be modified and supplemented and in effect
from time to time.
"LETTER OF CREDIT INTEREST" shall mean, for each Bank, such Bank's
participation interest (or, in the case of the Issuing Bank, the Issuing
Bank's retained interest) in the Issuing Bank's liability under Letters of
Credit and such Bank's rights and interests in Reimbursement Obligations and
fees, interest and other amounts payable in connection with Letters of Credit
and Reimbursement Obligations.
"LETTER OF CREDIT LIABILITY" shall mean, without duplication, at
any time and in respect of any Letter of Credit, the sum of (a) the undrawn
face amount of such Letter of Credit PLUS (b) the aggregate unpaid principal
amount of all Reimbursement Obligations of the Company at such time due and
payable in respect of all drawings made under such Letter of Credit. For
purposes of this Agreement, a Bank (other than the Issuing Bank) shall be
deemed to hold a Letter of Credit Liability in an amount equal to its
participation interest in the related Letter of Credit under Section 2.03
hereof, and the Issuing Bank shall be deemed to hold a Letter of Credit
Liability in an amount equal to its retained interest in the related Letter
of Credit after giving effect to the acquisition by the Banks other than the
Issuing Bank of their participation interests under said Section 2.03.
"LIEN" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such Property (including any Production Payments, advance payment or
similar arrangements with respect to minerals in place). For purposes of
this Agreement and the other Basic Documents, a Person shall be
<PAGE>
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deemed to own subject to a Lien any Property that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.
"LOANS" shall mean the loans provided for by Section 2.01(a) hereof.
"MAJORITY BANKS" shall mean Banks having at least 66-2/3% of the
aggregate amount of the Commitments, or if the Commitments shall have been
terminated, Banks holding at least 66-2/3% of the sum of the aggregate unpaid
principal amount of the Loans and the Letter of Credit Liabilities in respect
of the Commitments.
"MARGIN STOCK" shall mean "margin stock" within the meaning of
Regulations U and X.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of the Company and its Subsidiaries taken as a
whole, (b) the ability of any Obligor, Funding Co. or Canadian Forest Oil to
perform their respective obligations under any of the Basic Documents or the
Canadian Loan Documents to which it is a party, (c) the validity or
enforceability of any of the Basic Documents or the Canadian Loan Documents,
(d) the right and remedies of any member of the Lender Group, the Canadian
Agent and the Agent under any of the Basic Documents or the Canadian Loan
Documents, as the case may be, or (e) the timely payment of the principal of
or interest on the Loans, Reimbursement Obligations or Funding Credit
Agreement Obligations or other amounts payable in connection therewith.
"MORTGAGE(S)" shall mean, collectively, one or more Mortgages,
Deeds of Trust, Assignments of Rents, Security Agreements and Fixture Filings
or similar documents executed by the Company in favor of the Agent and Mary
Jo Woodford, as Trustee, for the benefit of the Agent and the Banks, in each
case substantially in the form of Exhibit E hereto and covering the
respective Mortgaged Properties and leasehold interest identified in any
Exhibit or Schedule thereto, as the same shall be modified and supplemented
and in effect from time to time.
"MORTGAGE AMENDMENTS" shall mean the amendments to the Mortgages
executed by the Company in connection with this Agreement.
"MORTGAGED PROPERTIES" shall mean Hydrocarbon Properties which are
subject to the Liens created hereunder and under the Security Documents.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made by the
Company or any ERISA Affiliate and which is covered by Title IV of ERISA.
<PAGE>
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"NET AVAILABLE PROCEEDS" shall mean:
(a) in the case of any Disposition by the Company or a Restricted
Subsidiary, the amount of Net Cash Payments received in connection with
such Disposition; PROVIDED that if 20% or less of the total value of such
Net Cash Payments consists of non-cash consideration, and if such non-cash
consideration is subjected to the Lien of the Security Documents within 90
days after its receipt by the Company or a Restricted Subsidiary, the
amount of such Net Cash Payments received shall be deemed to equal the
amount of all cash payments received in connection with such Disposition;
(b) in the case of any Casualty Event with respect to any Property of
the Company or any of its Restricted Subsidiaries, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation received
by the Company and its Restricted Subsidiaries in respect of such Casualty
Event net of (i) reasonable expenses incurred by the Company and its
Restricted Subsidiaries in connection therewith and (ii) contractually
required repayments of Indebtedness to the extent secured by a Lien on such
Property and any income and transfer taxes payable by the Company or any of
its Restricted Subsidiaries in respect of such Casualty Event; and
(c) in the case of any incurrence of Subordinated Debt, the aggregate
amount of all cash received by the Company and its Restricted Subsidiaries
in respect of such incurrence net of commissions, discounts and other
transaction costs incurred by the Company and its Restricted Subsidiaries
in connection therewith.
"NET CASH PAYMENTS" shall mean, with respect to any Disposition,
the aggregate amount of all cash payments, and the fair market value of any
non-cash consideration, received by the Company and its Restricted
Subsidiaries directly or indirectly in connection with such Disposition;
PROVIDED that (a) Net Cash Payments shall be net of (i) the amount of any
legal, title and recording tax expenses, commissions and other fees and
expenses paid by the Company and its Restricted Subsidiaries in connection
with such Disposition and (ii) any Federal, state and local income or other
taxes estimated to be payable by the Company and its Restricted Subsidiaries
as a result of such Disposition (but only to the extent that (x) such
estimated taxes are in fact paid to the relevant Federal, state or local
governmental authority within three months of date of such Disposition or
placed in escrow for the payment of such taxes or (y) the amount of such
estimated taxes is less than $2,000,000 and the payment of such taxes is
being contested in good faith and by appropriate proceedings), (b) Net Cash
Payments shall not include any cash payment (or portion thereof) received in
any fiscal year of the Company in respect of such Disposition to the extent
that such cash payment (or portion thereof), together with all cash payments
with respect to other Dispositions theretofore received in such fiscal year,
does not exceed $1,000,000 and (c) Net Cash Payments shall be net of any
repayments by the Company or any of its Restricted Subsidiaries of
Indebtedness to the extent that (i) such Indebtedness is secured by a Lien on
the Property that is the subject of such Disposition and (ii) such
<PAGE>
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Indebtedness is to be repaid as a condition to the Disposition of such
Property.
"NEW WHOLLY-OWNED SUBSIDIARY" shall have the meaning assigned to
such term in Section 9.08 hereof.
"NON-RECOURSE DEBT" shall mean any Indebtedness of any Unrestricted
Subsidiary, in each case in respect of which the sole recourse of the holder
or holders thereof (except to the extent approved by the Majority Banks) is
to such Unrestricted Subsidiary and/or one or more of its Subsidiaries (which
is an Unrestricted Subsidiary) and/or any other Person (other than the
Company and/or any Restricted Subsidiary) and the terms and conditions of the
non-recourse provisions of which are reasonably acceptable to the Majority
Banks; PROVIDED that the existence in any document executed by any such
Unrestricted Subsidiary, in connection with such Non-Recourse Debt (the
"SUBJECT DEBT") of a provision which provides for recourse to the Properties
or assets of the Company, or any Restricted Subsidiary generally by reason of
gross negligence or willful misconduct of such Unrestricted Subsidiary, will
not cause the Subject Debt to be excluded from the definition of
"Non-Recourse Debt" prior to the time that a claim is made against the
Company or such Restricted Subsidiary, as the case may be, alleging the gross
negligence or willful misconduct of such Unrestricted Subsidiary (it being
understood that immediately upon any such claim being made against the
Company or such Restricted Subsidiary the amount of such claim shall cease to
be Non-Recourse Debt).
"NOTES" shall mean the promissory notes provided for by Section
2.08 hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"O&G BUSINESS" shall mean the lines of business referred to in
Section 9.12 hereof.
"OPERATING EXPENSES" shall mean, for any period, the sum of the
following for the Company and its Restricted Subsidiaries (determined on a
consolidated basis in accordance with GAAP) to the extent accrued or paid
during such period (without duplication): (i) lease operating expenses; (ii)
Taxes; (iii) general and administrative and other overhead expenditures; and
(iv) all other expenses paid or accrued.
"ORIGINAL FEE LETTER" shall mean the letter agreement dated January
31, 1997 between the Agent and the Company.
"ORIGINAL NOTES" shall mean the promissory notes delivered pursuant
to the Original Credit Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
<PAGE>
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"PERMITTED INVESTMENTS" shall mean: (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed
as to principal and interest by the United States of America, or of any
agency thereof, in either case maturing not more than 90 days from the date
of acquisition thereof; (b) certificates of deposit issued by any bank or
trust company organized under the laws of the United States of America or any
state thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Rating Group or Moody's Investors Services, Inc., respectively, maturing not
more than 90 days from the date of acquisition thereof; and (d) commercial
paper rated A-2 or better (but less than A-1) or P-2 or better (but less than
P-1) by Standard and Poor's Rating Group or Moody's Investors Services, Inc.
respectively, maturing not more than 30 days from the date of acquisition
thereof.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization
or government (or any agency, instrumentality or political subdivision
thereof).
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and that is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"PLEDGE AGREEMENT" shall mean the Pledge Agreement substantially in
the form of Exhibit F hereto between any Obligor required to execute a Pledge
Agreement at any time after the date hereof and the Agent, as the same shall
be modified and supplemented and in effect from time to time.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any
Loan, any Reimbursement Obligation or any other amount under this Agreement,
any Note or any other Basic Document that is not paid when due (whether at
stated maturity, by acceleration, by optional or mandatory prepayment or
otherwise), a rate per annum during the period from and including the due
date to but excluding the date on which such amount is paid in full equal to
2% PLUS the Base Rate as in effect from time to time PLUS the Applicable
Margin for Base Rate Loans (PROVIDED that, if the amount so in default is
principal of a Eurodollar Loan and the due date thereof is a day other than
the last day of the Interest Period therefor, the "Post-Default Rate" for
such principal shall be, for the period from and including such due date to
but excluding the last day of the Interest Period, 2% PLUS the interest rate
for such Loan as provided in Section 3.02(b) hereof and, thereafter, the rate
provided for above in this definition).
"PRESENT VALUE OF RESERVES" shall mean, on any date, estimated net
cash flow expressed in Dollars (after development expenses and production
taxes) in respect of Proved Reserves attributable to Hydrocarbon Properties
calculated in accordance with the Agent's risk factors and product pricing
models in effect from time to time and discounted to present value at a
discount rate acceptable to the Majority Banks from time to time for Proved
Reserves.
<PAGE>
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"PRIME RATE" shall mean the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City.
"PRODUCERS MARKETING" shall mean Producers Marketing Ltd., a
Canadian corporation.
"PRODUCTION PAYMENTS" shall mean, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"PROPERTY" shall mean any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PROVED RESERVES" shall mean reserves (to the extent of the net
interest of the Company and its Restricted Subsidiaries therein) comprised of
quantities of hydrocarbons that geologic and engineering data demonstrate
with reasonable certainty to be recoverable in the future from known
reservoirs under existing conditions, PROVIDED that such reserves are
recoverable from (a) existing wells, whether from completion intervals
currently open and producing to market, or completion intervals currently
open but not currently producing or zones behind casing of existing wells, or
(b) new wells on undrilled acreage. Proved Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain to be productive when drilled. Other undrilled units may
also be credited with Proved Reserves where continuity of production from
existing productive formations can be demonstrated with reasonable certainty.
For purposes of determining whether any Hydrocarbon Properties of any
Obligor (other than Hydrocarbon Properties that have been acquired by such
Obligor since the date of the most recent Borrowing Base Report or other
internal reserve reports prepared by the Company, all of which shall be
considered Proved Reserves) contain Proved Reserves, the Banks and the
Obligors agree that the most recent Borrowing Base Report or other internal
reserve reports prepared by the Company shall be determinative.
"PURCHASE AGREEMENT" shall mean the Purchase and Sale Agreement
dated January 7, 1998 between the Company and the seller party thereto.
"QUARTERLY DATES" shall mean the last day of March, June, September
and December in each year, the first of which shall be the first such day
after the date of this Agreement; PROVIDED that if any such day is not a
Business Day, then such Quarterly Date shall be the next preceding Business
Day.
"REGULATION A", "REGULATION D", "REGULATION G", "REGULATION T",
"REGULATION U" AND REGULATION X" shall mean, respectively, Regulations A, D,
G, T, U and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from
time to time.
<PAGE>
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"REGULATORY CHANGE" shall mean, with respect to any Bank, any
change after the date of this Agreement in Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after such date of any interpretation, directive or request applying
to a class of banks including such Bank of or under any Federal, state or
foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the
obligations of the Company then outstanding, or which may thereafter arise in
respect of all Letters of Credit then outstanding, to reimburse amounts paid
by the Issuing Bank in respect of any drawings under a Letter of Credit.
"RELEASE" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
"REPORT DELIVERY DATE" shall mean, with respect to any Borrowing
Base Report, 45 days prior to the applicable Determination Date.
"RESERVE EVALUATION REPORT" shall mean an unsuperceded report that
(a) is (i) prepared, in the case of the report required to be delivered by
the Company pursuant to Section 9.01(f) hereof in connection with the
Determination Date occurring on May 1 of each year, by the Independent
Petroleum Engineer on the basis of assumptions and projections which the
Company believes in good faith to be reasonable or, in the case of the report
required to be delivered by the Company pursuant to Section 9.01(f) hereof in
connection with each other Determination Date, by the Independent Petroleum
Engineer on the basis of the most recently delivered Reserve Evaluation
Report delivered in connection with the Determination Date occurring on May 1
of each year as adjusted for reserve additions and production from the date
of such report, each as acceptable to the Independent Petroleum Engineer and
(ii) satisfactory in form and substance to the Combined Majority Lenders
(including as to assumptions) and (b) is prepared on the basis of findings
and material data as of a date not more than 90 days prior to the effective
date of such report, (i) identifies the Hydrocarbon Properties covered
thereby, (ii) as to each of the Hydrocarbon Properties, sets forth (A) the
Proved Reserves attributable to such Hydrocarbon Property, (B) the total
amount of such Proved Reserves attributable to such Hydrocarbon Property
that, in the opinion of the preparer of such report, the Company and its
Restricted Subsidiaries have the right to produce for their own account in
the current and each succeeding calendar year, (C) a projection of the rate
of production and the Future Net Revenues of the Company and its Restricted
Subsidiaries (including as additional information the data and assumptions
used to determine such Future Net Revenues) from such Proved Reserves for the
current and each succeeding calendar year, (D) the quantity and type of
hydrocarbons recoverable from such Proved Reserves in the current and each
succeeding calendar year, (E) an estimate of
<PAGE>
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the projected revenues and expenses attributable to such Proved Reserves in
the current and each succeeding calendar year, and (F) any reports or
evaluations prepared by the Company regarding the expediency of any change in
methods of treatment or operation of all or any wells drilled to produce any
of such Proved Reserves that are producing or capable of producing
hydrocarbons, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect to
such Proved Reserves, the decision as to which may increase or reduce the
quantity of hydrocarbons ultimately recoverable, or the rate of production
thereof and (c) reconciles (i) the total amount of Proved Reserves
attributable to each Hydrocarbon Property and (ii) any material changes in
Operating Expenses or Capital Expenditures contained in such Reserve
Evaluation Report with the information contained in the immediately preceding
Reserve Evaluation Report, if any.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D by
member banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency liabilities" (as such
term is used in Regulation D). Without limiting the effect of the foregoing,
the Reserve Requirement shall include any other reserves required to be
maintained by such member banks by reason of any Regulatory Change with
respect to (i) any category of liabilities that includes deposits by
reference to which the Eurodollar Base Rate is to be determined as provided
in the definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any
category of extensions of credit or other assets that includes Eurodollar
Loans.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"SECURITY AGREEMENT" shall mean an Amended and Restated Security
Agreement substantially in the form of Exhibit B hereto between the Obligors
and the Agent, as the same shall be modified and supplemented and in effect
from time to time.
"SAXON" shall mean Saxon Petroleum Inc., an Alberta corporation.
"SECURITY DOCUMENTS" shall mean, collectively, the Security
Agreement, the Pledge Agreement, the 3189503 Pledge Agreement, the Mortgages
and all Uniform Commercial Code financing statements required by this
Agreement, the Security Agreement, the Pledge Agreement or the Mortgages to
be filed with respect to the security interests in personal Property and
fixtures created pursuant to the Security Agreement, the Pledge Agreement or
the Mortgages.
"SENIOR SUBORDINATED DEBT" shall mean the Indebtedness of the
Company in respect of the 111/4% Senior Subordinated Notes of the Company due
September 1, 2003 issued pursuant to the Senior Subordinated Debt Documents.
<PAGE>
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"SENIOR SUBORDINATED DEBT DOCUMENTS" shall mean all documents and
agreements executed and delivered in connection with the original issuance of
the Senior Subordinated Debt, including the Indenture dated as of September
8, 1993 between the Company and State Street Bank and Trust Company as
successor to Shawmut Bank Connecticut, National Association, as trustee, as
the same shall, subject to Section 9.17 hereof, be modified and supplemented
and in effect from time to time.
"SUBORDINATED DEBT" shall mean, as to any Person, any Indebtedness
at any time of such Person (a) for which such Person is directly and
primarily liable and (b) which is subordinated to the obligations of such
Person to pay principal of and interest on the Loans, Reimbursement
Obligations and Notes hereunder, or any obligation to make payment, or
provide cover, in respect of the Canadian Forest Oil Credit Agreement, on
terms, and pursuant to documentation containing other terms (including
interest, amortization, covenants and events of default), in form and
substance satisfactory to the Majority Banks, but excluding the Senior
Subordinated Debt and the Canadian Forest Senior Subordinated Debt.
"SUBORDINATED INDEBTEDNESS" shall mean, collectively, (a) the
Senior Subordinated Debt, and (b) any other Indebtedness of any of the
Obligors outstanding on the date hereof (i) for which any Obligor is directly
and primarily liable, (ii) in respect of which none of the Company's other
Restricted Subsidiaries is contingently or otherwise obligated and (iii)
which is subordinated to the obligations of the respective Obligors to pay
principal of and interest on the Loans, Reimbursement Obligations and Notes
hereunder, and any extensions on renewals thereof, but excluding any
increases in the outstanding amount thereof, on terms, and pursuant to
documentation containing other terms (including interest, amortization,
covenants and events of default), in form and substance satisfactory to the
Majority Banks.
"SUBSIDIARY" shall mean, for any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more Subsidiaries of such Person or by such Person
and one or more Subsidiaries of such Person. "WHOLLY OWNED SUBSIDIARY" shall
mean any such corporation, partnership or other entity of which all of the
equity securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are so owned or controlled.
"TANGIBLE NET WORTH" shall mean, as at any date for any Person, the
sum for such Person (determined on a consolidated basis without duplication
in accordance with GAAP as of the date of its most recent financial
statement) and plus any increase occurring during the period from the date of
the Company's most recent financial statements to the date of determination
as a result of any Equity Issuance by the Company, of the following:
<PAGE>
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(a) the amount of capital stock, PLUS
(b) the amount of surplus and retained earnings (or, in the case of a
surplus or retained earnings deficit, MINUS the amount of such deficit),
MINUS
(c) the sum of the following: cost of treasury shares and the book
value of all assets which should be classified as intangibles (without
duplication of deductions in respect of items already deducted in arriving
at surplus and retained earnings) but in any event including goodwill
(other than goodwill reflected on the financial statements of Canadian
Forest Oil), minority interests, research and development costs,
trademarks, trade names, copyrights, patents and franchises, unamortized
debt discount and expense, all accounting reserves; PLUS
(d) the amount of noncash writedowns of long-lived assets in
compliance with GAAP guidelines or Securities and Exchange Commissions
rules or regulations.
"TAXES" shall mean all taxes, levies, imposts, stamp taxes, duties,
charges to tax, fees, deductions, withholdings, royalties, charges,
compulsory loans or restrictions or conditions resulting in a charge which
are imposed, levied, collected, withheld or assessed by any political
subdivision or taxing authority as of the date of this Agreement or at any
time in the future together with interest thereon and penalties with respect
thereto, if any, and any payments of principal, interest, charges, fees or
other amounts made on or in respect thereof, including without limitation
production and severance taxes and windfall profit taxes, and "TAX" and
"TAXATION" shall be construed accordingly provided that "TAXES" shall exclude
taxes imposed on or measured by the overall net income of a Person.
"3189503" shall mean 3189503 Canada Ltd., a Canadian Corporation.
"3189503 PLEDGE AGREEMENT" shall mean the Pledge Agreement dated as
of August 19, 1997 between 3189503 and the Agent, as the same shall be
modified and supplemented and in effect from time to time.
"TYPE" shall have the meaning assigned to such term in Section 1.04
hereof.
"UNRESTRICTED PROPERTIES" shall mean the Hydrocarbon Properties of
the Company and its Restricted Subsidiaries that (A) are (i) not Mortgaged
Properties and (ii) that do not contain Proved Reserves and (B) are
encumbered by Dollar-Denominated Production Payments in existence on the
Closing Date.
"UNRESTRICTED SUBSIDIARY" shall mean such Subsidiaries of the
Company (other than Subsidiary Guarantors) as may be designated by the
Company as "Unrestricted Subsidiaries" as provided in Section 1.05 hereof.
<PAGE>
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"USAGE RATIO" shall mean as of any date the ratio of (a) the
aggregate principal amount of all Loans and Letter of Credit Liabilities
outstanding on such date PLUS the aggregate principal amount of the Funding
Credit Agreement Obligations pursuant to the Funding Credit Agreement
outstanding on such date to (b) the Borrowing Base on such date.
"VOLUMETRIC PRODUCTION PAYMENTS" shall mean production payment
obligations of the Company or any of its Subsidiaries which are payable from
a specified share of production from specific Properties, together with all
undertakings and obligations in connection therewith.
"VOTING STOCK" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders
thereof (whether at all times or only so long as no senior class of stock has
voting power by reason of any contingency) to vote in the election of members
of the Board of Directors or other governing body of such Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to
the Banks hereunder shall (unless otherwise disclosed to the Banks in writing
at the time of delivery thereof in the manner described in subsection (b)
below) be prepared, in accordance with GAAP applied on a basis consistent
with those used in the preparation of the latest financial statements
furnished to the Banks hereunder (which, prior to the delivery of the first
financial statements under Section 9.01 hereof, shall mean the audited
financial statements as at December 31, 1996 referred to in Section 8.02
hereof). All calculations made for the purposes of determining compliance
with this Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with those used in
the preparation of the latest annual or quarterly financial statements
furnished to the Banks pursuant to Section 9.01 hereof (or, prior to the
delivery of the first financial statements under Section 9.01 hereof, used in
the preparation of the audited financial statements as at December 31, 1996
referred to in Section 8.02 hereof) unless (i) the Company objects to the
Banks in writing to determining such compliance on such basis at the time of
delivery of such financial statements to the Banks or (ii) the Majority Banks
shall object to the Company (through the Agent) in writing to so determining
such compliance within 30 days after such delivery of such financial
statements, in either of which events such calculations shall be made on a
basis consistent with those used in the preparation of the latest financial
statements as to which such objection shall not have been made (which, if
objection is made in respect of the first financial statements delivered
under Section 9.01 hereof, shall mean the financial statements referred to in
Section 8.02 hereof).
(b) At the reasonable request of the Majority Banks the Company
shall deliver to the Banks (i) a description in reasonable detail of any
material variation between the application of accounting principles employed
in the preparation of such statement and the application of
<PAGE>
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accounting principles employed in the preparation of the next preceding
annual or quarterly financial statements as to which no objection has been
made in accordance with the last sentence of subsection (a) above and (ii)
reasonable estimates of the difference between such statements arising as a
consequence thereof.
(c) None of the Company and its Subsidiaries will change the last
day of their respective fiscal years from December 31 of each year, or the
last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30 of each year, respectively.
1.03 BORROWING BASE.
(a) BORROWING BASE REPORTS. The Company and Canadian Forest Oil
have furnished to the Agent and the Lenders updated preliminary Borrowing
Base Reports dated January 1, 1998. On or before each Report Delivery Date,
the Company and Canadian Forest Oil shall furnish to the Agent and the
Lenders updated Borrowing Base Reports.
(b) BORROWING BASE. During the period commencing on the date
hereof and ending on such date as the first redetermination of Borrowing Base
shall become effective as provided below in this Section 1.03(b), the
Borrowing Base shall be $260,000,000 (subject to any adjustments and
redeterminations provided for by Sections 1.03(c), 1.03(d), 1.03(e) and 2.10
hereof) which amount has been determined on the basis of the Borrowing Base
Reports referred to in the first sentence of Section 1.03(a) hereof (with
such adjustments to the rates, factors, values, estimates, assumptions and
computations set forth in such Borrowing Base Reports as are acceptable to
the Combined Supermajority Lenders). As promptly as reasonably practicable
after its receipt of the Borrowing Base Reports furnished to it pursuant to
the second sentence of Section 1.03(a) hereof, the Agent (in consultation
with the Combined Supermajority Lenders) shall endeavor to redetermine the
Borrowing Base on the basis of such Borrowing Base Reports in the manner
provided in this clause (b), notify the Lender Group of such redetermination
and, if such redetermination is approved by the Combined Supermajority
Lenders, notify the Company, Funding Co. and Canadian Forest Oil of the
Borrowing Base as so redetermined and such redetermined Borrowing Base shall
become effective on the Determination Date next following each Report
Delivery Date (or, if later, on the date notified by the Agent to the
Company, Funding Co. and Canadian Forest Oil) and shall remain effective
until again redetermined as provided in this Section 1.03(b) (subject to any
adjustments and redeterminations provided for by Sections 1.03(c), 1.03(d)
and 1.03(e) hereof, reductions pursuant to Section 2.10(b), (c) and (d)
hereof or additions pursuant to Section 2.10(a) hereof). The determination
by the Agent (and as approved by the Combined Supermajority Lenders), of the
Borrowing Base for any Determination Period shall be made on the basis of
parameters which may include the Present Value of Reserves attributable to
Hydrocarbon Properties as set forth in the applicable Borrowing Base Report
for such Determination Period, subject, however, to such adjustments as the
Agent, with the concurrence of the Combined Supermajority Lenders, may make
in its and their sole discretion to the rates, factors, values, estimates,
assumptions and computations set forth in such
<PAGE>
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Borrowing Base Report and any other relevant information or factors,
including without limitation, any additional Indebtedness or other
obligations that may be incurred by the Company and its Subsidiaries that the
Combined Supermajority Lenders may deem appropriate.
As used herein, "BORROWING BASE" means the amount specified in the
first sentence of this Section 1.03(b) as determined from time to time as
provided in the second sentence of this Section 1.03(b) and subject to
adjustments, redeterminations and principles provided in Sections 1.03(c),
1.03(d), 1.03(e) and 2.10 hereof.
(c) MATERIAL CHANGE. The Company agrees to notify the Agent
promptly of any material change of which the Company, Funding Co., Canadian
Forest Oil or any of their respective Restricted Subsidiaries is aware which
reduces or may result in a reduction of the Borrowing Base by more than 10%.
Promptly upon receipt of such notice, the Agent (in consultation with the
Combined Supermajority Lenders,) shall endeavor to adjust the Borrowing Base
pursuant to the procedures set forth in Section 1.03(b) hereof.
(d) REDETERMINATION. If so requested by the Majority Banks or the
Majority Lenders under, and as defined in, the Funding Credit Agreement, or
the Company at any time (provided that each of the Combined Supermajority
Lenders and the Company may each only make one such request in any calendar
year) the Agent shall, as promptly as reasonably practicable after the
receipt of such request, endeavor to redetermine (in consultation with the
Combined Supermajority Lenders) the Borrowing Base as then in effect on the
basis of the then most recent applicable Borrowing Base Reports (subject,
however, to such additional adjustments to the rates, factors, values,
estimates, assumptions and computations as set forth therein as the Agent,
with the concurrence of the Combined Supermajority Lenders, may determine to
be appropriate) and any other relevant information and factors, including,
without limitation, any additional Indebtedness or other obligations that
have been or are reasonably anticipated to be incurred by the Company and its
Restricted Subsidiaries and any Hydrocarbon Properties acquired by the
Company and its Restricted Subsidiaries which are not subject to any Lien
other than Liens created hereunder or under the Security Documents or Liens
permitted by Section 9.06 hereof, that the Combined Supermajority Lenders may
deem appropriate and as otherwise provided in Section 1.03(b) hereof,
PROVIDED that no Hydrocarbon Properties acquired by any Subsidiary of the
Company after the date hereof shall be included in the calculation of the
Borrowing Base unless such Subsidiary is a Subsidiary Guarantor under this
Agreement or is a Subsidiary Borrower or otherwise liable as a surety under
the Canadian Forest Oil Credit Agreement. As promptly as reasonably
practical following its redetermination of the Borrowing Base, the Agent
shall notify the Lender Group of such redetermination and, if such
redetermination is approved by the Combined Supermajority Lenders, notify the
Company, the Funding Co. and Canadian Forest Oil of the Borrowing Base as so
redetermined and such redetermined Borrowing Base shall become effective
immediately upon delivery to the Company, Funding Co. and Canadian Forest Oil
of such notice of redetermination.
(e) DETERMINATIONS, ETC. All determinations and redeterminations
and
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adjustments by the Agent provided for above in this Section 1.03 or in the
definition of "Present Value of Reserves" in Section 1.01 (and any
determinations and decisions by the Combined Supermajority Lenders in
connection therewith, including any thereof approving or disapproving a
proposed redetermination or redetermination by the Agent or effecting any
adjustment to any element included in a Borrowing Base Report or the
determination or redetermination of the Borrowing Base) shall be made on a
reasonable basis, in good faith and in a manner reasonably consistent with
the basis on which the initial Borrowing Base was determined to be acceptable
to the Lender Group (but after giving effect to changes in facts and
circumstances occurring after the date of such initial determination
including, but not limited to, reserves and production, operating expenses
and economic assumptions with respect to price of hydrocarbons and
inflation), and any such determination, redetermination or adjustment shall
consider any other relevant information or factors, including without
limitation, any additional Indebtedness or other obligations that may be
incurred by the Company and its Subsidiaries that the Combined Majority
Lenders may deem appropriate, PROVIDED that no Hydrocarbon Properties
acquired by any Subsidiary of the Company after the date hereof shall be
included in the calculation of the Borrowing Base unless such Subsidiary is a
Subsidiary Guarantor under this Agreement or is a Subsidiary Borrower or
otherwise liable as a surety under the Canadian Forest Oil Credit Agreement.
1.04 TYPES OF LOANS. Loans hereunder are distinguished by "Type".
The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a
Eurodollar Loan, each of which constitutes a Type.
1.05 DESIGNATION OF SUBSIDIARIES AS RESTRICTED OR UNRESTRICTED
SUBSIDIARIES. The Company may, but only with the approval of the Majority
Banks, designate (by notice to the Agent which shall promptly notify the
Banks) a Restricted Subsidiary by delivery of a new Schedule III hereto
(other than a Subsidiary Guarantor) to be an Unrestricted Subsidiary or an
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that the
Company may, without such approval, designate (by notice to the Agent which
shall promptly notify the Banks) a corporation or other entity that is formed
or acquired as a direct or indirect Subsidiary of the Company after the date
hereof (no part of the business or assets of which was owned by the Company
or a Restricted Subsidiary prior to the date of such formation or
acquisition) to be an Unrestricted Subsidiary on or prior to the date of such
formation or acquisition if, after giving effect thereto, the Company would
be in compliance with its obligations with respect to such Subsidiary as an
Unrestricted Subsidiary under Section 9.18 hereof and no other Default shall
have occurred and be continuing.
1.06 REFERENCES TO SUBSIDIARIES, RESTRICTED SUBSIDIARIES AND
UNRESTRICTED SUBSIDIARIES IN CONNECTION WITH CALCULATIONS OF CERTAIN
FINANCIAL RATIOS. References (whether in the singular or the plural) to
Subsidiaries, Restricted Subsidiaries and Unrestricted Subsidiaries in the
definitions of "Cash Flow" and "Interest Expense" in Section 1.01 hereof
shall, for purposes of calculating Cash Flow or Interest Expense (as the case
may be) for a period or part of a period ending prior to the date of this
Agreement, be deemed to refer to corporations
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or other entities that would have been "Subsidiaries", "Restricted
Subsidiaries" or "Unrestricted Subsidiaries" (as the case may be) had this
Agreement been in effect on the first day of such period.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS.
(a) Each Bank severally agrees, in accordance with the terms and
conditions of this Agreement, to make one or more loans to the Company in
Dollars during the period from and including the Closing Date to and
including the Commitment Termination Date, in an aggregate amount up to but
not exceeding the lesser of (x) the Commitment of such Bank and (y) an amount
equal to such Bank's Commitment Percentage multiplied by the then effective
Allocated U.S. Borrowing Base determined pursuant to Section 2.11 hereof and
to the immediately preceding Borrowing Base Reports; PROVIDED that (i) in no
event shall the aggregate principal amount of all Loans, together with the
aggregate amount of all Letter of Credit Liabilities, exceed the lesser of
(x) the aggregate amount of the Commitments as in effect from time to time,
and (y) the then effective Allocated U.S. Borrowing Base determined pursuant
to Section 2.11 hereof and the immediately preceding Borrowing Base Reports
and (ii) the Company may not borrow Loans or obtain Letters of Credit under
this Agreement at any time while a Borrowing Base Deficiency exists. The
aggregate of the Commitments of the Banks on the date hereof is $275,000,000.
(b) Subject to the terms and conditions of this Agreement, during
the period from and including the Closing Date to but not including the
Commitment Termination Date, the Company may borrow, repay and reborrow the
Loans by means of Base Rate Loans and Eurodollar Loans, and may Convert Loans
of one Type into Loans of another Type (as provided in Section 2.08 hereof)
or Continue Loans of one Type as Loans of the same Type (as provided in
Section 2.08 hereof); PROVIDED that no more than three separate Interest
Periods in respect of Eurodollar Loans may be outstanding at any one time.
(c) Notwithstanding any provision of this Section 2.01 to the
contrary, the aggregate amount of Letter of Credit Liabilities outstanding
under this Agreement shall not at any time exceed the least of (i)
$10,000,000, (ii) the aggregate of the Commitments and (iii) the then
effective Allocated U.S. Borrowing Base.
(d) On the date this Agreement becomes effective:
(i) The Company shall pay all outstanding principal, interest
and other amounts owing in respect of the Existing Loans accrued
and unpaid commitment fees and letter of credit fronting fees
outstanding under the Original Credit Agreement for the account
of each "Bank" under the Original Credit Agreement;
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(ii) each "Letter of Credit" under the Original Credit Agreement
shall be deemed to be issued pursuant to the terms hereof without
payment of any additional issuance or amendment fees; and
(iii) the Original Fee Letter, the Original Credit Agreement
and the commitments thereunder shall be superseded by the
Amendment Fee Letter, this Agreement and such commitments shall
terminate.
2.02 BORROWINGS. The Company shall give the Agent (which shall
promptly notify the Banks) notice of each borrowing hereunder as provided in
Section 4.05 hereof. Not later than 1:00 p.m. New York time on the date
specified for each borrowing hereunder, each Bank shall make available the
amount of the Loan or Loans to be made by it on such date to the Agent, at an
account specified by the Agent maintained by the Agent with Chase, in
immediately available funds, for account of the Company. The amount so received
by the Agent shall, subject to the terms and conditions of this Agreement, be
made available to the Company by depositing the same, in immediately available
funds, in an account of the Company maintained with Chase in New York, New York,
designated by the Company. At the time of each such notice of borrowing
hereunder the Company shall deliver a certificate of the Chief Financial
Officer, the Treasurer or an Assistant Treasurer of the Company which
certificate shall indicate the Usage Ratio on such date, of the Company and its
Subsidiaries after giving effect to such borrowing and shall show, in reasonable
detail, the calculations used to derive such Usage Ratio.
2.03 LETTERS OF CREDIT. Subject to the terms and conditions of this
Agreement, the Commitments may be utilized, upon the request of the Company, in
addition to the Loans provided for by Section 2.01(a) hereof, for the issuance
by the Issuing Bank of letters of credit (collectively, "LETTERS OF CREDIT") for
account of the Company and its Restricted Subsidiaries, PROVIDED that in no
event shall (i) the aggregate amount of all Letter of Credit Liabilities,
together with the aggregate principal amount of the Loans, exceed the lesser of
(A) the aggregate of the Commitments and (B) the then effective Allocated U.S.
Borrowing Base as determined pursuant to Section 2.11 hereof and the immediately
preceding Borrowing Base Reports, (ii) the outstanding aggregate amount of all
Letter of Credit Liabilities exceed $10,000,000 and (iii) the expiration date of
any Letter of Credit extend beyond the earlier of the Commitment Termination
Date and the date 12 months following the issuance of such Letter of Credit.
The following additional provisions shall apply to Letters of Credit:
(a) The Company shall give the Agent at least three Business Days'
irrevocable prior notice (effective upon receipt) specifying the Business
Day (which shall be no later than 30 days preceding the Commitment
Termination Date) each Letter of Credit is to be issued and the account
party or parties therefor and describing in reasonable detail the proposed
terms of such Letter of Credit (including the beneficiary thereof) and the
nature of the transactions or obligations proposed to be supported thereby
(including whether such Letter of Credit is to be a commercial letter of
credit or a standby letter of credit).
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Upon receipt of any such notice, the Agent shall advise the Issuing Bank
of the contents thereof.
(b) On each day during the period commencing with the issuance by the
Issuing Bank of any Letter of Credit and until such Letter of Credit shall
have expired or been terminated, the Commitment of each Bank shall be
deemed to be utilized for all purposes of this Agreement in an amount equal
to such Bank's Commitment Percentage of the then undrawn face amount of
such Letter of Credit. Each Bank (other than the Issuing Bank) agrees
that, upon the issuance of any Letter of Credit hereunder, it shall
automatically acquire a participation in the Issuing Bank's liability under
such Letter of Credit in an amount equal to such Bank's applicable
Commitment Percentage of such liability, and each such Bank (other than the
Issuing Bank) thereby shall absolutely, unconditionally and irrevocably
assume, as primary obligor and not as surety, and shall be unconditionally
obligated to the Issuing Bank to pay and discharge when due, its Commitment
Percentage of the Issuing Bank's liability under such Letter of Credit.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Issuing Bank shall
promptly notify the Company (through the Agent) of the amount to be paid by
the Issuing Bank as a result of such demand and the date on which payment
is to be made by the Issuing Bank to such beneficiary in respect of such
demand. Notwithstanding the identity of the account party of any Letter of
Credit, the Company agrees to pay and reimburse the Agent for account of
the Issuing Bank for the amount of each demand for payment under such
Letter of Credit at or prior to the date on which payment is to be made by
the Issuing Bank to the beneficiary thereunder, without presentment,
demand, protest or other formalities of any kind.
(d) Forthwith upon its receipt of a notice referred to in
clause (c) of this Section 2.03, the Company shall advise the Agent whether
or not the Company intends to borrow hereunder to finance its obligations
to reimburse the Issuing Bank for the amount of the related demand for
payment and, if it does, submit a notice of such borrowing as provided in
Section 4.05 hereof. In the event that the Company fails to so advise the
Agent, or if the Company fails to reimburse the Issuing Bank for a demand
for payment under a Letter of Credit by the date of such payment, the Agent
shall give each Bank prompt notice of the amount of the demand for payment,
specifying such Bank's Commitment Percentage of the amount of the related
demand for payment.
(e) Each Bank (other than the Issuing Bank) shall pay to the Agent
for the account of the Issuing Bank at an account specified by the Issuing
Bank maintained by the Issuing Bank at Chase in New York, New York in
Dollars and in immediately available funds, the amount of such Bank's
Commitment Percentage of any payment under a Letter of Credit upon notice
by the Issuing Bank (through the Agent) to such Bank requesting such
payment and specifying such amount. Each Bank's obligation to make such
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payments to the Agent for account of the Issuing Bank under this
clause (e), and the Issuing Bank's right to receive the same, shall be
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including, without limitation, (i) the failure of any other
Bank to make its payment under this clause (e), the financial condition of
the Company and the other Obligors (or any other account party), the
existence of any Default or (ii) the termination of the Commitments. Each
such payment to the Issuing Bank shall be made without any offset,
abatement, withholding or reduction whatsoever. If any Bank shall default
in its obligation to make any such payment to the Agent for account of the
Issuing Bank, for so long as such default shall continue the Agent shall at
the request of the Issuing Bank withhold from any payments received by the
Agent under this Agreement or any Note for account of such Bank the amount
so in default and the Agent shall pay the same to the Issuing Bank in
satisfaction of such defaulted obligation.
(f) Upon the making of each payment by a Bank to the Issuing Bank
pursuant to clause (e) above in respect of any Letter of Credit, such Bank
shall, automatically and without any further action on the part of the
Agent, the Issuing Bank or such Bank, acquire (i) a participation in an
amount equal to such payment in the Reimbursement Obligation owing to the
Issuing Bank by the Company hereunder and under the Letter of Credit
Documents relating to such Letter of Credit and (ii) a participation in a
percentage equal to such Bank's Commitment Percentage of its Commitment in
any interest or other amounts payable by the Company hereunder and under
such Letter of Credit Documents in respect of such Reimbursement Obligation
(other than the commissions, charges, costs and expenses payable to the
Issuing Bank pursuant to clause (g) of this Section 2.03). Upon receipt by
the Issuing Bank from or for account of the Company of any payment in
respect of any Reimbursement Obligation or any such interest or other
amount (including by way of setoff or application of proceeds of any
collateral security) the Issuing Bank shall promptly pay to the Agent for
account of each Bank, such Bank's Commitment Percentage of its Commitment
of such payment, each such payment by the Issuing Bank to be made in the
same money and funds in which received by the Issuing Bank. In the event
any payment received by the Issuing Bank and so paid to the Banks hereunder
is rescinded or must otherwise be returned by the Issuing Bank, each Bank
shall, upon the request of the Issuing Bank (through the Agent), repay to
the Issuing Bank (through the Agent) the amount of such payment paid to
such Bank, with interest at the rate specified in clause (j) of this
Section 2.03.
(g) The Company agrees to pay to the Agent for account of the Issuing
Bank in respect of each Letter of Credit issued to the Company or any of
its Subsidiaries an issuance fee in an amount equal to the Applicable
Margin for Eurodollar Loans per annum of the daily average undrawn face
amount of such Letter of Credit for the period from and including the date
of issuance of such Letter of Credit to and including the date such Letter
of Credit is drawn in full, expires or is terminated (such fee to be
non-refundable, to be paid in arrears on each Quarterly Date and on the
Commitment Termination Date and to be calculated, for any day, after giving
effect to any payments
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made under such Letter of Credit on such day). The Issuing Bank shall
pay to the Agent for account of each Bank (other than the Issuing Bank),
from time to time at reasonable intervals (but in any event at least
quarterly), but only to the extent actually received from the Company,
an amount equal to such Bank's Commitment Percentage of all such fees in
respect of each Letter of Credit (including any such fee in respect of
any period of any renewal or extension thereof). In addition, the
Company agrees to pay to the Agent for account of the Issuing Bank on
the issuance date, a fronting fee in respect of each Letter of Credit in
an amount equal to the greater of (i) $1,000 and (ii) 1/2 of 1% of the
face amount of such Letter of Credit plus all commissions, charges,
costs and expenses in the amounts customarily charged by the Issuing
Bank from time to time in like circumstances with respect to the
issuance of each Letter of Credit and drawings and other transactions
relating thereto.
(h) Promptly following the end of each calendar month, the Issuing
Bank shall deliver (through the Agent) to each Bank and the Company notice
describing the aggregate amount of all Letters of Credit outstanding at the
end of such month. Upon the request of any Bank from time to time, the
Issuing Bank shall deliver any other information in its possession
reasonably requested by such Bank with respect to each Letter of Credit
then outstanding.
(i) The issuance by the Issuing Bank of each Letter of Credit shall,
in addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that (i) such Letter of Credit shall be
in such form, contain such terms and support such transactions as shall be
satisfactory to the Issuing Bank consistent with its then current practices
and procedures with respect to letters of credit of the same type and
(ii) the Company shall have executed and delivered such applications,
agreements and other instruments relating to such Letter of Credit as the
Issuing Bank shall have reasonably requested consistent with its then
current practices and procedures with respect to letters of credit of the
same type, PROVIDED that in the event of any conflict between any such
application, agreement or other instrument and the provisions of this
Agreement or any Security Document, the provisions of this Agreement and
the Security Documents shall control.
(j) To the extent that any Bank fails to pay any amount required to
be paid pursuant to clause (e) or (f) of this Section 2.03 on the due date
therefor, such Bank shall pay interest to the Issuing Bank (through the
Agent) on such amount from and including such due date to but excluding the
date such payment is made (i) during the period from and including such due
date to but excluding the date three Business Days thereafter, at a rate
per annum equal to the Federal Funds Effective Rate (as in effect from time
to time) and (ii) thereafter, at a rate per annum equal to the Base Rate
(as in effect from time to time) plus 2%.
(k) The issuance by the Issuing Bank of any modification or
supplement to any
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Letter of Credit hereunder shall be subject to the same conditions
applicable under this Section 2.03 to the issuance of new Letters of
Credit, and no such modification or supplement shall be issued hereunder
unless either (x) the respective Letter of Credit affected thereby would
have complied with such conditions had it originally been issued
hereunder in such modified or supplemented form or (y) each Bank shall
have consented thereto.
The Company hereby indemnifies and holds harmless each Bank and the Agent from
and against any and all claims and damages, losses, liabilities, costs or
expenses which such Bank or the Agent may incur (or which may be claimed against
such Bank or the Agent by any Person whatsoever) by reason of or in connection
with the execution and delivery or transfer of or payment or refusal to pay by
the Issuing Bank under any Letter of Credit; PROVIDED that the Company shall not
be required to indemnify any Bank or the Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent caused by (x) the willful
misconduct or gross negligence of the Issuing Bank in determining whether a
request presented under any Letter of Credit complied with the terms of such
Letter of Credit or (y) in the case of the Issuing Bank, such Bank's failure to
pay under any Letter of Credit after the presentation to it of a request
strictly complying with the terms and conditions of such Letter of Credit.
Nothing in this Section 2.03 is intended to limit the other obligations of the
Company, any Bank or the Agent under this Agreement.
2.04 CHANGES OF COMMITMENTS.
(a) The aggregate amount of the Commitments shall be automatically
reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time to time
(i) so long as no Loans or Letter of Credit Liabilities are outstanding, to
terminate the Commitments and (ii) to reduce the aggregate unused amount of the
Commitments (for which purpose use of the Commitments shall be deemed to include
the aggregate amount of Letter of Credit Liabilities); PROVIDED that (x) the
Company shall give notice of each such termination or reduction as provided in
Section 4.05 hereof and (y) each partial reduction shall be in an aggregate
amount at least equal to $1,000,000 or in multiples of $500,000 in excess
thereof.
(c) The Commitments once terminated or reduced may not be reinstated.
2.05 COMMITMENT FEE. The Company shall pay to the Agent for account
of each Bank a Commitment fee for each day at a rate per annum equal to the
Applicable Commitment Fee Rate TIMES such Bank's PRO RATA share (based on its
respective Commitment) of the Allocated U.S. Borrowing Base LESS the aggregate
principal amount of all Loans and Letter of Credit Liabilities outstanding on
such day for the period from and including the date hereof to but not including
the earlier of the date such Bank's Commitment is terminated and the Commitment
Termination Date. Accrued Commitment fees shall be payable on each Quarterly
Date and on
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the earlier of the date the Commitments are terminated and the Commitment
Termination Date.
2.06 LENDING OFFICES. The Loans of each Type made by each Bank shall
be made and maintained at such Bank's Applicable Lending Office for Loans of
such Type.
2.07 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Agent shall be responsible for the failure of any other
Bank to make a Loan to be made by such other Bank, and no Bank shall have any
obligation to the Agent or any other Bank for the failure by such Bank to make
any Loan required to be made by such Bank. The amounts payable by the Company
at any time hereunder and under the Notes to each Bank shall be a separate and
independent debt and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement and the Notes, and it shall not be
necessary for any other Bank or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.08 NOTES.
(a) The Loans made by each Bank shall be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A hereto,
dated the date hereof, payable to such Bank in a principal amount equal to the
amount of its Commitment as originally in effect and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by each Bank to the Company, and each
payment made on account of the principal thereof, shall be recorded by such Bank
on its books and, prior to any transfer of the Note evidencing the Loans held by
it, endorsed by such Bank on the schedule attached to such Note or any
continuation thereof; PROVIDED that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Company to
make a payment when due of any amount owing hereunder or under such Note in
respect of the Loans evidenced by such Note.
(c) No Bank shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Bank's
Commitment, Loans and Note pursuant to Section 12.06(b) hereof.
2.09 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS.
Subject to Section 4.04 hereof, the Company shall have the right to prepay
Loans, or to Convert Loans of one Type into Loans of another Type or Continue
Loans of one Type as Loans of the same Type, at any time or from time to time,
PROVIDED that: (a) the Company shall give the Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and,
upon the date specified in any such notice of prepayment, the amount to be
prepaid shall become due
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and payable hereunder); and (b) Eurodollar Loans may be prepaid or Converted
only on the last day of an Interest Period for such Loans. Notwithstanding
the foregoing, and without limiting the rights and remedies of the Banks
under Section 10 hereof, in the event that any Event of Default shall have
occurred and be continuing, the Agent may (and at the request of the Majority
Banks shall) by notice to the Company suspend the right of the Company to
Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a
Eurodollar Loan, in which event all Loans shall be Converted (on the last
day(s) of the respective Interest Periods therefor) or Continued, as the case
may be, as Base Rate Loans.
2.10 MANDATORY PREPAYMENTS AND REDUCTIONS OF COMMITMENTS.
(a) BORROWING BASE. The Agent shall notify the Company, Funding Co.
and Canadian Forest Oil (in a "DEFICIENCY NOTICE") any time the Borrowing Base
as then in effect is less than the sum of (i) the aggregate principal amount of
the Loans and Letter of Credit Liabilities outstanding at such time and (ii) the
aggregate principal amount of the Funding Credit Agreement Obligations
outstanding at such time (the amount of such difference being called herein the
"BORROWING BASE DEFICIENCY") and within 30 days after the date of the Deficiency
Notice the Company shall notify the Agent of the Company's and Funding Co.'s
(or, if the Canadian Lenders are making loans directly to Canadian Forest Oil,
of Canadian Forest Oil's) intentions with respect to compliance with the
procedures set forth in this Section 2.10(a). As specified in such notice from
the Company, the Company shall or shall cause Funding Co. (or, if the Canadian
Lenders are making loans directly to Canadian Forest Oil, Canadian Forest Oil)
to (within 45 days, 90 days and 180 days after the date of the Deficiency
Notice) prepay, in accordance with Section 3.02 of the Intercreditor Agreement
or, provide cover in accordance with Section 2.10(f) of this Agreement, 25
percent, 25 percent and 50 percent, respectively, of the aggregate principal
amount of all Loans and Letter of Credit Liabilities outstanding at such time
and the aggregate principal amount of the Funding Credit Agreement Obligations
outstanding at such time, in an amount sufficient to eliminate such Borrowing
Base Deficiency.
(b) CASUALTY EVENTS. Upon the date (the "INSURANCE DATE") 30 days
following the receipt by the Company or any of its Restricted Subsidiaries
incorporated in the United States of the proceeds of insurance, condemnation
award or other compensation in respect of any Casualty Event affecting any
Hydrocarbon Property other than Unrestricted Properties of any Restricted
Subsidiary, the Company shall prepay the Loans (and/or provide cover for Letter
of Credit Liabilities as specified in clause (f) below), and if such Casualty
Event shall result in the receipt by the Company or any of its Restricted
Subsidiaries incorporated in the United States of Net Available Proceeds in
excess of $2,500,000, the Combined Supermajority Lenders, in their sole
discretion based on their review of such Casualty Event, may reduce the
Borrowing Base in an aggregate amount not in excess of 100% of the Net Available
Proceeds of such Casualty Event not theretofore applied to the repair or
replacement of such Hydrocarbon Property, or such lesser amount as is specified
in a written notice from the Combined Supermajority Lenders, such prepayment and
reduction to be effected in each case in the manner and to the extent specified
in clause (e) of this Section 2.10. Nothing in this clause (b) shall be deemed
to limit any obligation
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of the Company and any of its Restricted Subsidiaries incorporated in the
United States pursuant to any of the Security Documents to remit to a
collateral or similar account (including, without limitation, the Collateral
Account) maintained by the Agent pursuant to any of the Security Documents
the proceeds of insurance, condemnation award or other compensation received
in respect of any Casualty Event.
(c) SALE OF ASSETS. Without limiting the obligation of the Obligors
to obtain the consent of the Combined Majority Lenders pursuant to Section 9.05
hereof to any Disposition not otherwise permitted hereunder, no later than five
Business Days prior to the occurrence of any Disposition, the Company, on behalf
of the applicable Obligor will deliver to the Lender Group a statement,
certified by the chief financial officer or treasurer of the Company, in form
and detail satisfactory to the Agent, of the amount of the Net Available
Proceeds of such Disposition and, if the Net Available Proceeds of such
Disposition together with the aggregate of all other Dispositions during the
current Determination Period is in excess of $5,000,000, the Combined
Supermajority Lenders, based on their review of the statement referred to in
this Section 2.10(c) may reduce the Borrowing Base in an aggregate amount
determined in their sole discretion. If a Borrowing Base Deficiency results
from such reduction, then the Company shall, notwithstanding Section 2.10(a) to
the contrary, immediately prepay the Loans (and/or provide cover for the Letter
of Credit Liabilities) with the Net Available Proceeds to cure such deficiency.
Notwithstanding the foregoing, the Company shall not be required to prepay the
Loans (and/or provide cover for the Letter of Credit Liabilities pursuant to
Section 2.10(f) hereof), and the Borrowing Base shall not be subject to
automatic reduction upon any sale of Property, other than any Hydrocarbon
Property, pursuant to Section 9.05 hereof.
(d) SUBORDINATED DEBT. Without limiting the obligation of the
Obligors to obtain the approval of the Majority Banks to the extent required by
Section 9.07 hereof, upon the incurrence of any Subordinated Debt by the
Borrower or Canadian Forest Oil, the Borrowing Base may be reduced in an
aggregate amount determined in their sole discretion by the Combined
Supermajority Lenders. If a Borrowing Base Deficiency results from such
reduction, then the Company shall, notwithstanding Section 2.10(a) to the
contrary, immediately prepay the Loans (and/or provide cover for the Letter of
Credit Liabilities) to cure the deficiency.
(e) APPLICATION. Prepayments and reductions of Commitments or the
Borrowing Base, as the case may be, described in the above clauses of this
Section 2.10 shall be effected as follows: the Commitments or the Borrowing
Base, as the case may be, shall be automatically reduced by an amount equal to
the amount specified in such clauses (and to the extent that, after giving
effect to such reduction, the aggregate principal amount of the Loans, together
with the aggregate amount of all Letter of Credit Liabilities, would exceed the
Commitments or the then effective Allocated U.S. Borrowing Base determined
pursuant to Section 2.11 hereof and the immediately preceding Borrowing Base
Reports, as applicable, the Company shall first, prepay the Loans and second,
provide cover for Letter of Credit Liabilities with respect to the Commitments
or the Borrowing Base, as applicable, as specified in clause (f) below, in an
aggregate amount equal to such excess).
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(f) COVER FOR LETTER OF CREDIT LIABILITIES. In the event that the
Company shall be required pursuant to this Section 2.10, or pursuant to Section
3.01 hereof, to provide cover for Letter of Credit Liabilities, the Company
shall effect the same by paying to the Agent immediately available funds in an
amount equal to the required amount, which funds shall be retained by the Agent
in the Collateral Account (as provided in Section 4.04 of the Security Agreement
as collateral security in the first instance for the Letter of Credit
Liabilities) until such time as the Letters of Credit shall have been terminated
and all of the Letter of Credit Liabilities have been paid in full.
2.11 ALLOCATION OF BORROWING BASE.
(a) The Borrowing Base may be allocated between the Company under
this Agreement and Funding Co. (or, if the Canadian Lenders are making loans
directly to Canadian Forest Oil, Canadian Forest Oil) under the Funding Credit
Agreement. The Allocated U.S. Borrowing Base in effect from time to time shall
represent the maximum amount of credit in the form of Loans and Letters of
Credit (subject to the aggregate Commitments and the other provisions of this
Agreement) that the Banks will extend to the Company at any one time prior to
the Commitment Termination Date. The Allocated Canadian Borrowing Base in
effect from time to time shall represent the maximum amount of credit in the
form of Loans, Letters of Credit and Bankers' Acceptances (subject to the
aggregate Commitments and the other provisions of the Funding Credit Agreement)
that the Canadian Lenders will extend to Funding Co. (or, if the Canadian
Lenders are making loans directly to Canadian Forest Oil, Canadian Forest Oil)
at any one time prior to the "Commitment Termination Date" specified in the
Funding Credit Agreement. On the date hereof, the Allocated Canadian Borrowing
Base shall be $10,000,000, resulting in an initial Allocated U.S. Borrowing Base
of $250,000,000.
(b) Funding Co. (or, if the Canadian Lenders are making loans
directly to Canadian Forest Oil, Canadian Forest Oil) at any time shall have the
right to request in writing to the Agent, Canadian Agent and the Lender Group,
in their sole discretion, an increase in the Allocated Canadian Borrowing Base
and a corresponding decrease in the Allocated U.S. Borrowing Base; provided that
any such increase shall require the approval of all of the Canadian Lenders and
at no time shall the Allocated Canadian Borrowing Base exceed $25,000,000; and
provided further that Funding Co. (or, if the Canadian Lenders are making loans
directly to Canadian Forest Oil, Canadian Forest Oil) may not make a request for
an increase in the Allocated Canadian Borrowing Base more than four (4) times
during any twelve (12) month period. Within ten (10) Business Days of the
receipt by the Canadian Lenders of such request, the Canadian Lenders shall give
written notice to the Company and the Agent of their approval or disapproval of
such increase. The revised Allocated U.S. Borrowing Base and Allocated Canadian
Borrowing Base shall become effective upon the distribution by the Agent to the
Company, the Canadian Agent and the Lender Group of written notice thereof which
shall occur not later than three (3) Business Days after its receipt of the
notice of increase.
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(c) The Company at any time shall have the right to request in
writing to the Agent, the Canadian Agent and the Banks that such Banks, in their
sole discretion, permit the Company to increase the Allocated U.S. Borrowing
Base and decrease the Allocated Canadian Borrowing Base; provided that any such
change shall require the approval of all of such Banks and at no time shall the
Allocated U.S. Borrowing Base exceed $275,000,000; and provided further that the
Company may not make a request for an increase in the Allocated U.S. Borrowing
Base more than four (4) times during any twelve (12) month period. Within ten
(10) Business Days of the receipt by such Banks of such request, such Banks
shall give written notice to the Company and the Agent of their approval or
disapproval of such change. If such increase is approved, each such Bank shall
have its share of the Allocated U.S. Borrowing Base increased by an amount in
proportion to its Commitment Percentage. The revised Allocated U.S. Borrowing
Base and Allocated Canadian Borrowing Base shall become effective upon the
distribution by the Agent to the Company, the Canadian Agent and the Lender
Group of written notice thereof which shall occur not later than three (3)
Business Days after its receipt of the notice of increase.
(d) For purposes of the Funding Credit Agreement, the Allocated
Canadian Borrowing Base shall be the Equivalent Amount. The Equivalent Amount
shall be calculated (i) on the date a reallocation pursuant to this Section 2.11
between the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing
Base occurs, (ii) on each Determination Date, or (iii) in any event, at ninety
(90) day intervals following the most recent Determination Date.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01 REPAYMENT OF LOANS. The Company hereby promises to pay to the
Agent for the account of each Bank the entire outstanding principal amount of
such Bank's Loans, and each Loan shall mature, on the Commitment Termination
Date. In addition, if following any reduction in the Commitments, the aggregate
principal amount of the Loans, together with the aggregate amount of all Letter
of Credit Liabilities shall exceed the Commitments, the Company shall first,
prepay Loans and second, provide cover for Letter of Credit Liabilities with
respect to the Commitments as specified in Section 2.10(g) above, in an
aggregate amount equal to such excess.
3.02 INTEREST. The Company hereby promises to pay to the Agent for
the account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
(a) during such periods as such Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) PLUS the Applicable Margin, and
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period PLUS the
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Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for account of each Bank interest at the applicable Post-Default Rate on any
principal of any Loan made by such Bank, on any Reimbursement Obligation held by
such Bank and on any other amount payable by the Company hereunder or under the
Note held by such Bank to or for account of such Bank, which shall not be paid
in full when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), for the period from and including the due date thereof
to but excluding the date the same is paid in full. Accrued interest on each
Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the
Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each
Interest Period therefor and (iii) in the case of any Loan, upon the payment or
prepayment thereof or the Conversion of such Loan to a Loan of another Type (but
only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall give notice thereof to the Banks
to which such interest is payable and to the Company.
Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
the Company under this Agreement and the Notes, and, except to the extent
otherwise provided therein, all payments to be made by the Obligors under any
other Basic Document, shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Agent at an account in New
York, New York specified by the Agent, not later than 1:00 p.m. New York time on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) Any Bank for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that is not
made by such time to any ordinary deposit account of the Company with such Bank
(with notice to the Company and the Agent).
(c) The Company shall, at the time of making each payment under this
Agreement or any Note for the account of any Bank, specify to the Agent (which
shall so notify the intended recipient(s) thereof) the Loans, Reimbursement
Obligations or other amounts payable by the Company hereunder to which such
payment is to be applied (and in the event that the Company fail to so specify,
or if an Event of Default has occurred and is continuing, the Agent may
distribute such payment to the Banks for application in such manner as it or the
Majority Banks, subject to Section 4.02 hereof, may determine to be
appropriate).
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(d) Except to the extent otherwise provided in the last sentence of
Section 2.03(e) hereof, each payment received by the Agent under this Agreement
or any Note for account of any Bank shall be paid by the Agent promptly to such
Bank, in immediately available funds, for account of such Bank's Applicable
Lending Office for the Loan or other obligation in respect of which such payment
is made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each borrowing of Loans from the Banks under Section 2.01 hereof
shall be made from the Banks, each payment of commitment fee under Section 2.05
hereof in respect of Commitments shall be made for account of the Banks, and
each termination or reduction of the amount of the Commitments under
Section 2.04 hereof shall be applied to the respective Commitments of the Banks,
pro rata according to the amounts of their respective Commitments; (b) the
making, Conversion and Continuation of Loans of a particular Type (other than
Conversions provided for by Section 5.04 hereof) shall be made pro rata among
the Banks according to the amounts of their respective Commitments (in the case
of the making of Loans) or their respective Loans (in the case of Conversions
and Continuations of Loans) and the then current Interest Period for each
Eurodollar Loan shall be coterminous; (c) each payment or prepayment of
principal of Loans by the Company shall be made for the account of the Banks pro
rata in accordance with the respective unpaid principal amounts of the Loans
held by them; PROVIDED that if immediately prior to giving effect to any such
payment in respect of any Loans the outstanding principal amount of the Loans
shall not be held by the Banks pro rata in accordance with their respective
Commitments in effect at the time such Loans were made (whether by reason of a
failure of a Bank to make a Loan hereunder in the circumstances described in the
last paragraph of Section 12.04 hereof or otherwise), then such payment shall be
applied to the Loans in such manner as shall result, as nearly as is
practicable, in the outstanding principal amount of the Loans being held by the
Banks pro rata in accordance with their respective Commitments; and (d) each
payment of interest on Loans by the Company shall be made for account of the
Banks pro rata in accordance with the amounts of interest on such Loans then due
and payable to the respective Banks.
4.03 COMPUTATIONS. Interest on Eurodollar Loans and commitment fee
and letter of credit fees shall be computed on the basis of a year of 360 days
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable and interest on Base Rate Loans and
Reimbursement Obligations shall be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
Notwithstanding the foregoing, for each day that the Base Rate is calculated by
reference to the Federal Funds Effective Rate, interest on Base Rate Loans and
Reimbursement Obligations shall be computed
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on the basis of a year of 360 days and actual days elapsed.
4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant
to Section 2.10 hereof and Conversions or prepayments made pursuant to
Section 5.04 hereof, each borrowing, Conversion and partial prepayment of
principal of Loans shall be in an aggregate amount at least equal to $500,000 or
in multiples of $100,000 in excess thereof (borrowings, Conversions or
prepayments of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder to be deemed
separate borrowings, Conversions and prepayments for purposes of the foregoing,
one for each Type or Interest Period).
4.05 CERTAIN NOTICES. Notices by the Company to the Agent of
terminations or reductions of the Commitments and of borrowings, Conversions,
Continuations and optional prepayments of Loans, of Types of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Agent not later than 11:00 a.m. New York time on the number of
Business Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:
Number of
Business
Notice Days Prior
------ ----------
Termination or reduction 2
of Commitments
Borrowing or prepayment of 1
Base Rate Loans
Borrowing or prepayment of, 3
Conversions of or into,
Continuations as, or duration
of Interest Period for,
Eurodollar Loans
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to
Section 4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued
or prepaid and the date of borrowing, Conversion, Continuation or optional
prepayment (which shall be a Business Day). Each such notice of the duration of
an Interest Period shall specify the Loans to which such Interest Period is to
relate. The Agent shall promptly notify the Banks of the contents of each such
notice. In the event that the Company
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fails to select the Type of Loan, or the duration of any Interest Period for
any Eurodollar Loan, within the time period and otherwise as provided in this
Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day of the then
current Interest Period for such Loan or (if outstanding as a Base Rate Loan)
will remain as, or (if not then outstanding) will be made as, a Base Rate
Loan.
4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have
been notified by a Bank or the Company (the "PAYOR") prior to the date on which
the Payor is to make payment to the Agent of (in the case of a Bank) the
proceeds of a Loan to be made by such Bank, or a participation in a Letter of
Credit drawing to be acquired by such Bank, hereunder or (in the case of the
Company) a payment to the Agent for account of one or more of the Banks
hereunder (such payment being herein called the "REQUIRED PAYMENT"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient(s)
on such date; and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date (the "ADVANCE DATE") such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the Federal Funds Effective Rate for such day and, if
such recipient(s) shall fail promptly to make such payment, the Agent shall be
entitled to recover such amount, on demand, from the Payor, together with
interest as aforesaid, PROVIDED that if neither the recipient(s) nor the Payor
shall return the Required Payment to the Agent within three Business Days of the
Advance Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) shall each be obligated to pay interest on the Required Payment as
follows:
(i) if the Required Payment shall represent a payment to be made by
the Company to the Banks, the Company and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of the Company under Section 3.02 hereof to pay
interest to such recipient(s) at the Post-Default Rate in respect of the
Required Payment) and
(ii) if the Required Payment shall represent proceeds of a loan to be
made by a Bank to the Company, the Payor and the Company shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate of interest provided for such Required
Payment pursuant to Section 3.02 hereof (and, in case the Company shall
return the Required Payment to the Agent, without limiting any claim the
Company may have against the Payor in respect of the Required Payment);
PROVIDED that the Agent shall only be entitled to retain interest in respect of
a Required Payment pursuant to clause (i) or (ii) above from either the Payor or
the recipient.
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4.07 SHARING OF PAYMENTS, ETC.
(a) Each of the Obligors agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset balances
held by it for account of such Obligor at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such Bank's
Loans, Reimbursement Obligations or any other amount payable to such Bank
hereunder, that is not paid when due (regardless of whether such balances are
then due to the Company), in which case it shall promptly notify such Obligor
(through the Company) and the Agent thereof, PROVIDED that such Bank's failure
to give such notice shall not affect the validity thereof.
(b) If any Bank shall obtain from any Obligor payment of any
principal of or interest on any Loan or Letter of Credit Liability owing to it
or payment of any other amount under this Agreement or any other Basic Document
through the exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise (other than from the Agent as provided herein), and,
as a result of such payment, such Bank shall have received a greater percentage
of the principal of or interest on the Loans or Letter of Credit Liabilities or
such other amounts then due hereunder or thereunder by such Obligor to such Bank
than the percentage received by any other Bank, it shall promptly purchase from
such other Banks participations in (or, if and to the extent specified by such
Bank, direct interests in) the Loans or Letter of Credit Liabilities or such
other amounts, respectively, owing to such other Banks (or in interest due
thereon, as the case may be) in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Banks shall
share the benefit of such excess payment (net of any expenses that may be
incurred by such Bank in obtaining or preserving such excess payment) pro rata
in accordance with the unpaid principal of and/or interest on the Loans or
Letter of Credit Liabilities or such other amounts, respectively, owing to each
of the Banks, PROVIDED that if at the time of such payment the outstanding
principal amount of the Loans shall not be held by the Banks pro rata in
accordance with their respective Commitments in effect at the time such Loans
were made (whether by reason of a failure of a Bank to make a Loan hereunder in
the circumstances described in the last paragraph of Section 12.04 hereof or
otherwise), then such purchases of participations and/or direct interests shall
be made in such manner as will result, as nearly as is practicable, in the
outstanding principal amount of the Loans being held by the Banks pro rata
according to the amounts of such Commitments. To such end all the Banks shall
make appropriate adjustments among themselves (by the resale of participations
sold or otherwise) if such payment is rescinded or must otherwise be restored.
(c) The Obligors agree that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any
such right or
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shall affect the right of any Bank to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency
or other similar law, any Bank receives a secured claim in lieu of a set-off
to which this Section 4.07 applies, such Bank shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Banks entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Bank from time to time
such amounts as such Bank may determine to be necessary to compensate such Bank
for any costs that such Bank determines are attributable to its making or
maintaining of any Eurodollar Loans or its obligation to make any Eurodollar
Loans hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation (such increases in
costs and reductions in amounts receivable being herein called "ADDITIONAL
COSTS"), resulting from any Regulatory Change that:
(i) changes the basis of taxation of any amounts payable to such
Bank under this Agreement or its Notes in respect of any of such Loans
(other than taxes imposed on or measured by the overall net income of such
Bank or of its Applicable Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such Applicable
Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such Loans
or any deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof), or any commitment of such Bank (including, without
limitation, either of the Commitments of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or its
Note (or any of such extensions of credit or liabilities) or its
Commitments.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank thereafter to make or Continue Eurodollar Loans, or to
Convert Prime Rate Loans into Eurodollar Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), PROVIDED that such suspension shall
not affect the right of such Bank to receive the compensation so requested.
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(b) Without limiting the effect of the provisions of paragraph (a) of
this Section 5.01, in the event that, by reason of any Regulatory Change, any
Bank either (i) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities
of such Bank that includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank that includes Eurodollar Loans
or (ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold, then, if such Bank so elects by notice
to the Company (with a copy to the Agent), the obligation of such Bank to make
or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to each
Bank from time to time on request such amounts as such Bank may determine to be
necessary to compensate such Bank (or, without duplication, the bank holding
company of which such Bank is a subsidiary) for any costs that it determines are
attributable to the maintenance by such Bank (or any Applicable Lending Office
or such bank holding company), pursuant to any law or regulation or any
interpretation, directive or request (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any Regulatory Change or
(ii) implementing any risk-based capital guideline or other requirement (whether
or not having the force of law and whether or not the failure to comply
therewith would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the national level the
Basel Accord (including, without limitation, the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R.
Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based
Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R.
Part 3, Appendix A)), of capital in respect of its Commitment or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Bank (or any Applicable Lending
Office or such bank holding company) to a level below that which such Bank (or
any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request). For
purposes of this Section 5.01(c) and Section 5.06 hereof, "BASEL ACCORD" shall
mean the proposals for risk-based capital framework described by the Basel
Committee on Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
(d) Each Bank shall notify the Company of any event occurring after
the date of this Agreement entitling such Bank to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Bank obtains actual knowledge thereof; PROVIDED
that (i) if any Bank fails to give such notice within 45 days after it obtains
actual knowledge of such an event, such Bank shall, with respect to compensation
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payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Bank does
give such notice and (ii) each Bank will designate a different Applicable
Lending Office for the Loans of such Bank affected by such event if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole opinion of such Bank, be disadvantageous to such Bank,
except that such Bank shall have no obligation to designate an Applicable
Lending Office located in the United States of America. Each Bank will furnish
to the Company a certificate setting forth the basis and amount of each request
by such Bank for compensation under paragraph (a) or (c) of this Section 5.01.
Determinations and allocations by any Bank for purposes of this Section 5.01 of
the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this
Section 5.01, or of the effect of capital maintained pursuant to paragraph (c)
of this Section 5.01, on its costs or rate of return of maintaining Loans or its
obligation to make Loans, or on amounts receivable by it in respect of Loans,
and of the amounts required to compensate such Bank under this Section 5.01,
shall be conclusive, PROVIDED that such determinations and allocations are made
on a reasonable basis.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Base
Rate for any Interest Period:
(a) the Agent determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for Eurodollar Loans as provided
herein; or
(b) the Majority Banks determine, which determination shall be
conclusive, and notify the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Base Rate" in Section 1.01
hereof upon the basis of which the rate of interest for Eurodollar Loans
for such Interest Period is to be determined are not likely to be adequate
to cover the cost to such Banks of making or maintaining Eurodollar Loans
for such Interest Period;
then the Agent shall give the Company and each Bank prompt notice thereof and,
so long as such condition remains in effect, the Banks shall be under no
obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or
to Convert Base Rate Loans into Eurodollar Loans, and the Company shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate
Loans in accordance with Section 2.09 hereof.
5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
hereunder, then such Bank shall promptly
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notify the Company thereof (with a copy to the Agent) and such Bank's
obligation to make or Continue, or to Convert Loans of any other Type into,
Eurodollar Loans shall be suspended until such time as such Bank may again
make and maintain Eurodollar Loans (in which case the provisions of Section
5.04 hereof shall be applicable).
5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Bank to
make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into,
Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof,
such Bank's Eurodollar Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) for Eurodollar
Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03
hereof, on such earlier date as such Bank may specify to the Company with a copy
to the Agent) and, unless and until such Bank gives notice as provided below
that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise
to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Bank's Eurodollar Loans shall be applied instead to its
Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such Bank
as Eurodollar Loans shall be made or Continued instead as Base Rate Loans,
and all Base Rate Loans of such Bank that would otherwise be Converted into
Eurodollar Loans shall remain as Base Rate Loans.
If such Bank gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Banks holding Eurodollar Loans and by such Bank are held
pro rata (as to principal amounts, Types and Interest Periods) in accordance
with their respective Commitments.
5.05 COMPENSATION. The Company shall pay to the Agent for the
account of each Bank, upon the request of such Bank through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost or expense that such Bank determines
is attributable to:
(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan made by such Bank for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10 hereof) on
a date other than the last day of an Interest Period for such Loan; or
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(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such
Bank on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Bank).
5.06 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without
limiting the obligations of the Company under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter issued by any government
or governmental or supervisory authority implementing at the national level the
Basel Accord there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Bank or
Banks of issuing (or purchasing participations in) or maintaining its obligation
hereunder to issue (or purchase participations in) any Letter of Credit
hereunder or reduce any amount receivable by any Bank hereunder in respect of
any Letter of Credit (which increases in cost, or reductions in amount
receivable, shall be the result of such Bank's or Banks' reasonable allocation
of the aggregate of such increases or reductions resulting from such event),
then, upon demand by such Bank or Banks (through the Agent), the Company shall
pay immediately to the Agent for account of such Bank or Banks, from time to
time as specified by such Bank or Banks (through the Agent), such additional
amounts as shall be sufficient to compensate such Bank or Banks (through the
Agent) for such increased costs or reductions in amount. A statement as to such
increased costs or reductions in amount incurred by any such Bank or Banks,
submitted by such Bank or Banks to the Company shall be conclusive in the
absence of manifest error as to the amount thereof.
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Section 6. GUARANTEE.
6.01 GUARANTEE. The Subsidiary Guarantors hereby jointly and
severally guarantee to each Bank and the Agent and their respective successors
and assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Banks to, and the Notes held by each Bank of, the Company and all other
amounts from time to time owing to the Banks or the Agent by the Company under
this Agreement, under the Notes and under any Commodity Hedging Agreements and
Interest Rate Protection Agreements to which the Company is a party and by any
Obligor under any of the other Basic Documents or under any agreement in respect
of a Commodity Hedging Agreement or Interest Rate Protection Agreement to which
such Obligor is a party, in each case strictly in accordance with the terms
thereof (such obligations being herein collectively called the "GUARANTEED
OBLIGATIONS"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Company shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Subsidiary Guarantors will promptly pay the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
6.02 OBLIGATIONS UNCONDITIONAL. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Company under this Agreement, the Notes
or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 6.02 that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the liability of the Subsidiary Guarantors
hereunder which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
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(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any Lien granted to, or in favor of, the Agent or any Bank or
Banks as security for any of the Guaranteed Obligations shall fail to be
perfected.
Each of the Subsidiary Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement that
the Agent or any Bank exhaust any right, power or remedy or proceed against the
Company and the other Subsidiary Guarantors under this Agreement or the Notes or
any other agreement or instrument referred to herein or therein, or against any
other Person under any other guarantee of, or security for, any of the
Guaranteed Obligations. Each Subsidiary Guarantor agrees that its obligations
pursuant to this Section 6 shall not be affected by any assignment or
participation entered into by any Bank pursuant to Section 12.06 hereof.
6.03 REINSTATEMENT. The obligations of the Subsidiary Guarantors
under this Section 6 shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Agent and each Bank on demand
for all reasonable costs and expenses (including, without limitation, fees of
counsel) incurred by the Agent or such Bank in connection with such rescission
or restoration, including any such costs and expenses incurred in defending
against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
6.04 SUBROGATION. Until all Loans and Letter of Credit Liabilities
have been paid in full and the Commitments have been terminated, each Subsidiary
Guarantor hereby waives all rights of subrogation or contribution, whether
arising by contract or operation of law (including, without limitation, any such
right arising under the Bankruptcy Code) or otherwise by reason of any payment
by it pursuant to the provisions of this Section 6.
6.05 REMEDIES. The Subsidiary Guarantors jointly and severally agree
that, as between the Subsidiary Guarantors and the Banks, the obligations of the
Company under this Agreement and the Notes may be declared to be forthwith due
and payable as provided in Section 10 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 10)
for purposes of Section 6.01 hereof notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations from
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becoming automatically due and payable) as against the Company and that, in
the event of such declaration (or such obligations being deemed to have
become automatically due and payable), such obligations (whether or not due
and payable by the Company) shall forthwith become due and payable by the
Subsidiary Guarantors for purposes of said Section 6.01.
6.06 CONTINUING GUARANTEE. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.07 INSTRUMENT FOR THE PAYMENT OF MONEY. Each Subsidiary Guarantor
hereby acknowledges that the guarantee in this Section 6 constitutes an
instrument for the payment of money, and consents and agrees that any Bank or
the Agent, at its sole option, in the event of a dispute by such Subsidiary
Guarantor in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213.
6.08 RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree,
as between themselves, that if any Subsidiary Guarantor shall become an Excess
Funding Guarantor (as defined below) by reason of the payment by such Subsidiary
Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall,
on demand of such Excess Funding Guarantor (but subject to the next sentence),
pay to such Excess Funding Guarantor an amount equal to such Subsidiary
Guarantor's Pro Rata Share (as defined below and determined, for this purpose,
without reference to the Properties, debts and liabilities of such Excess
Funding Guarantor) of the Excess Payment (as defined below) in respect of such
Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any
Excess Funding Guarantor under this Section 6.08 shall be subordinate and
subject in right of payment to the prior payment in full of the obligations of
such Subsidiary Guarantor under the other provisions of this Section 6 and such
Excess Funding Guarantor shall not exercise any right or remedy with respect to
such excess until payment and satisfaction in full of all of such obligations.
For purposes of this Section 6.08, (i) "EXCESS FUNDING GUARANTOR"
shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor
that has paid an amount in excess of its Pro Rata Share of such Guaranteed
Obligations, (ii) "EXCESS PAYMENT" shall mean, in respect of any Guaranteed
Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro
Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" shall mean,
for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the
amount by which the aggregate present fair saleable value of all Properties of
such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary
Guarantor) exceeds the amount of all the debts and liabilities of such
Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which
the aggregate fair saleable value of all Properties of all of the Subsidiary
Guarantors exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of the Company and the Subsidiary Guarantors hereunder and under
the other Loan
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Documents) of all of the Subsidiary Guarantors, determined (A) with respect
to any Subsidiary Guarantor that is a party hereto on the date of this
Agreement, as of the date of this Agreement, and (B) with respect to any
other Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes
a Subsidiary Guarantor hereunder.
6.09 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
Section 6.01 hereof would otherwise, taking into account the provisions of
Section 6.08 hereof, be held or determined to be void, invalid or unenforceable,
or subordinated to the claims of any other creditors, on account of the amount
of its liability under said Section 6.01, then, notwithstanding any other
provision hereof to the contrary, the amount of such liability shall, without
any further action by such Subsidiary Guarantor, any Bank, the Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
Section 7. CONDITIONS PRECEDENT.
7.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Third
Amended and Restated Credit Agreement is subject to the receipt by the Agent of
the following documents and evidence, each of which shall be satisfactory to the
Agent (and to the extent specified below, to the Majority Banks) in form and
substance:
(a) CORPORATE DOCUMENTS. The following documents, each certified as
indicated below:
(i) for each Obligor, a copy of the charter, as amended and in
effect, of such Obligor certified as of a recent date by the Secretary
of State of its jurisdiction of incorporation, and a certificate from
such Secretary of State dated as of a recent date as to the good
standing of and charter documents filed by such Obligor;
(ii) for each Obligor, a certificate of the Secretary or an
Assistant Secretary of such Obligor, dated the date hereof and
certifying (A) that the by-laws of such Obligor have not been amended
since the date of the resolutions specified in the following clause
(B), (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of such Obligor
authorizing the execution, delivery and performance of such of the
Basic Documents to which such Obligor is or is intended to be a party
and the extensions of credit hereunder, and that such resolutions have
not been modified, rescinded or amended and are in full force and
effect, (C) that the charter of such Obligor has not been amended
since the date of their certification pursuant to the foregoing clause
(i), and (D) as to the incumbency and specimen signature of each
officer of such Obligor
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executing such of the Basic Documents to which such Obligor is
intended to be a party and each other document to be delivered by such
Obligor from time to time in connection therewith (and the Agent and
each Bank may conclusively rely on such certificate until it receives
notice in writing from such Obligor); and
(iii) for each Obligor, a certificate of another officer of such
Obligor as to the incumbency and specimen signature of the Secretary
or Assistant Secretary, as the case may be, of such Obligor.
(b) OFFICER'S CERTIFICATE. A certificate of a senior officer of the
Company, dated the date hereof, to the effect set forth in the first
sentence of Section 7.02 hereof.
(c) OPINION OF COUNSEL TO THE OBLIGORS. An opinion, dated the date
hereof, of Vinson & Elkins L.L.P., Counsel of each of the Obligors,
substantially in the form of Exhibit C hereto and covering such other
matters as the Agent or any Bank may reasonably request (and each Obligor
hereby instructs such counsel to deliver such opinion to the Banks and the
Agent).
(d) OPINION OF SPECIAL COUNSEL TO CHASE. An opinion, dated the date
hereof, of Milbank, Tweed, Hadley & McCloy, special counsel to Chase,
substantially in the form of Exhibit D hereto.
(e) NOTES. The Notes, duly completed and executed in exchange for
the Original Notes.
(f) ACQUISITION. Evidence that the Acquisition shall have been (or
shall be simultaneously) consummated in accordance with the Acquisition
Documents (except for any modifications, supplements or waivers thereof, or
written consents or determinations made by the parties thereto, that shall
be satisfactory to each Lender), and the Agent shall have received a
certificate of a senior officer of the Company to such effect and to the
effect that attached thereto are true and complete copies of the
Acquisition Documents and all other documents delivered in connection with
the closing of the Acquisition pursuant to the Acquisition Documents
(including, without limitation, certified copies of all authorizations,
approvals or consents of, and filings or registrations with all
governmental or regulatory authorities and agencies and securities
exchanges necessary for the Acquisition. In addition, the Agent shall have
received copies of the legal opinions and certificates (including, without
limitation, those delivered pursuant to Sections 9.02(e) and (g) of the
Purchase Agreement) delivered to the Company pursuant to the Acquisition
Documents in connection with the Acquisition, together with a letter from
each Person delivering such opinion or certificate (or authorization within
such opinion or certificate) authorizing reliance thereon by the Agent and
the Banks.
(g) REPORT OF INDEPENDENT PETROLEUM ENGINEER. A preliminary report
of the
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Independent Petroleum Engineer dated as of January 1, 1998 setting forth
the Proved Reserves at such date for (x) approximately 80% of the
Properties subject to the Acquisition and (y) all of the existing
Properties of the Company.
(h) MORTGAGES. The Mortgage Amendments covering the Hydrocarbon
Properties of the Company and its Restricted Subsidiaries currently subject
to the Mortgages located in Louisiana, Oklahoma, Texas and Wyoming, in each
case duly executed and delivered by the Company in recordable form (in such
number of copies as the Agent shall have requested).
(i) INSURANCE. A certificate of an officer of the Company as to the
existence of all insurance required to be maintained by the Obligors
pursuant to Section 9.04 hereof.
(j) OPINION OF LOCAL COUNSEL. A favorable opinion from each of
Liskow & Lewis, Conner & Winters and Vinson & Elkins L.L.P., special
counsel to the Banks in each of Louisiana, Oklahoma and Texas,
respectively, dated the date hereof, for each such state and with respect
to the properties covered by the Mortgages and located in such respective
states, as to the following:
(i) Compliance with all applicable state laws, including all
applicable recording, filing and registration laws, of the Mortgages,
the Mortgage Amendments and the Notes, and the form and manner of the
authorization, execution, acknowledgment and delivery of each thereof;
(ii) the legal, valid and binding nature of the Mortgages, the
Mortgage Amendments and the Notes, and the enforceability thereof in
accordance with their respective terms;
(iii) the fact that, the Mortgages, as amended by the Mortgage
Amendments, constitute a legal, valid and effective mortgage lien upon
the mortgaged properties as security for the Indebtedness referred to
therein;
(iv) the absence of any requirement for any authorization or
approval by any public regulatory body or authority, with regard to
the valid execution and delivery of, and the validity, legality and
effectiveness of, the Mortgages, the Mortgage Amendments and the
Notes;
(v) as to all recording, filing and registration procedures as
shall be necessary under applicable state laws to constitute the
Mortgages, as amended by the Mortgage Amendments, a mortgage, pledge
and financing statement in accordance with the terms thereof and the
intention of the parties thereto, and as to the necessity of any
periodic or other rerecording or refiling of the Mortgages, or any
other instrument in order to maintain the lien of the Mortgages; and
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(vi) as to such state or local mortgage recording taxes, stamp
taxes, or other fees, taxes or governmental charges as shall be
required to be paid in connection with the execution, delivery, filing
for record or recording of the Mortgages and the Notes.
(k) REPORT OF THE COMPANY. A report of the Company dated as of
January 1, 1998 setting forth the Proved Reserves at such date for all the
Hydrocarbon Properties of the Company and its Restricted Subsidiaries,
including the Properties which are the subject of the Acquisition.
(l) LETTER AGREEMENT. The Company shall have executed a letter with
respect to the collapse of the Funding Credit Agreement with and into the
Canadian Forest Oil Credit Agreement).
(m) ENVIRONMENTAL. Evidence that each of the Company and its
Restricted Subsidiaries is in compliance with all applicable Environmental
Laws and that no Environmental Claims are pending against any of the
Company or its Restricted Subsidiary that either individually or in the
aggregate could have a Material Adverse Effect.
(n) PAYMENT. Evidence of payment of all amounts specified in
Section 2.01(d)(i) hereof.
(o) OTHER DOCUMENTS. Such other documents as the Agent or any Bank
or special New York counsel to Chase may reasonably request.
The obligation of the Banks to make their initial extension of credit hereunder
is also subject to the payment by the Company of such fees as the Company shall
have agreed to pay or deliver to any Bank or the Agent in connection herewith,
including, without limitation, the fees set forth in the Amendment Fee Letter
and the Original Fee Letter, the reasonable fees and expenses of Milbank, Tweed,
Hadley & McCloy, special New York counsel to Chase in connection with the
negotiation, preparation, execution and delivery of this Agreement and the Notes
and the other Basic Documents and the extensions of credit hereunder (to the
extent that statements for such fees and expenses have been delivered to the
Company).
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7.02 INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT.
The obligation of the Banks to make any Loans or otherwise extend
credit to the Company upon the occasion of each borrowing or other extension of
credit hereunder (including the initial extension of credit) is subject to the
further conditions precedent that, (x) both immediately prior to the making of
such Loans or other extension of credit and also after giving effect thereto and
to the intended use thereof: (i) no Default shall have occurred and be
continuing; (ii) the representations and warranties made by the Company in
Section 8 hereof, and by each Obligor in each of the other Basic Documents to
which it is a party, shall be true and complete on and as of the date of the
making of such Loans or other extension of credit with the same force and effect
as if made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date); (iii) no event or events with respect to the Company or any of its
Subsidiaries shall have occurred which alone or in the aggregate could have a
Material Adverse Effect; and (iv) the aggregate principal amount of Loans and
Letter of Credit Liabilities shall not exceed the Borrowing Base as determined
pursuant to Section 1.03 hereof and (y) if the outstanding Loans and Letter of
Credit Liabilities exceed or, with the extension of credit then being requested
by the Company will exceed $150,000,000 (as such amount may be reduced by the
Net Available Proceeds of each Disposition), the Company shall have delivered a
certificate from the Chief Financial Officer, Treasurer or an Assistant
Treasurer stating that (A) all of the obligations under the Basic Documents are
"Designated Senior Debt Indebtedness" (as defined in the Canadian Forest Senior
Subordinated Debt Documents) for the purposes of the Canadian Forest Senior
Subordinated Debt Documents and (B) the obligations under the Basic Documents
(including the extension credit to be made on the date of such certificate) are
permitted to be incurred (as defined in the Canadian Forest Senior Subordinated
Debt Documents) by the Company and its Subsidiaries under the Canadian Forest
Senior Subordinated Debt Documents and providing the calculations necessary to
support the statement made pursuant to this clause (B). Each notice of
borrowing or request for the issuance of a Letter of Credit by the Company
hereunder shall constitute a certification by the Company to the effect set
forth in the preceding sentence (both as of the date of such notice or request
and, unless the Company otherwise notifies the Agent prior to the date of such
borrowing or issuance, as of the date of such borrowing or issuance).
Section 8. REPRESENTATIONS AND WARRANTIES. The Company and the
Subsidiary Guarantors represent and warrant to the Banks that:
8.01 CORPORATE EXISTENCE. The Company and each Subsidiary Guarantor:
(a) is a corporation, partnership or other entity duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could have a Material
Adverse Effect.
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8.02 FINANCIAL CONDITION. The Company has heretofore furnished to
each of the Banks the consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at December 31, 1996 and the related consolidated
statements of income, retained earnings and cash flow of the Company and its
Consolidated Subsidiaries for the fiscal year ended on said date, with the
opinion thereon of KPMG Peat Marwick. All such financial statements are
complete and correct and fairly present the consolidated financial condition of
the Company and its Consolidated Subsidiaries as at said date and the
consolidated results of operations for the fiscal year ended on said date, all
in accordance with GAAP. Neither the Company nor any of its Subsidiaries has on
the date hereof any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in said balance sheets as at said date. Since December 31, 1996 there has
been no material adverse change in the consolidated financial condition,
operations, business or prospects taken as a whole of the Company and its
Consolidated Subsidiaries from that set forth in said financial statements as at
said date.
8.03 LITIGATION. Except as disclosed to the Banks in writing prior
to the date of this Agreement, there are no legal or arbitral proceedings, or
any proceedings by or before any governmental or regulatory authority or agency,
now pending or (to the knowledge of the Company or any of its Subsidiaries)
threatened against the Company or any of its Subsidiaries which, if adversely
determined could have a Material Adverse Effect.
8.04 NO BREACH. None of the execution and delivery of this Agreement
and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company or any of its Restricted Subsidiaries is a party or by which
any of them or any of their Property is bound or to which any of them is
subject, or constitute a default under any such agreement or instrument, or
(except for the Liens created pursuant to the Security Documents) result in the
creation or imposition of any Lien upon any Property of the Company or any of
its Restricted Subsidiaries pursuant to the terms of any such agreement or
instrument.
8.05 ACTION. Each Obligor has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to which it is or is intended to be a party; the
execution, delivery and performance by each Obligor of each of the Basic
Documents to which it is or is intended to be a party have been duly authorized
by all necessary corporate action on its part (including, without limitation,
any required shareholder approvals); and this Agreement has been duly and
validly executed and delivered by each Obligor and constitutes, and each of the
Notes and the other Basic Documents to which it is a party when executed and
delivered by such Obligor (in the case of the Notes, for value) will
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constitute, its legal, valid and binding obligation, enforceable against each
Obligor in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar
laws of general applicability affecting the enforcement of creditors' rights
and (b) the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
8.06 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for (i)
filings and recordings in respect of the Liens created pursuant to the Security
Documents and (ii) the authorizations, approvals, consents, filings and
registrations contemplated by the Acquisition Documents (each of which shall
have been made or obtained on or prior to the closing of the Acquisition to the
extent required by the Acquisition Documents to be obtained before such date).
8.07 USE OF CREDIT. Neither the Company nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying Margin Stock, and no part of the proceeds of any extension
of credit hereunder will be used to buy or carry any Margin Stock.
8.08 ERISA. Each Plan, and, to the knowledge of the Company, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, except where
non-compliance will not have a Material Adverse Effect and no event or condition
has occurred and is continuing as to which the Company would be under an
obligation to furnish a report to the Banks under Section 9.01(e) hereof.
8.09 TAXES. The Company and its U.S. Subsidiaries are members of an
affiliated group of corporations filing consolidated returns for Federal income
tax purposes, of which the Company is the "common parent" (within the meaning of
Section 1504 of the Code) of such group. The Company and its Subsidiaries have
filed either directly or indirectly through the Company all Federal income tax
returns and all other material tax returns that are required to be filed by them
and have paid either directly or indirectly through the Company all taxes due
pursuant to such returns or pursuant to any assessment received by the Company
or any of its Subsidiaries. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of taxes and other governmental
charges are, in the opinion of the Company, adequate. Except as disclosed to
the Banks in writing, the Company has not given or been requested to give a
waiver of the statute of limitations relating to the payment of Federal, state,
local and foreign taxes or other impositions.
8.10 INVESTMENT COMPANY ACT. The Company and each of its
Subsidiaries are
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not, or are exempt from regulation as, an "investment company", or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
8.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any
of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
8.12 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule I hereto is a complete and correct list, as of
the date of this Agreement, of each credit agreement, loan agreement, indenture,
purchase agreement, guarantee, letter of credit or other arrangement providing
for or otherwise relating to any Indebtedness or any extension of credit (or
commitment for any extension of credit) to, or guarantee by, the Company or any
of its Restricted Subsidiaries the aggregate principal or face amount of which
equals or exceeds (or may equal or exceed) $1,000,000, and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list, as of
the date of this Agreement, of each Lien securing Indebtedness of any Person the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $1,000,000 and covering any Property of the Company or any of its
Restricted Subsidiaries, and the aggregate Indebtedness secured (or which may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
8.13 ENVIRONMENTAL MATTERS. Each of the Company and its Subsidiaries
has obtained all environmental, health and safety permits, licenses and other
authorizations required under all Environmental Laws to carry on its business as
now being or as proposed to be conducted, except to the extent failure to have
any such permit, license or authorization would not have a Material Adverse
Effect. Each of such permits, licenses and authorizations is in full force and
effect and each of the Company and its Subsidiaries is in compliance with the
terms and conditions thereof, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply therewith would not have a Material
Adverse Effect.
In addition, except as set forth in Schedule II hereto:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no
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investigation or review is pending or threatened by any governmental or
other entity with respect to any alleged failure by the Company or any
of its Subsidiaries to have any environmental, health or safety permit,
license or other authorization required under any Environmental Law in
connection with the conduct of the business of the Company or any of its
Subsidiaries or with respect to any generation, treatment, storage,
recycling, transportation, discharge or disposal, or any Release of any
Hazardous Materials generated by the Company or any of its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries owns, operates or
leases a treatment, storage or disposal facility requiring a permit under
the Resource Conservation and Recovery Act of 1976, as amended, or under
any comparable state or local statute; and
(i) to the knowledge of the Company after due inquiry, no
polychlorinated biphenyls (PCB's) are or have been present at any site
or facility now or previously owned, operated or leased by the Company
or any of its Subsidiaries;
(ii) to the knowledge of the Company after due inquiry, no
asbestos or asbestos-containing materials is or has been present at
any site or facility now or previously owned, operated or leased by
the Company or any of its Subsidiaries;
(iii) to the knowledge of the Company after due inquiry, there are
no underground storage tanks or surface impoundments for Hazardous
Materials, active or abandoned, at any site or facility now or
previously owned, operated or leased by the Company or any of its
Subsidiaries;
(iv) to the knowledge of the Company after due inquiry, no
Hazardous Materials have been Released at, on or under any site or
facility now or previously owned, operated or leased by the Company or
any of its Subsidiaries in a reportable quantity established by
statute, ordinance, rule, regulation or order; and
(v) to the knowledge of the Company after due inquiry, no
Hazardous Materials have been otherwise Released at, on or under any
site or facility now or previously owned, operated or leased by the
Company or any of its Subsidiaries that would have a Material Adverse
Effect.
(c) Neither the Company nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Material to any
location that is listed on the National Priorities List ("NPL") under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by
the Environmental Protection Agency in the Comprehensive Environmental
Response and Liability Information System, as provided for by 40 C.F.R.
Section 300.5 ("CERCLIS"), or on any similar state or local list or that
is the subject of Federal,
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state or local enforcement actions or other investigations that may lead
to Environmental Claims against the Company or any of its Subsidiaries.
(d) No Hazardous Material generated by the Company or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released by
the Company or any of its Subsidiaries at any location other than those
listed in Schedule II hereto.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any of its
Subsidiaries and no site or facility now or previously owned, operated or
leased by the Company or any of its Subsidiaries is listed or proposed for
listing on the NPL, CERCLIS or any similar state list of sites requiring
investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Laws
on any site or facility owned, operated or leased by the Company or any of
its Subsidiaries, and no government action has been taken or is in process
that could subject any such site or facility to such Liens and neither the
Company nor any of its Subsidiaries would be required to place any notice
or restriction relating to the presence of Hazardous Materials at any site
or facility owned by it in any deed to the real property on which such site
or facility is located.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or that are in the possession
of the Company or any of its Subsidiaries in relation to any site or
facility now or previously owned, operated or leased by the Company or any
of its Subsidiaries which have not been made available to the Banks.
8.14 SUBSIDIARIES, ETC.
(a) Set forth in Part A of Schedule III hereto is a complete and
correct list, as of the date of this Agreement, of all of the Subsidiaries of
the Company, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary, (iii) the nature of the ownership interests held by each such
Person and the percentage of ownership of such Subsidiary represented by such
ownership interests and (iv) indicating whether each such Subsidiary is a
Restricted Subsidiary or an Unrestricted Subsidiary. Except as disclosed in
Part A of Schedule III hereto, (x) each of the Company and its Subsidiaries
owns, free and clear of Liens (other than Liens created pursuant to the Security
Documents), and has the unencumbered right to vote, all outstanding ownership
interests in each Person shown to be held by it in Part A of Schedule III
hereto, (y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
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(b) Set forth in Part B of Schedule III hereto is a complete and
correct list, as of the date of this Agreement, of all Investments (other than
Investments disclosed in Part A of said Schedule III hereto and other than
Permitted Investments) held by the Company or any of its Subsidiaries in any
Person and, for each such Investment, (x) the identity of the Person or Persons
holding such Investment and (y) the nature of such Investment. Except as
disclosed in Part B of Schedule III hereto, each of the Company and its
Subsidiaries owns, free and clear of all Liens (other than Liens created
pursuant to the Security Documents), all such Investments.
(c) None of the Restricted Subsidiaries of the Company, other than
Forest I Development Company and Canadian Forest Oil, is, on the date hereof,
subject to any indenture, agreement, instrument or other arrangement of the type
described in the last sentence of Section 9.15 hereof other than, in the case of
Canadian Forest Oil, as provided in the Canadian Forest Senior Subordinated Debt
Documents.
8.15 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Obligors to the Agent or any Bank in connection with the
negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by the
Obligors to the Agent and the Banks in connection with this Agreement and the
other Basic Documents and the transactions contemplated hereby and thereby will
be true, complete and accurate in every material respect, or (in the case of
projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to any Obligor that
could have a Material Adverse Effect that has not been disclosed herein, in the
other Basic Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Banks for use in connection
with the transactions contemplated hereby or thereby.
8.16 TITLE TO PROPERTIES. The Company and each of its Subsidiaries
owns its Properties free and clear of all Liens (other than Liens described in
Section 9.06 hereof).
8.17 ACQUISITION DOCUMENTS. The Company has heretofore delivered to
the Agent a true and complete copy of the Acquisition Documents (including all
modifications or supplements to each thereof) and each of such Acquisition
Documents has been duly executed and delivered by each party thereto and is in
full force and effect. After the consummation of the Acquisition, the Company
and its Subsidiaries will have good title to all of the assets purported to be
transferred to them pursuant to the Acquisition Documents, free and clear of all
Liens (other than Liens described in Section 9.06 hereof). To the best of the
knowledge of the Obligors, each of the representations and warranties of the
"Seller" (as defined in the Purchase Agreement) in the Purchase Agreement is
true and correct on the date hereof. The Company has heretofore delivered to
the Agent notice of (i) any Title Defects (as defined in the Purchase
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Agreement) in an aggregate amount in excess of $1,000,000 and (ii) any
Material Adverse Environmental Conditions (as defined in the Purchase
Agreement) in an aggregate amount in excess of $1,000,000.
Section 9. COVENANTS OF THE OBLIGORS. Each Obligor covenants and
agrees with the Lender Group and the Agent that, so long as any Commitment, Loan
or Letter of Credit Liability is outstanding and until payment in full of all
amounts payable by the Company hereunder:
9.01 FINANCIAL STATEMENTS ETC. The Company shall (for itself and on
behalf of each of the other Obligors) deliver to the Agent and each of the
Banks:
(a) as soon as available and in any event within 60 days after the
end of each quarterly fiscal period of each fiscal year of the Company,
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating statements of income,
retained earnings and cash flow of the Company and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the
Company and its Consolidated Subsidiaries as at the end of such period,
setting forth in each case in comparative form the corresponding
consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a senior financial officer of the Company, which certificate
shall state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of the Company
and its Consolidated Subsidiaries, and said consolidating financial
statements are materially correct and reconcile to the consolidated
financial statements of the Company and its Consolidated Subsidiaries, and
that such consolidated financial statements have been prepared in
accordance with GAAP, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(b) as soon as available and in any event within 100 days after the
end of each fiscal year of the Company, consolidated and, if prepared,
consolidating statements of income, retained earnings and cash flow of the
Company and its Consolidated Subsidiaries for such fiscal year and the
related consolidated and, if prepared, or if the Company has designated any
Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the
Company and its Consolidated Subsidiaries as at the end of such fiscal
year, setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the preceding fiscal year, and
accompanied (i) in the case of said consolidated statements and balance
sheet of the Company, by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that
said consolidated financial statements fairly present the consolidated
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financial condition and results of operations of the Company and its
Consolidated Subsidiaries as at the end of, and for, such fiscal year in
accordance with generally accepted accounting principles, and (ii) in the
case of said consolidating statements and balance sheet, by a certificate
of a senior financial officer of the Company, which certificate shall state
that said consolidating financial statements are materially correct and
reconcile to the consolidated financial statements of the Company and its
Consolidated Subsidiaries, and that such consolidated financial statements
have been prepared in accordance with GAAP, as at the end of, and for, such
fiscal year;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which the
Company shall have filed with the Securities and Exchange Commission (or
any governmental agency substituted therefor) or any national securities
exchange;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally or to holders of Subordinated Indebtedness generally,
copies of all financial statements, reports and proxy statements so mailed;
(e) as soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred
or exists, a statement signed by a senior financial officer of the Company
setting forth details respecting such event or condition and the action, if
any, that the Company or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Company or an ERISA Affiliate with respect to such
event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (PROVIDED that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event regardless of the
issuance of any waivers in accordance with Section 412(d) of the
Code); and any request for a waiver under Section 412(d) of the Code
for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a notice
of intent to terminate any Plan or any action taken by the Company or
an ERISA Affiliate to terminate any Plan (other than in connection
with a standard termination under Section 4041(b) of ERISA);
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for
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the termination of, or the appointment of a trustee to administer,
any Plan, or the receipt by the Company or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been taken by
PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan
by the Company or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt
by the Company or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result
in the loss of tax-exempt status of the trust of which such Plan is a
part if the Company or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said
Sections;
(f) on or before each Report Delivery Date, the Borrowing Base
Reports;
(g) promptly after the Company or any of its Restricted Subsidiaries
knows or has reason to believe that any Default has occurred, a notice of
such Default describing the same in reasonable detail and, together with
such notice or as soon thereafter as possible, a description of the action
that the Company or any of its Restricted Subsidiaries has taken or
proposes to take with respect thereto;
(h) within ten days after the Company or any of its Restricted
Subsidiaries receives notice of any change in the schedule of payment or
delivery of any Production Payment to which the Company or such Restricted
Subsidiary is a party, the Company shall give the Agent notice of such
change, together with an explanation of the reason for such change; and
(i) from time to time such other information regarding the financial
condition, operations, business, prospects or Properties of the Company or
any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Bank or the Agent may reasonably request.
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The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 9.06(k), 9.07(a)(v) and (a)(vi), 9.08(g),
9.09, 9.10, 9.11 and 9.16 hereof as of the end of the respective quarterly
fiscal period or fiscal year, which computations in respect of Sections 9.09,
9.10, 9.11 and 9.16 shall be in accordance with GAAP.
9.02 LITIGATION. The Company will promptly give to each Bank notice
of all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting the Company or any of its
Subsidiaries, except proceedings which, if adversely determined, would not have
a Material Adverse Effect. Without limiting the generality of the foregoing,
the Company will give to each Bank notice of the assertion of any Environmental
Claim by any Person against, or with respect to the activities of, the Company
or any of its Subsidiaries and notice of any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations, other than any Environmental Claim or alleged violation which,
if adversely determined, would not have a Material Adverse Effect.
9.03 EXISTENCE, ETC. The Company will, and will cause each of its
Restricted Subsidiaries to:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (PROVIDED that nothing in this
Section 9.03 shall prohibit any transaction expressly permitted under
Section 9.05 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements could have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted and
maintain, develop and operate its Hydrocarbon Properties to their economic
limit in accordance with prudent industry standards;
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(e) keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
(f) permit representatives of any Bank or the Agent, at their own
risk during normal business hours, to examine, copy and make extracts from
its books and records, to inspect any of its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably
requested by such Bank or the Agent (as the case may be).
9.04 INSURANCE. The Company will, and will cause each of its
Restricted Subsidiaries (including without limitation the Subsidiary Guarantors)
to, keep insured by financially sound and reputable insurers all Property of a
character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations or as is required by law.
9.05 PROHIBITION OF FUNDAMENTAL CHANGES. The Company will not, and
will not permit any of its Restricted Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution). The Company will
not, and will not permit any of its Restricted Subsidiaries to, acquire any
business or Property from, or capital stock of, or be a party to any acquisition
of, any Person except for purchases of inventory and other Property to be sold
or used in the ordinary course of business and Investments permitted under
Section 9.08 hereof and the Acquisition. The Company will not, and will not
permit any of its Restricted Subsidiaries to, convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or a
substantial part of its business or Property, whether now owned or hereafter
acquired including, without limitation, receivables and leasehold interests, but
excluding (i) obsolete or worn-out Property, tools or equipment no longer used
or useful in its business so long as the amount thereof sold in any single
fiscal year by the Company and its Subsidiaries shall not have a fair market
value in excess of $1,000,000, (ii) any hydrocarbons produced or sold in the
ordinary course of business and on ordinary business terms (excluding, with
respect to Properties of the Company or any Restricted Subsidiary existing on
the date hereof, and with respect to any Mortgaged Property, Production Payments
or any other sale or lease of interests in hydrocarbons in the ground other than
Production Payments entered into by the Company or any of its Restricted
Subsidiaries prior to the date hereof), (iii) on and after the date hereof,
other Properties of the Company and its Restricted Subsidiaries (other than
Mortgaged Properties and Unrestricted Properties) provided that the aggregate
fair market value of such other Properties conveyed, sold, leased, transferred
or otherwise disposed of on or after the date hereof shall not exceed $5,000,000
during any Determination Period, provided, further, that such conveyance, sale,
lease, transfer or other disposition shall not include any Accounts or Inventory
(each as defined in the Security Agreement) of the Company or any of its
Restricted Subsidiaries other than Accounts or Inventory (x) incidental to the
sale of Hydrocarbon Properties and (y) created or produced from such Hydrocarbon
Properties on or after the effective date of any such conveyance, sale, lease,
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transfer or other disposition of such Hydrocarbon Properties, (iv) the
expiration of leases covering hydrocarbon producing properties and (v)
Unrestricted Properties. Notwithstanding the foregoing provisions of this
Section 9.05:
(a) any Restricted Subsidiary of the Company may be merged or
consolidated with or into: (i) the Company if the Company shall be the
continuing or surviving corporation or (ii) any other such Restricted
Subsidiary; PROVIDED that if any such transaction shall be between a
Subsidiary Guarantor and a Restricted Subsidiary not a Subsidiary
Guarantor, and such Subsidiary Guarantor is not the continuing or surviving
corporation, then the continuing or surviving corporation shall have
assumed all of the obligations of such Subsidiary Guarantor hereunder;
(b) any Restricted Subsidiary of the Company may sell, lease,
transfer or otherwise dispose of any or all of its Property (upon voluntary
liquidation or otherwise) to the Company or a Wholly Owned Subsidiary of
the Company which is a Restricted Subsidiary; PROVIDED that if any such
sale is by a Subsidiary Guarantor to a Restricted Subsidiary of the Company
not a Subsidiary Guarantor, then such Restricted Subsidiary shall have
assumed all of the obligations of such Subsidiary Guarantor hereunder;
(c) the Company or any Restricted Subsidiary of the Company may merge
or consolidate with any other Person if (i) in the case of a merger or
consolidation of the Company, the Company is the surviving corporation and,
in any other case, the surviving corporation is a Wholly Owned Subsidiary
of the Company which is a Restricted Subsidiary and (ii) after giving
effect thereto no Default would exist hereunder; and
(d) the Company or any of its Restricted Subsidiaries may sell or
otherwise dispose of its shares of common stock in Saxon.
9.06 LIMITATION ON LIENS. The Company will not, nor will it permit
any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of their Property, whether now owned or hereafter acquired,
except:
(a) Liens created pursuant to the Security Documents and the Canadian
Loan Documents;
(b) Liens created pursuant to the Forest Debenture or the Forest
Guarantee;
(c) Liens in existence on the date hereof and listed in Part B of
Schedule I hereto (excluding, however, following the making of the initial
Loans hereunder, Liens securing Indebtedness to be repaid with the proceeds
of such Loans, if any, indicated on said Schedule I);
(d) Liens imposed by any governmental authority for taxes,
assessments, charges
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or levies not yet due or which are being contested in good faith and by
appropriate proceedings if, unless the amount thereof is not material with
respect to it or its financial condition, adequate reserves with respect
thereto are maintained on the books of the Company or the affected
Subsidiaries, as the case may be, in accordance with GAAP;
(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 45 days or which are being contested
in good faith and by appropriate proceedings and Liens securing judgments
(but only to the extent, for an amount and for a period not resulting in an
Event of Default under Section 10(h) hereof);
(f) pledges or deposits under worker's compensation, unemployment
insurance and other social security or similar legislation;
(g) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety,
stay, appeal and indemnity bonds, performance bonds and other obligations
of a like nature incurred in the ordinary course of business;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the
use of Property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries;
(i) Liens on Property of any corporation which becomes a Restricted
Subsidiary of the Company after the date of this Agreement, PROVIDED that
such Liens are in existence at the time such corporation becomes a
Restricted Subsidiary of the Company and were not created in anticipation
thereof;
(j) Liens upon real and/or tangible personal Property acquired after
the date hereof (by purchase, construction or otherwise) by the Company or
any of its Restricted Subsidiaries, each of which Liens either (A) existed
on such Property before the time of its acquisition and was not created in
anticipation thereof, or (B) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the
cost (including the cost of construction) of such Property; PROVIDED that
(x) no such Lien shall extend to or cover any Property of the Company or a
Restricted Subsidiary other than the Property so acquired and improvements
thereon; and (y) the principal amount of Indebtedness secured by any such
Lien shall at no time exceed 80% of the fair market value (as determined in
good faith by a senior financial officer of the Company) of such Property
at the time it was acquired (by purchase, construction or
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otherwise); PROVIDED that the obligations of the Company or any Restricted
Subsidiary of the Company in respect of Capital Lease Obligations under a
capital lease of Property other than Hydrocarbon Property entered into in
the ordinary course of business may be secured by a Lien on the Property
subject to such capital lease;
(k) Liens for farm-in, farm-out, joint operating, area of mutual
interest agreements or similar agreements entered into by the Company and
its Restricted Subsidiaries in the ordinary course of business which the
Company or such Restricted Subsidiary determines in good faith to be
necessary for or advantageous to the economic development of their
Properties; PROVIDED any farm-out agreements covering any Hydrocarbon
Property shall require the prior written consent of the Majority Banks;
(l) additional Liens upon real and/or personal Property created after
the date hereof, PROVIDED that the aggregate Indebtedness secured thereby
and incurred on and after the date hereof shall not exceed $2,500,000 in
the aggregate at any one time outstanding;
(m) Liens created pursuant to any Commodity Hedging Agreement or
Interest Rate Protection Agreement (i) with any Bank or any Affiliate of
such Bank, or (ii) with any other Person, PROVIDED that the aggregate
Indebtedness secured by all such Liens permitted by this clause (ii) shall
not exceed $5,000,000 in the aggregate at any one time outstanding and no
such Liens shall extend to any Hydrocarbon Properties;
(n) Liens securing obligations of a Restricted Subsidiary of the
Company to the Company or to any Restricted Subsidiary or any obligations
of the Company to a Restricted Subsidiary provided that such Liens are not
(i) on Mortgaged Properties existing on the date hereof or (ii) on
Hydrocarbon Properties acquired after the date hereof that are not subject
to any Lien prior to the Lien of the Mortgage; and
(o) any extension, renewal or replacement of the foregoing, PROVIDED
that the Liens permitted hereunder shall not be spread to cover any
additional Indebtedness or Property (other than a substitution of like
Property).
9.07 INDEBTEDNESS. (a) The Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:
(i) Indebtedness to the Agent and the Banks hereunder or to the
Canadian Agent and the Canadian Lenders under the Canadian Guarantee;
(ii) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule I hereto;
(iii) Subordinated Indebtedness; provided that the aggregate
principal amount of
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the Senior Subordinated Debt outstanding shall not exceed $11,000,000;
(iv) Indebtedness of Restricted Subsidiaries of the Company to the
Company or to other Restricted Subsidiaries of the Company;
(v) Indebtedness of the Company and its Subsidiaries secured by
Liens permitted by Section 9.06(k) hereof up to but not exceeding $500,000
at any one time outstanding;
(vi) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate amount up to but not exceeding $5,000,000 at
any one time outstanding;
(vii) the Canadian Forest Senior Subordinated Debt and the Guarantee
thereof as contemplated in the Canadian Forest Senior Subordinated Debt
Documents; and
(viii) Indebtedness ("REFINANCING INDEBTEDNESS") issued in exchange
for or the proceeds of which are used to repay, refund, refinance or
discharge or otherwise retire any Indebtedness ("REFINANCED INDEBTEDNESS")
specified in clause (ii) above, such Refinancing Indebtedness not to exceed
the principal amount of, accelerate the maturity of, or increase the
interest rate applicable to, the Refinanced Indebtedness outstanding on the
date of the issuance of the Refinancing Indebtedness; provided that the
Company and its Restricted Subsidiaries may not refinance any Production
Payment outstanding on the date hereof with any Production Payment of the
Company or any Restricted Subsidiary.
(b) The Company will not permit any of its Unrestricted Subsidiaries
to create, incur or suffer to exist any Indebtedness except Non-Recourse Debt.
9.08 INVESTMENTS. The Company will not, and will not permit any of
its Restricted Subsidiaries to, make or permit to remain outstanding any
Investments except:
(a) Investments outstanding on the date hereof and identified in
Schedule III Part B hereto (excluding Investments in Unrestricted
Subsidiaries);
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) Investments by the Company and its Restricted Subsidiaries in
capital stock of Restricted Subsidiaries to the extent outstanding on the
date of the financial statements of the Company and its Consolidated
Subsidiaries referred to in Section 8.02 hereof and advances by the Company
and its Restricted Subsidiaries to Restricted Subsidiaries of the Company
in the ordinary course of business or pursuant to Section 6.08 hereof;
(e) Investments in the Capital Stock of any Wholly-Owned Subsidiary
of the
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Company formed or acquired by the Company or any of its other Wholly-Owned
Subsidiaries (other than Unrestricted Subsidiaries, 3189503, Canadian
Forest Oil and Funding Co.) after the date hereof (a "NEW WHOLLY-OWNED
SUBSIDIARY"), provided that (i) such New Wholly-Owned Subsidiary is
maintained as a separate Subsidiary of the Company (unless the Majority
Banks consent to the merger of such New Wholly-Owned Subsidiary into the
Company or into another Wholly-Owned Subsidiary of the Company, except that
no such consent shall be required to merge such New Wholly-Owned Subsidiary
into another Wholly-Owned Subsidiary of the Company established solely for
the purpose of facilitating the acquisition of such New Wholly-Owned
Subsidiary (which Wholly-Owned Subsidiary, following such merger, shall
have no assets other than the assets of such New Wholly-Owned Subsidiary)),
(ii) such New Wholly-Owned Subsidiary is engaged principally in the
business of the acquisition and exploitation of, exploration for and/or
development, production, processing, marketing, gathering and sales of oil,
gas or other hydrocarbons, (iii) immediately following the consummation of
each such Investment, such New Wholly-Owned Subsidiary shall have no
Indebtedness other than Non-Recourse Debt (provided such Indebtedness may
have full recourse to the assets of such Wholly-Owned Subsidiary or any
Unrestricted Subsidiary) and, if applicable, Indebtedness hereunder and
(iv) the Company complies with Section 9.16 hereof with respect to such New
Wholly-Owned Subsidiary immediately following the consummation of such
Investment by the Company;
(f) Commodity Hedging Agreements and Interest Rate Protection
Agreements entered into by the Company and its Restricted Subsidiaries in
the ordinary course of business substantially as conducted on the date
hereof and not for speculation purposes;
(g) additional Investments up to but not exceeding $30,000,000 (or
the equivalent) in the aggregate PLUS the net cash proceeds of any Equity
Issuance which is applied simultaneously or substantially simultaneously
for an Investment, including, without limitation, Investments in
Unrestricted Subsidiaries; PROVIDED that any cash dividends received by the
Company or any Restricted Subsidiary from an Unrestricted Subsidiary, up to
the amount of the Investments in such Unrestricted Subsidiary, shall reduce
PRO TANTO the aggregate amount of the Investments in such Unrestricted
Subsidiary for purposes of calculating compliance with such $30,000,000
limitation;
(h) undivided fractional interests in hydrocarbon reserves; and
(i) investments in shares of common stock of Saxon, subject to
Section 9.05 hereof.
9.09 DIVIDEND PAYMENTS. The Company will not, nor will it permit any
of its Restricted Subsidiaries to, declare or make any Dividend Payment at any
time; PROVIDED that (i) any Wholly-Owned Subsidiaries of the Company may declare
and make Dividend Payments to the Company and (ii) the Company or any Restricted
Subsidiary may declare and make Dividend
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Payments in cash, subject to the satisfaction of each of the following
conditions on the date of such Dividend Payment and after giving effect
thereto:
(i) no Default shall have occurred and be continuing or shall occur
as a result of the making of such Dividend Payment; and
(ii) immediately after giving effect to such Dividend Payment, the
aggregate amount of Dividend Payments made during the period commencing on
the date hereof through and including the date of such Dividend Payment
shall not exceed an amount equal to the sum of (A) 50% of consolidated net
income of the Company and its Consolidated Subsidiaries for the period
commencing on January 1, 1997 through and including the last day of the
fiscal quarter most recently ended prior to the date of such Dividend
Payment (the "TRACKING PERIOD") (treated for these purposes as a single
accounting period), or 100% of consolidated net losses of the Company and
its Consolidated Subsidiaries for the Tracking Period (treated for these
purposes as a single accounting period), PLUS 50% of the net cash proceeds
received by the Company during the Tracking Period from any Person other
than a Subsidiary of the Company as a result of the issuance or sale of
Capital Stock (other than Disqualified Capital Stock) of the Company
(reduced by 100% of the amount of such net cash proceeds used or intended
to be used to prepay, redeem or retire any Subordinated Indebtedness
pursuant to Section 9.17 hereof); PROVIDED that no more than 10% of such
net cash proceeds may be used to make any Dividend Payment during any
fiscal year of the Company and (B) $10,000,000; provided that in no event
will the amount determined pursuant to clause (A) hereof be less than zero.
For the purpose of this paragraph 9.09(ii), consolidated net income or loss
of the Company and its Consolidated Subsidiaries shall exclude the
following non-cash items (provided that the same shall be included when
they become cash items): (i) any impairment of Properties for accounting
purposes under a ceiling test adjustment, (ii) any extraordinary item or
(iii) any gain or loss attributable to a change in accounting method which,
at the time of recognition in the financial statements of the Company and
its Restricted Subsidiaries is not a cash item. To the extent future cash
payments are made or received with respect to a change in accounting method
and such payment is not otherwise included in the computation of
consolidated net income or loss for such period, consolidated net income or
loss shall be reduced or increased by the amount of such cash payment or
receipt.
9.10 INTEREST COVERAGE RATIO. The Company will not permit the
Interest Coverage Ratio for any period of four consecutive fiscal quarters
(treated for this purpose as a single accounting period) to be less than 2.0:1.0
as of the end of any fiscal quarter of the Company.
9.11 WORKING CAPITAL. The Company will not permit the current assets
of the Company and its Restricted Subsidiaries (determined on a consolidated
basis in accordance with GAAP) to be equal to or less than the current
liabilities of the Company and its Restricted
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Subsidiaries (so determined). For purposes hereof, the terms "CURRENT
ASSETS" and "CURRENT LIABILITIES" shall have the respective meanings assigned
to them by GAAP, PROVIDED that in any event there shall be (i) included in
current assets the aggregate amount of the unused Combined Commitments (but
only to the extent such unused Combined Commitments could then be utilized as
provided in Section 7.02 hereof and Section 6.02 of the Funding Credit
Agreement), (ii) excluded from current liabilities all Indebtedness hereunder
PLUS all Indebtedness under, and as defined in, the Funding Credit Agreement
PLUS, without duplication, all Indebtedness under, and as defined in, the
Canadian Forest Oil Credit Agreement, (iii) excluded from current liabilities
all Production Payments and (iv) excluded from current liabilities the
current portion of any gas balancing liabilities hereunder and under the
Funding Credit Agreement.
9.12 LINES OF BUSINESS. The Company will not, and will not permit
any of its Restricted Subsidiaries to, engage to any substantial extent in any
line or lines of business activity other than the business of the acquisition,
exploration, development, production, processing, marketing, gathering and sale
of hydrocarbons.
9.13 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by
this Agreement, the Company will not, and will not permit any Restricted
Subsidiaries to, directly or indirectly: (a) make any Investment in an
Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, guarantees and assumptions of obligations of an Affiliate);
PROVIDED that (x) any Affiliate who is an individual may serve as a director,
officer or employee of any of the Company and its Subsidiaries and receive
reasonable compensation for his or her services in such capacity and (y) any of
the Company and its Restricted Subsidiaries may enter into transactions with
Affiliates (other than extensions of credit to Affiliates) providing for the
leasing of Property, the rendering or receipt of services or the purchase or
sale of inventory and other Property in the ordinary course of business if the
monetary or business consideration arising therefrom would be substantially as
advantageous to the Company and its Restricted Subsidiaries as the monetary or
business consideration which would obtain in a comparable transaction with a
Person not an Affiliate.
9.14 USE OF PROCEEDS. The Company will use the proceeds of the Loans
hereunder and will use Letters of Credit issued hereunder solely for general
corporate purposes and for the Acquisition (in each case, in compliance with all
applicable legal and regulatory requirements); PROVIDED that neither the Agent
nor any Bank shall have any responsibility as to the use of any of such
proceeds.
9.15 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES. The Company will,
and will cause each of its Restricted Subsidiaries to, take such action from
time to time as shall be necessary to ensure that the Company and each of its
Restricted Subsidiaries at all times own (subject only to the Lien of the Pledge
Agreement) at least the same percentage of the issued and outstanding shares of
each class of stock of each of such Restricted Subsidiaries the stock of
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which is subject to the Lien of the Pledge Agreement as is owned on the date
hereof or, in the case of New Wholly-Owned Subsidiaries created or acquired
after the date hereof (other than Funding Co., 3189503, Canadian Forest Oil,
and any Wholly-Owned Subsidiaries of such Persons), the stock of which are
required to be subject to the Lien of the Pledge Agreement, 100% of each
class of stock of each of such Subsidiaries (each of the Subsidiaries
referred to above being herein called, a "PLEDGED SUBSIDIARY"). Without
limiting the generality of the foregoing, none of the Company and its
Restricted Subsidiaries will sell, transfer or otherwise dispose of any
shares of stock in any Pledged Subsidiary owned by it, nor permit any Pledged
Subsidiary to issue any shares of stock of any class whatsoever to any Person
(other than to the Company or another Obligor). In the event that any such
additional shares of stock are issued by any Pledged Subsidiary, the
respective Obligor agrees forthwith to deliver to the Agent pursuant to the
Pledge Agreement the certificates evidencing such shares of stock,
accompanied by undated stock powers executed in blank and shall take such
other action as the Agent shall request to perfect the security interest
created therein pursuant to the Pledge Agreement. The Company will not and
will not permit any of its Restricted Subsidiaries to enter into any
indenture, agreement, instrument or other arrangement (other than the
Indenture included in the Senior Subordinated Debt Documents as initially in
effect, the Indenture included in the Canadian Forest Senior Subordinated
Debt Documents and the Guarantee granted by Forest in relation thereto each
as initially in effect, the Funding Credit Agreement as initially in effect
and the other Loan Documents (as defined therein) and the Canadian Forest Oil
Credit Agreement as initially in effect and the other Loan Documents (as
defined therein)) that, directly or indirectly, prohibits or restrains, or
has the effect of prohibiting or restraining, or imposes materially adverse
conditions upon, the incurrence or payment of Indebtedness of the Company and
its Restricted Subsidiaries, the granting of Liens, the declaration or
payment of dividends, the making of loans, advances or Investments or the
sale, assignment, transfer or other disposition of Property.
9.16 ADDITIONAL SUBSIDIARY GUARANTORS. The Company will take such
action, and will cause each of its Subsidiaries to take such action, including
without limitation the action specified below in this Section 9.16 from time to
time as shall be necessary to ensure that (i) each of such Subsidiaries (other
than (i) Unrestricted Subsidiaries, (ii) Forest I Development Company, (iii)
Funding Co., (iv) 3189503, (v) Canadian Forest Oil, and (vi) any Wholly-Owned
Subsidiaries of the Persons set forth in clauses (iii) through (v)) with
Tangible Net Worth of more than 5% of the Tangible Net Worth of the Company and
its Consolidated Subsidiaries determined on a consolidated basis in accordance
with GAAP is a Subsidiary Guarantor hereunder and (ii) all Subsidiaries that
Guarantee the Company's obligations in respect of the Senior Subordinated
Indebtedness, other than Funding Co., are Subsidiary Guarantors and in each
case, thereby, "OBLIGORS" hereunder. Each Subsidiary of the Company that is
required to become a Subsidiary Guarantor after the date hereof shall execute
such instruments and agreements, in form and substance satisfactory to, and as
required by, the Agent to acknowledge that such Subsidiary has all of the
obligations of a Subsidiary Guarantor pursuant to this Agreement.
9.17 MODIFICATIONS AND PAYMENTS OF SUBORDINATED INDEBTEDNESS AND
PRODUCTION
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PAYMENTS INDEBTEDNESS. The Company will not, and will not permit any of its
Restricted Subsidiaries to, (a) agree to any amendment, supplement or other
modification of any of the Senior Subordinated Debt Documents or any other
documents providing for or evidencing any Subordinated Indebtedness or
Production Payments, or (b) pay, prepay, redeem, retire, purchase or
otherwise acquire for value, or defease, any Subordinated Indebtedness or
Production Payments except for (subject to the subordination provisions, if
applicable, relating thereto) regularly scheduled payments of principal
thereof and interest thereon or regularly scheduled redemptions thereof on
the respective dates on which such payments or redemptions are required to be
made; PROVIDED that the Company may (if no Default has occurred and is
continuing or will result therefrom): (i) apply the net cash proceeds
received by the Company from any Person other than a Subsidiary of the
Company as a result of an Equity Issuance to prepay, redeem or retire any
Subordinated Indebtedness or Production Payments; (ii) refinance the Canadian
Forest Senior Subordinated Debt provided that (v) the principal amount of the
Indebtedness issued in exchange for or the proceeds of which are used to
repay, refund, refinance or discharge or otherwise retire such Canadian
Forest Senior Subordinated Debt does exceed the principal amount of such
Canadian Forest Senior Subordinated Debt being refinanced; (w) the
subordination for such Indebtedness remains unchanged; (x) the interest rate
applicable to such Indebtedness is not increased; (y) the final maturity of
such Indebtedness is not accelerated; and (z) the covenants and other
provisions thereof are not modified in any respect determined by the Majority
Banks to be materially adverse to the Company, any such Restricted Subsidiary
or the Banks; (iii) apply amounts that would be available for the Dividend
Payments pursuant to Section 9.09 hereof for the prepayment, redemption or
retirement of Subordinated Indebtedness or Production Payments and (iv)
redeem any outstanding Senior Subordinated Debt provided such redemption does
not exceed $11,000,000 in the aggregate.
9.18 UNRESTRICTED SUBSIDIARIES. The Company:
(a) will cause the management, business and affairs of each of the
Company and its Subsidiaries to be conducted in such a manner (including,
without limitation, by keeping separate books of account, furnishing separate
financial statements of Unrestricted Subsidiaries to creditors and potential
creditors thereof and by not permitting Properties of the Company and its
respective Subsidiaries to be commingled) so that each Unrestricted Subsidiary
that is a corporation will be treated as a corporate entity separate and
distinct from the Company and the Restricted Subsidiaries;
(b) will not, and will not permit any of the Restricted Subsidiaries
to, incur, assume, Guarantee or be or become liable for any Indebtedness or
other obligations of any of the Unrestricted Subsidiaries; and
(c) will not permit any Unrestricted Subsidiary to hold any capital
stock of or other ownership interest in, or any Indebtedness of, any Restricted
Subsidiary.
9.19 TITLE OPINIONS. Not later than 60 days after the date hereof,
the Company
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shall deliver to the Agent title opinions or other evidence, in each case in
form and substance reasonably satisfactory to the Agent, of its ownership of
the Properties that are the subject of the Acquisition.
Section 10. EVENTS OF DEFAULT. If one or more of the following
events (herein called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Company shall default in the payment when due (whether at
stated maturity or upon mandatory or optional prepayment) of any principal
of or interest on any Loan or any Reimbursement Obligation, any fee or any
other amount payable by it hereunder or under any other Basic Document; or
(b) The Company or any of its Restricted Subsidiaries shall default
in the payment when due of any principal of or interest on any of its other
Indebtedness aggregating $500,000 or more, or in the payment when due of
$100,000 or more under any Interest Rate Protection Agreement or Commodity
Hedging Agreement; or any event specified in any note, agreement, indenture
or other document evidencing or relating to any such Indebtedness or any
event specified in any Interest Rate Protection Agreement or Commodity
Hedging Agreement shall occur if the effect of such event is to cause, or
(with the giving of any notice or the lapse of time or both) to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause, such Indebtedness to become due, or to be
prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to its stated maturity or to have the interest rate
thereon reset to a level so that securities evidencing such Indebtedness
trade at a level specified in relation to the par value thereof or, in the
case of an Interest Rate Protection Agreement or Commodity Hedging
Agreement, to permit the payments owing under such Interest Rate Protection
Agreement or Commodity Hedging Agreement to be liquidated;
(c) Any representation, warranty or certification made or deemed made
herein or in any other Basic Document (or in any modification or supplement
hereto or thereto) by any Obligor, or any certificate furnished to any Bank
or the Agent pursuant to the provisions hereof or thereof, shall prove to
have been false or misleading as of the time made or furnished in any
material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 9.01(g), 9.05, 9.06, 9.07, 9.08, 9.09,
9.10, 9.11, 9.12, 9.14, 9.15 or 9.17 hereof or any Obligor shall default in
the performance of any of its obligations under Section 4.02 or 5.02 of the
Security Agreement; or any Obligor shall default in the performance of any
of its other obligations in this Agreement or any other Basic Document and
such default shall continue unremedied for a period of 30 days after notice
thereof to the Company by the Agent or any Bank (through the Agent); or
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(e) The Company or any of its Restricted Subsidiaries shall admit in
writing its inability to, or be generally unable to, pay its debts as such
debts become due; or
(f) The Company or any of its Restricted Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all or
a substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
case under the Bankruptcy Code or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Company or any of its Restricted Subsidiaries, in any
court of competent jurisdiction, seeking (i) its reorganization,
liquidation, dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver, custodian,
trustee, examiner, liquidator or the like of the Company or such Restricted
Subsidiary or of all or any substantial part of its Property, or
(iii) similar relief in respect of the Company or such Restricted
Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 or more days; or an
order for relief against the Company or such Restricted Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in excess
of $1,000,000 in the aggregate (exclusive of judgment amounts fully covered
by insurance where the insurer(s) has or have admitted liability in respect
of the full amount of such judgment(s) in excess of $1,000,000 and in
respect of which the Majority Banks believe such insurer(s) has or have the
financial ability to satisfy the full amount of such judgment(s)) shall be
rendered by a one or more courts, administrative tribunals or other bodies
having jurisdiction against the Company or any of its Restricted
Subsidiaries and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company or
the relevant Restricted Subsidiary shall not, within said period of 60
days, or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An event or condition specified in Section 9.01(e) hereof shall
occur or exist
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with respect to any Plan or Multiemployer Plan and, as a result of such
event or condition, together with all other such events or conditions,
the Company or any ERISA Affiliate shall incur or in the opinion of the
Majority Banks shall be reasonably likely to incur a liability to a Plan,
a Multiemployer Plan or PBGC (or any combination of the foregoing) which
would constitute, in the determination of the Majority Banks, a Material
Adverse Effect; or
(j) Any Governmental Authority shall assert claims against the
Company or any of its Subsidiaries, or any other Person shall commence any
proceeding against the Company or any of its Subsidiaries before any court,
administrative tribunal or other body having jurisdiction over the Company
or any of its Subsidiaries, in either such case based on or arising from
the generation, storage, transport, handling or disposal of Hazardous
Materials by the Company or any of its Subsidiaries or Affiliates, or any
predecessor in interest of the Company or any of its Subsidiaries or
Affiliates, or relating to any site or facility owned, operated or leased
by the Company or any of its Subsidiaries or Affiliates, which claims or
liabilities (insofar as they are payable by the Company or any of its
Subsidiaries but after deducting any portion thereof which is reasonably
expected to be paid by other creditworthy Persons jointly and severally
liable therefor), and the amount thereof is, singly or in the aggregate,
reasonably anticipated to have a Material Adverse Effect and such claim is
not withdrawn or such proceeding is not withdrawn or dismissed, as the case
may be, within 45 days after the assertion or commencement thereof, as
applicable; or
(k) Any Event of Default shall occur under the Funding Credit
Agreement; or
(l) A Change of Control; or
(m) Except for expiration in accordance with its terms, any of the
Security Documents shall be terminated or shall cease to be in full force
and effect, for whatever reason.
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10 with respect to any Obligor, the Agent may
and, upon request of the Majority Banks, shall, by notice to the Company,
terminate the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans, the Reimbursement Obligations and
all other amounts payable by the Obligors hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 or 5.06
hereof) to be forthwith due and payable, whereupon such amounts shall be
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor; and (2) in the case of the occurrence of an Event of Default referred
to in clause (f) or (g) of this Section 10 with respect to any Obligor, the
Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans, the Reimbursement
Obligations and all other amounts payable by the
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Obligors hereunder and under the Notes (including, without limitation, any
amounts payable under Section 5.05 or 5.06 hereof) shall automatically become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor.
In addition, upon the occurrence and during the continuance of any
Event of Default (if the Agent has declared the principal amount then
outstanding of, and accrued interest on, the Loans and all other amounts payable
by the Company hereunder and under the Notes to be due and payable), the Company
agrees that it shall, if requested by the Agent or the Majority Banks through
the Agent (and, in the case of any Event of Default referred to in clause (f)
or (g) of this Section 10 with respect to the Company, forthwith, without any
demand or the taking of any other action by the Agent or such Banks) provide
cover for the Letter of Credit Liabilities by paying to the Agent immediately
available funds in an amount equal to the then aggregate undrawn face amount of
all Letters of Credit, which funds shall be held by the Agent in the Collateral
Account as collateral security in the first instance for the Letter of Credit
Liabilities and be subject to withdrawal only as therein provided.
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Section 11. THE AGENT.
11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Basic Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and of the other Basic Documents,
together with such other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 11.05 and the first sentence
of Section 11.06 hereof shall include reference to its affiliates and its own
and its affiliates' officers, directors, employees and agents): (a) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and in the other Basic Documents, and shall not by reason of this Agreement or
any other Basic Document be a trustee for any Bank; (b) shall not be responsible
to the Banks for any recitals, statements, representations or warranties
contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any
collateral security provided for by any of the Security Documents, or of this
Agreement, any Note or any other Basic Document or any other document referred
to or provided for herein or therein, or for any failure by the Company or any
other Person to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or under
any other Basic Document or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
The Agent may deem and treat the payee of any Note as the holder thereof for all
purposes hereof unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent, together with the consent of the Company
to such assignment or transfer (to the extent provided in Section 12.06(b)
hereof).
11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon
any certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks, and such instructions of the Majority Banks and any
action taken or failure to act pursuant thereto shall be binding on all of the
Banks.
11.03 DEFAULTS. The Agent shall not be deemed to have knowledge or
notice of
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the occurrence of a Default (other than the non-payment of principal of or
interest on Loans, Reimbursement Obligations or of commitment fees) unless
the Agent has received notice from a Bank or the Company specifying such
Default and stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice of the occurrence of a Default, the
Agent shall give prompt notice thereof to the Banks (and shall give each Bank
prompt notice of each such non-payment). The Agent shall (subject to Section
11.07 hereof) take such action with respect to such Default as shall be
directed by the Majority Banks, PROVIDED that, unless and until the Agent
shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best interest of
the Banks except to the extent that this Agreement expressly requires that
such action be taken, or not be taken, only with the consent or upon the
authorization of the Majority Banks or all of the Banks.
11.04 RIGHTS AS A BANK. With respect to its Commitment and the Loans
made by it, Chase (and any successor acting as Agent) in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. Chase (and any successor acting as Agent) and
its affiliates may (without having to account therefor to any Bank) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Agent, and Chase and
its affiliates may accept fees and other consideration from the Obligors for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks.
11.05 INDEMNIFICATION. The Banks agree to indemnify the Agent (to
the extent not reimbursed under Sections 12.03 and 12.07 hereof, but without
limiting the obligations of the Company under said Sections 12.03 and 12.07, and
including in any event any payments under any indemnity that the Agent is
required to issue to any bank referred to in Section 4.02 of the Security
Agreement to which remittances in respect of Accounts, as defined therein, are
to be made) ratably in accordance with the aggregate principal amount of the
Loans and Reimbursement Obligations held by the Banks (or, if no Loans or
Reimbursement Obligations are at the time outstanding, ratably in accordance
with their respective Commitments or, if no Loans, Reimbursement Obligations or
Commitments are at the time outstanding or in effect, ratably in accordance with
their respective Commitments as most recently in effect), for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Agent (including by any Bank)
arising out of or by reason of any investigation in or in any way relating to or
arising out of this Agreement or any other Basic Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses that the Company is obligated to pay under Sections 12.03 and 12.07
hereof, and including also any payments under any indemnity that the Agent is
required to issue to any bank
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referred to in Section 4.02 of the Security Agreement to which remittances in
respect of Accounts, as defined therein, are to be made, but excluding,
unless a Default has occurred and is continuing, normal administrative costs
and expenses incident to the performance of its agency duties hereunder) or
the enforcement of any of the terms hereof or thereof or of any such other
documents, PROVIDED that no Bank shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
11.06 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that
it has, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Company and its Subsidiaries and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement. The Agent shall
not be required to keep itself informed as to the performance or observance by
any Obligor of this Agreement or any of the other Basic Documents or any other
document referred to or provided for herein or therein or to inspect the
Properties or books of the Company or any of its Subsidiaries. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Company or any of
its Subsidiaries (or any of their Affiliates) that may come into the possession
of the Agent or any of its affiliates.
11.07 FAILURE TO ACT. Except for action expressly required of the
Agent hereunder and under the other Basic Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Banks of
their indemnification obligations under Section 11.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Banks and the Company, and the Agent
may be removed at any time with or without cause by the Majority Banks. Upon
any such resignation or removal, the Majority Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Majority Banks and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, that shall be a bank which has an office
in New York, New York with a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or
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removal hereunder as Agent, the provisions of this Section 11 shall continue
in effect for its benefit in respect of any actions taken or omitted to be
taken by it while it was acting as the Agent.
11.09 CONSENTS UNDER OTHER BASIC DOCUMENTS. The Agent may, with the
prior consent of the Majority Banks (but not otherwise), consent to any
modification, supplement or waiver under any of the Basic Documents other than
this Agreement, PROVIDED that, without the prior consent of each Bank, the Agent
shall not (except as provided herein or in the Security Documents) release any
collateral or otherwise terminate any Lien under any Basic Document providing
for collateral security, or agree to additional obligations being secured by
such collateral security (unless the Lien for such additional obligations shall
be junior to the Lien in favor of the other obligations secured by such Basic
Document), except that no such consent shall be required, and the Agent is
hereby authorized, to release any Lien covering Property which is the subject of
a disposition of Property permitted hereunder.
Notwithstanding any provision of this Agreement to the contrary, the
Agent shall, in connection with any disposition by an Obligor of any Properties,
other than Mortgaged Properties, to the extent such Properties are disposed of
in accordance with the limitations set forth in Section 9.05(iii) hereof,
release such Properties from the Lien of each of the Security Documents, without
the consent of any Bank, upon the receipt by the Agent of a certificate from the
Obligor seeking such release which certificate shall state (i) that no Default
or Event of Default has occurred and is continuing and (ii) that the disposition
of such Property in the manner contemplated by such Obligor is permitted
pursuant to the terms of this Agreement provided that such release shall not
extend to (A) any equipment located on, proceeds from sale of, or production of
hydrocarbons from, such Hydrocarbon Properties that are retained by the Company
after any farmout or similar agreement and (B) any Inventory or Equipment (as
defined in the Security Agreement) that is the subject of such farmout or
similar agreement (the "FARMOUT INTEREST") and that is or may be utilized for
the exploration, production or marketing of Hydrocarbons attributable to (x) the
Farmout Interest and (y) other properties of the Company that are (i) Mortgaged
Properties or (ii) described in the Security Documents and intended to be
Mortgaged Properties.
11.10 COLLATERAL SUB-AGENTS. Each Bank by its execution and delivery
of this Agreement agrees, as contemplated by Section 4.03 of the Security
Agreement, that, in the event it shall hold any Permitted Investments referred
to therein, such Permitted Investments shall be held in the name and under the
control of such Bank, and such Bank shall hold such Permitted Investments as a
collateral sub-agent for the Agent thereunder. The Company by its execution and
delivery of this Agreement hereby consents to the foregoing.
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11.11 CO-AGENTS. If at any time the Banks shall appoint more than
one agent under this Agreement or the other Basic Documents all references to
"Agent" in this Section 11 shall be deemed to be a reference to "any Agent".
Section 12. MISCELLANEOUS.
12.01 WAIVER. No failure on the part of the Agent or any Bank to
exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or privilege under this Agreement or any Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any Note preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
12.02 NOTICES. All notices, requests and other communications
provided for herein and under the Security Documents (including, without
limitation, any modifications of, or waivers or consents under, this
Agreement) shall be given or made by telecopy or other writing and
telecopied, mailed or delivered to the intended recipient:
(a) in the case of the Company or any Subsidiary Guarantor, at the
"Address for Notices" specified below the name of the Company on the
signature pages hereof;
(b) in the case of the Agent, at the "Address for Notices" specified
below its name on the signature pages hereof; and
(c) in the case of any Bank, at its address (or telecopy number) set
forth in its Administrative Questionnaire;
or, as to any party, at such other address as shall be designated by such
party in a notice to the Company and the Agent given in accordance with this
Section 12.02. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier (and receipt is electronically confirmed), personally delivered
or, in the case of a mailed notice, upon receipt, in each case given or
addressed as aforesaid.
12.03 EXPENSES. The Company hereby agrees to pay or reimburse
each of the Banks and the Agent for paying: (a) all reasonable out-of-pocket
costs and expenses of the Agent (including, without limitation, the
reasonable fees and expenses of (i) Milbank, Tweed, Hadley & McCloy, special
New York counsel to Chase and (ii) each of the special counsel to the Banks
set forth in Section 7.01(j) hereof), in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement and the other Basic
Documents and the extensions of credit hereunder and (ii) any modification,
supplement or waiver of any of the terms of this Agreement or any of the
other Basic Documents; (b) all reasonable out-of-pocket costs and expenses of
the Banks and the Agent (including, without limitation, reasonable counsels'
fees) in connection with (i) any
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Default and any enforcement or collection proceedings resulting therefrom or
in connection with the negotiation of any restructuring or "work-out"
(whether or not consummated), or the obligations of the Company hereunder and
(ii) the enforcement of this Section 12.03 or Section 12.07; and (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement
or any of the other Basic Documents or any other document referred to herein
or therein and all costs, expenses, taxes, assessments and other charges
incurred in connection with any filing, registration, recording or perfection
of any security interest contemplated by any Basic Document or any other
document referred to therein.
12.04 AMENDMENTS, ETC. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Obligors, the
Agent and the Majority Banks, or by the Obligors and the Agent acting with
the consent of the Majority Banks, and any provision of this Agreement may be
waived by the Majority Banks or by the Agent acting with the consent of the
Majority Banks; PROVIDED that: no modification, supplement or waiver shall,
unless by an instrument signed by all of the Banks or by the Agent acting
with the consent of all of the Banks whose rights or interests are affected
thereby: (i) increase, or extend the term of any of the Commitments, or
extend the time or waive any requirement for the reduction or termination of
any of the Commitments, (ii) extend the date fixed for the payment of
principal of or interest on the Loans, the Reimbursement Obligations or any
fee hereunder, (iii) reduce the amount of any such payment of principal, (iv)
reduce the rate at which interest is payable thereon or any fee is payable
hereunder, (v) alter the rights or obligations of the Company to prepay
Loans, (vi) alter the terms of this Section 12.04 or (vii) modify the
definition of the term "Majority Banks" or Combined Supermajority Lenders or
modify in any other manner the number or percentage of the Banks required to
make any determinations or waive any rights hereunder or to modify any
provision hereof, any modification or supplement of this Agreement that
increases any of the obligations or reduces or impairs any of the rights of,
or otherwise adversely affects the interests of, the Agent or the Issuing
Bank under this Agreement or any of the other Basic Documents shall require
the consent of the Agent or the Issuing Bank (as the case may be).
Anything in this Agreement to the contrary notwithstanding, if:
(x) at a time when the conditions precedent set forth in Section 7
hereof to any Loans or other extension of credit hereunder are, in the
opinion of the Majority Banks satisfied, any Bank shall fail to fulfill its
obligations to make the Loan to be made by it; or
(y) any Bank shall fail to pay to the Agent for the account of the
Issuing Bank the amount of such Bank's Commitment Percentage of the
Commitments of any payment under a Letter of Credit pursuant to Section
2.04(e) hereof;
then, for so long as such failure shall continue, such Bank shall (unless the
Majority Banks, determined as if such Bank were not a "Bank" hereunder, shall
otherwise consent in writing) be
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deemed for all purposes relating to amendments, modifications, waivers or
consents under this Agreement or any of the other Basic Documents (including,
without limitation, under this Section 12.04 and under Section 11.09 hereof)
to have no Loans, Letter of Credit Liabilities or Commitments, shall not be
treated as a "Bank" hereunder when performing the computation of Majority
Banks and shall have no rights under the preceding paragraph of this Section
12.04 or under Section 11.09 hereof; provided that any action taken by the
other Banks with respect to the matters referred to in the preceding
paragraph shall not be effective as against such Bank.
12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) No Obligor may assign any of its rights or obligations
hereunder or under the Notes without the prior consent of the Majority Banks
and the Agent.
(b) Each Bank may assign any of its Loans, its Note, its
Commitment, and its Letter of Credit Interest (but only with the consent of,
in the case of an outstanding Commitment, the Company and the Agent and, in
the case of a Commitment or a Letter of Credit Interest, the Issuing Bank
(which consent, in the case of the Company will not be unreasonably
withheld)); PROVIDED that (i) no such consent by the Company or the Agent or
the Issuing Bank, if applicable, shall be required in the case of any
assignment to another Bank; (ii) any such partial assignment shall be in an
amount at least equal to $3,000,000; and (iii) each such assignment by a Bank
of any of its Loans, Notes, Commitments or Letter of Credit Interests shall
be made in such manner so that the same portion of its Loans, Notes,
Commitments and Letter of Credit Interests is assigned to the respective
assignee. Upon execution and delivery by the assignee to Company, the Agent
and the Issuing Bank of an instrument in writing pursuant to which such
assignee agrees to become a "Bank" hereunder (if not already a Bank) having
the Commitments, Loans, and, if applicable, Letter of Credit Interests
specified in such instrument, and upon the consent thereto by the Agent and
the Issuing Bank, to the extent required above, the assignee shall have, to
the extent of such assignment (unless otherwise provided in such assignment
with the consent of the Agent and the Issuing Bank), the obligations, rights
and benefits of a Bank hereunder holding the Commitments, Loans and, if
applicable, Letter of Credit Interests (or portions thereof) assigned to it
(in addition to the Commitments, Loans and Letter of Credit Interests, if
any, theretofore held by such assignee) and the assigning Bank shall, to the
extent of such assignment, be released from the Commitments (or portion
thereof) so assigned. Upon each such assignment the assigning Bank shall pay
the Agent an assignment fee of $5,000.
(c) Each Bank may sell or agree to sell to one or more other
Persons a participation in not more than 75% of its rights and obligations
under this Agreement (including, without limitation, not more than 75% of its
Commitment and the Loans and/or Letter of Credit Interest held by it), in
which event each purchaser of a participation (a "PARTICIPANT") shall be
entitled to the rights and benefits of the provisions of Section 9.01(g)
hereof with respect to its
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participation in such Loans, Letter of Credit Interests and Commitments as if
(and the Company shall be directly obligated to such Participant under such
provisions as if) such Participant were a "Bank" for purposes of said
Section, but, except as otherwise provided in Section 4.07(c) hereof, shall
not have any other rights or benefits under this Agreement or any Note or any
other Basic Document (the Participant's rights against such Bank in respect
of such participation to be those set forth in the agreements executed by
such Bank in favor of the Participant). All amounts payable by the Company
to any Bank under Section 5 hereof in respect of Loans, Letter of Credit
Interests held by it, and its Commitment, shall be determined as if such Bank
had not sold or agreed to sell any participations in such Loans, Letter of
Credit Interest and Commitment, and as if such Bank were funding each of such
Loans, Letter of Credit Interests and Commitment in the same way that it is
funding the portion of such Loans, Letter of Credit Interests and Commitment
in which no participations have been sold. In no event shall a Bank that
sells a participation agree with the Participant to take or refrain from
taking any action hereunder or under any other Basic Document except that
such Bank may agree with the Participant that it will not, without the
consent of the Participant, agree to any of the following (to the extent the
rights or interest of the Participant are adversely affected thereby): (i)
increase or extend the term, or extend the time or waive any requirement for
the reduction or termination, of such Bank's Commitment, (ii) extend the date
fixed for the payment of principal of or interest on the related Loan or
Loans, Reimbursement Obligations or any portion of any fee hereunder payable
to the Participant, (iii) reduce the amount of any such payment of principal,
(iv) reduce the rate at which interest is payable thereon, or any fee
hereunder payable to the Participant, to a level below the rate at which the
Participant is entitled to receive such interest or fee, (v) alter the rights
or obligations of the Company to prepay the related Loans or (vi) consent to
any other modification, supplement or waiver hereof or of any of the other
Basic Documents to the extent that the same, under Section 11.09 or 12.04
hereof, requires the consent of each Bank.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.06, including, without
limitation, Section 12.06(c) hereof, any Bank may assign and pledge all or
any portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning the Company or
any of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 12.13(b) hereof.
(f) Anything in this Section 12.06 to the contrary
notwithstanding, no Bank may assign or participate any interest in any Loan
or Reimbursement Obligation held by it hereunder to the Obligors or any of
their Affiliates or Subsidiaries without the prior written consent of each
Bank.
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12.07 INDEMNIFICATION. The Company hereby agrees (i) to indemnify
the Agent and each Bank and their respective directors, officers, employees,
attorneys and agents from, and hold each of them harmless against, any and
all losses, liabilities, claims, damages or expenses incurred by any of them
(including, without limitation, any and all losses, liabilities, claims,
damages or expenses incurred by the Agent to any Bank, whether or not the
Agent or any Bank is a party thereto) arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to the extensions
of credit hereunder or any actual or proposed use by the Company or any of
its Subsidiaries of the proceeds of any of the extensions of credit
hereunder, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation
or litigation or other proceedings (but excluding any such losses,
liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified) and (ii)
not to assert any claim against the Agent, any Bank, any of their affiliates,
or any of their respective directors, officers, employees, attorneys and
agents, on any theory of liability, for special, indirect, consequential or
punitive damages arising out of or otherwise relating to any of the
transactions contemplated herein or in any other Basic Document; PROVIDED
that the Company may enforce the obligations, if applicable, of the Banks
hereunder. Without limiting the generality of the foregoing, the Company
will (x) indemnify the Agent for any payments that the Agent is required to
make under any indemnity issued to any bank referred to in Section 4.02 of
the Security Agreement to which remittances in respect to Accounts, as
defined therein, are to be made and (y) indemnify the Agent and each Bank
from, and hold the Agent and each Bank harmless against, any losses,
liabilities, claims, damages or expenses described in the preceding sentence
(but excluding, as provided in the preceding sentence, any loss, liability,
claim, damage or expense incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified) arising under any
Environmental Law as a result of the past, present or future operations of
the Company or any of its Subsidiaries (or any predecessor in interest to the
Company or any of its Subsidiaries), or the past, present or future condition
of any site or facility owned, operated or leased by the Company or any of
its Subsidiaries (or any such predecessor in interest), or any Release or
threatened Release of any Hazardous Materials from any such site or facility,
including any such Release or threatened Release which shall occur during any
period when the Agent or any Bank shall be in possession of any such site or
facility following the exercise by the Agent or any Bank of any of its rights
and remedies hereunder or under any of the Security Documents.
12.08 SURVIVAL. The obligations of the Company under Sections
5.01, 5.05, 5.06, 5.07, 12.03 and 12.07 hereof, the obligations of the
Subsidiary Guarantors under Section 6.03 hereof and the obligations of the
Banks under Section 11.05 hereof shall survive the repayment of the Loans and
Reimbursement Obligations and the termination of the Commitments. In
addition, each representation and warranty made, or deemed to be made by a
notice of any extension of credit (whether by means of a Loan or a Letter of
Credit), herein or pursuant hereto shall survive the making of such
representation and warranty, and no Bank shall be deemed to have waived, by
reason of making any extension of credit hereunder (whether by means of a
Loan or a Letter of Credit), any Default which may arise by reason of such
representation or
<PAGE>
-92-
warranty proving to have been false or misleading, notwithstanding that such
Bank or the Agent may have had notice or knowledge or reason to believe that
such representation or warranty was false or misleading at the time such
extension of credit was made.
12.09 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference
and are not intended to affect the interpretation of any provision of this
Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
12.11 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and the Notes shall be governed by, and construed in accordance with, the law
of the State of New York. Each Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York state court sitting in New York City for the
purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each Obligor irrevocably
waives, to the fullest extent permitted by applicable law, any objection
which it may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
12.12 WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE AGENT AND
THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
12.13 TREATMENT OF CERTAIN INFORMATION.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or
affiliates of such Bank and the Company, subject to Section 12.13(b) hereof,
hereby authorizes each Bank to share any information delivered to such Bank
by the Company and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Bank to enter into this Agreement, to
any such subsidiary or affiliate.
(b) Each Bank and the Agent agrees (on behalf of itself and each
of its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with their
customary procedures for handling confidential information of the same nature
and in accordance with safe and sound banking practices, any non-public
information supplied by the Company or any of its Subsidiaries pursuant to
this
<PAGE>
-93-
Agreement which is identified by such Person as being confidential at the
time the same is delivered to such Bank or the Agent, PROVIDED that nothing
herein shall limit the disclosure of any such information (i) to the extent
required by statute, rule, regulation or judicial process, (ii) to counsel
for any of the Banks or the Agent, (iii) to bank examiners, auditors or
accountants, (iv) to the Agent or any other Bank, (v) in connection with any
litigation to which any one or more of the Banks or the Agent is a party,
(vi) to a subsidiary or affiliate of such Bank as provided in clause (a)
above (provided that neither the Agent nor any Bank shall disclose any
non-public information delivered by the Company or any of its Subsidiaries
pursuant to this Agreement to any subsidiary or affiliate of the Agent or any
such Bank, as the case may be, which is generally engaged in the securities
business other than in connection with (x) Commodity Hedging Agreements or
Interest Rate Protection Agreements permitted pursuant to Section 9.08(f)
hereof or (y) the syndication or participation of the Commitments, Loans or
Letter of Credit Interests under this Agreement, without the prior written
consent of the Company) or (vii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant
(or prospective assignee or participant) first executes and delivers to the
respective Bank a Confidentiality Agreement substantially in the form of
Exhibit G hereto.
12.14 INTERCREDITOR AGREEMENT. (a) Reference is hereby made to
the Intercreditor Agreement, which provides for certain matters relating to
this Agreement and the Funding Credit Agreement. To the extent of any
conflict between the terms of this Agreement and the terms of the
Intercreditor Agreement, the Intercreditor Agreement shall control. Each
Bank hereby authorizes the Agent to execute and deliver the Intercreditor
Agreement on its behalf and the execution and delivery by the Agent of the
Intercreditor Agreement on behalf of the Banks is hereby ratified and
confirmed by each of the Banks. Any Bank that becomes a party to this
Agreement after the date hereof agrees to be bound by the terms and
provisions of the Intercreditor Agreement.
(b) The Company acknowledges that certain financial institutions
including certain of the Banks are providing financing to Funding Co. (or, if
the Canadian Lenders are making loans directly to Canadian Forest Oil,
Canadian Forest Oil). Subject to Section 12.13 hereof, the Company consents
to the disclosure of information provided by the Company to the Banks to such
other financial institutions. The Company also acknowledges that the Banks
may enter into participation arrangements and payment sharing understandings
with such financial institutions and consents to such arrangements and
understandings. To the extent any such arrangements or undertakings give
rise to any liability for any withholding tax payments in connection with any
payments made by the Funding Co., (or, if the Canadian Lenders are making
loans directly to Canadian Forest Oil, Canadian Forest Oil) the Company or
any other Obligor under either this Agreement or the Funding Credit
Agreement, then (notwithstanding any provisions to the contrary set forth in
this Agreement or the Funding Credit Agreement), the Company shall indemnify
each of the applicable members of the Lender Group and shall hold each of the
applicable members of the Lender Group harmless from and against any such
liability; PROVIDED, HOWEVER, that each member of the Lender Group (if so
requested by the Company under this Agreement or Funding Co. (or, if the
Canadian Lenders are making loans
<PAGE>
-94-
directly to Canadian Forest Oil, Canadian Forest Oil) under the Funding
Credit Agreement) will use good faith efforts to accommodate any reasonable
request by the Company or Funding Co. in order to avoid the need for, or
reduce the amount of, such compensation so long as the request will not, in
the sole opinion of the applicable member of the Lender Group, be
disadvantageous to such member of the Lender Group.
12.15 ACKNOWLEDGEMENT OF PRIORITY OF INDEBTEDNESS. The Company
represents and warrants to the Banks and the Agent that the Indebtedness
hereunder and under the other Basic Documents is (a) "Senior Indebtedness of
the Company" and "Senior Indebtedness of a Subsidiary Guarantor", as
applicable, for the purposes of the Indenture dated as of September 8, 1993
between the Company and State Street Bank and Trust Company (as successor to
Shawmut Bank Connecticut, National Association), as supplemented and (b)
"Designated Senior Indebtedness" for the purposes of the Indenture dated as
of September 29, 1997 between Canadian Forest Oil and State Street Bank and
Trust Company, as trustee, as both shall, subject to Section 9.17 hereof, be
modified and supplemented and in effect from time to time.
<PAGE>
-95-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above written.
FOREST OIL CORPORATION
By /s/ Daniel G. Blanchard
-----------------------------------
Title:
Address for Notices:
1600 Broadway
Suite 2200
Denver, Colorado 80202
Attention: Daniel Blanchard
Telecopier No.: (303) 812-1510
Telephone No.: (303) 812-1623
<PAGE>
-96-
BANKS
Commitment: THE CHASE MANHATTAN BANK
$55,000,000
By /s/ Mary Jo Woodford
-----------------------------------
Title: Vice President
<PAGE>
-97-
Commitment: CHRSTIANIA BANK OG KREDITKASSE
$40,000,000
By /s/ Peter M. Dodge
-----------------------------------
Title: First Vice President
By /s/ William S. Phillips
-----------------------------------
Title: Vice President
<PAGE>
-98-
Commitment: SOCIETE GENERALE
SOUTHWEST AGENCY
$35,000,000
By /s/ Richard A. Erbert
-----------------------------------
Title: Vice President
<PAGE>
-99-
Commitment: HIBERNIA NATIONAL BANK
$30,000,000
By /s/ Colleen McEvoy
-----------------------------------
Title: Vice President
<PAGE>
-100-
Commitment: DEN NORSKE BANK ASA
$25,000,000
By /s/ Morten Sjornsen
-----------------------------------
Title: Senior Vice President
By /s/ J. Morten Kreutz
-----------------------------------
Title: Vice President
<PAGE>
-101-
Commitment: TORONTO DOMINION (TEXAS), INC.
$25,000,000
By /s/ Debbie A. Greene
-----------------------------------
Title: Vice President
<PAGE>
-102-
Commitment: ROYAL BANK OF CANADA
$20,000,000
By /s/ Tom J. Oberaigner
-----------------------------------
Title: Manager
<PAGE>
-103-
Commitment: BANQUE PARIBAS
$15,000,000
By /s/ Barton D. Schouest
-----------------------------------
Title: Managing Director
By /s/ Brian M. Malone
-----------------------------------
Title: Director
<PAGE>
-104-
Commitment: BANK OF MONTREAL
$15,000,000
By /s/ Melissa A. Bauman
----------------------------------------
Melissa A. Bauman
Title: Director of U.S. Corporate Banking
<PAGE>
-105-
Commitment: CREDIT LYONNAIS NEW YORK BRANCH
$15,000,000
By /s/ Pascal Poupelle
-----------------------------------
Pascal Poupelle
Title: Executive Vice President
<PAGE>
-106-
THE CHASE MANHATTAN BANK,
as Agent
By /s/ Mary Jo Woodford
-----------------------------------
Mary Jo Woodford
Title: Vice President
Address for Notices to
Chase as Agent:
The Chase Manhattan Bank
One Chase Manhattan Plaza,
Eighth Floor
New York, New York 10081
Attention: Agency Services, Sandra Miklave
Telecopier No.: (212) 552-5658
Telephone No.: (212) 552-7953
with a copy to:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Mary Jo Woodford/Renee Goldstein
Telecopier No.: (212) 270-3897
Telephone No.: (212) 270-8895
(212) 270-8413
<PAGE>
SCHEDULE I
MATERIAL AGREEMENTS AND LIENS
(Sections 8.12 and 9.07(b))
SCHEDULE I TO CREDIT AGREEMENT
<PAGE>
SCHEDULE II
HAZARDOUS MATERIALS
(Section 8.13)
SCHEDULE II TO CREDIT AGREEMENT
<PAGE>
SCHEDULE III
SUBSIDIARIES AND INVESTMENTS
(Sections 8.15 and 9.08(a))
SCHEDULE III TO CREDIT AGREEMENT
<PAGE>
FOREST OIL CORPORATION
BDS - LOADING LLOG BUDGETS
RFS #841
March 4, 1998
NEW SCREEN OPTIONS
Two new options have been added to the Yearly Budget Detail Menu. These
options will be used to replace some existing options to handle loading of
LLOG budgets as defined by accounting. These options are explained below, and
can be used in plce of existing options.
Option 61 - LLOG-Net Calcs & Shared Properties.
This option was initial added to replace budget options 5 (Apply
Overhead, Ins, & Alloc) & 6 (Net Calcs & Shared Properties). In the basic
Budget processing, these options perform the following functions:
- Option 5 - Apply Overhead, Ins, & Alloc
- COPY NON-ZERO RECORDS FROM THE BUDGET WORK FILE (BDWKPF) INTO THE
BUDGET ALLOCATION WORK FILE (BDWKPFB)
- Calculate Overhead and insurance (Based on well counts)
- Perform the Facility Allocations
- Option 6 - Net Calcs & Shared Properties
- CALCULATES AND POPULATES NET AMOUNTS, AND LOADS INFORMATION INTO
THE SHARED PROPERTIES.
The new option 61 now performs the above options which are italicized and
underlined. This options can be run in place of option 5 & 6, and is
totally rerunable.
NOTE: however, it now appears that this option will not be needed since
the decision to load overhead has been made.
<PAGE>
FOREST OIL CORPORATION
BDS - LOADING LLOG BUDGETS
RFS #841
March 4, 1998
Option 61 - LLOG-Copy O/H & Create Well Cnts.
This option was added to replace budget options 4 (Copy Production Files
to Budget). In the basic Budget processing, this option performed the
following functions:
- Copy the Facility Allocation file(s) from production into a budget area
to be used for budgeting.
- Copy the well count file from production into a budget area, and
create 12 month's worth of well counts.
- CREATE AN OVERHEAD RATE FILE FROM PRODUCTION INTO A BUDGET AREA, AND
CREATE 12 MONTH'S WORTH OF DATA.
The new option 62 now performs the above option which is italicized and
underlined. In addition to leading the overhead rate file, a program was
written to load well counts based on the LLOG Budget work file which was
loaded into BDWKPF.
This option can be run in place of option 4, and is totally rerunable.
However, just as in option 4, if this option is re-run, and you have
made changes to the files in the budget area, these changes will be lost.
<PAGE>
FOREST OIL CORPORATION
BDS - LOADING LLOG BUDGETS
BFS #841
March 4, 1998
BDSC1027 - Summary By Location menu Program
This program Provides two options:
- Update G&A Summary By Location Report File (1)
- Re-run G&A Summary By Location Report (21)
BDSR1028 - New Report Program
This program will read the above summarized file, and generate the G&A
Summary Report by location.
This report can be generated either in whole dollars or thousands of
dollars. The whole dollar report is printed on legal paper, and the
thousands report is printed on standard paper. The print files used to
print these reports are BDP1028A and BDP1028B.
BDSR1029 - Maintain Summary file
In order to provide flexibility to include top side entries in this
report, this program is provides the user, the ability to maintain the
dollars on this file.
BDSC1000 - Budget Menu
- Add new option (52) to access the G&A Summary Menu.
- There was not enough space on the current menu to add the new functions
to re-generate the new G&A Summary by location report, and to maintain
the G&A Summary file. This menu was modified to transfer to a new menu.
(Call BDSC1027) which contains two new functions
- Update G&A Summary by Location File (1-BDSR1029)
- Re-run G&A Summary by Location Report (21-BDSC1022)
BDSC1020 - Submit G&A Responsibility Report
This program will be changed to execute the new programs which will create
the new G&A Budget Summary File, and new report.
- BDSR1027 - Create Summary Work File
- BDSR1028 - Product G&A Summary By location report in whole dollars.
BDSC1022 & BDSD1022 - Re-run G&A Summary by Location Report -
Select and submit (BDSC1028)
<PAGE>
FOREST OIL CORPORATION
BDS - LOADING LLOG BUDGETS
BFS #841
March 4, 1998
BDSC1028 - CL to Re-run G&A Summary by Location Report
This program reads the G&A Summary Work file to re-create the report.
The report can be requested in whole dollars or thousands
This will be run to allow file updates to account for rounding, ad
topside entries which can be included on the report by using the new
maintenance screen (BDSR1029)
BDSC1002 - Submit G&A Responsibility Report
This program was changed to access the most current Submit programs
(FOGC004) so F3 is now available on this screen.
FILE CHANGES
BDSQPF - three additional fields were added to this file
- The fields added were page, column and carry-over
- These fields are used to identify where a cost center is to be
accumulated in the summary report.
- This file already existed to sequence the G&A Responsibility
Report.
BDSMPF - New G&A Summary by location file
- This file is used to create the new report
- It can be maintained to handle top-side entries.
MSTCPF- Added a new table
- BDGHDG - This is keyed by page, group, & heading line, and
contains two heading lines to allow flexibility
- The existing Budget Group table (BDGGRP) is used to control the
lines printed on the report.
<PAGE>
EXHIBIT 4.13
Execution Counterpart
AMENDMENT NO. 4 TO DEED OF TRUST, MORTGAGE, SECURITY
AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT
(PERSONAL PROPERTY INCLUDING HYDROCARBONS),
AND FIXTURE FILING
THIS AMENDMENT NO. 4 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING
HYDROCARBONS) AND FIXTURE FILING (this "AMENDMENT") is entered into as of
February 3, 1998 at 9:00 a.m., Mountain Time (the "EFFECTIVE DATE") by and
between FOREST OIL CORPORATION, a New York corporation with an address for
notice hereunder of 1500 Colorado National Building, 950 17th Street, Denver,
Colorado 80202 ("MORTGAGOR") to:
1. THE CHASE MANHATTAN BANK, with an address at One Chase Manhattan
Plaza, New York, New York 10081, as agent for each bank referred to
below and as agent for The Chase Manhattan Bank of Canada and the
Canadian Lenders (as defined below) in connection with the Canadian
Guarantee (as defined below) (in such capacity, the "AGENT") (the
Agent, together with its successors in such capacity, is hereinafter
referred to as the "SECURED PARTY"), as to any and all portions of the
Collateral EXCEPT those portions of the Collateral which (i) are
located in the State of Texas or in offshore waters adjacent to the
State of Texas and subject to the laws of the State of Texas and
(ii) constitute interests in or to real property under the law of the
State of Texas (the "DT COLLATERAL"); and
2. Mary Jo Woodford, with an address at 270 Park Avenue, New York,
New York 10017, as trustee (successor to Richard F. Betz) (in such
capacity, together with her successors and assigns in such capacity,
the "TRUSTEE"), but only as to the DT Collateral.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE SECURED PARTY TO TAKE THE COLLATERAL AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS
INSTRUMENT.
<PAGE>
R E C I T A L S
A. Mortgagor, certain banks (collectively, the "ORIGINAL BANKS"),
and the Agent were parties to a Credit Agreement dated as of December 1, 1993
(as heretofore modified and supplemented and in effect on the date hereof (the
"ORIGINAL CREDIT AGREEMENT").
B. Mortgagor, certain banks (collectively, the "EXISTING BANKS"),
and the Agent amended and restated the Original Credit Agreement pursuant to an
Amended and Restated Credit Agreement dated as of August 31, 1995.
C. Mortgagor, the Existing Banks and the Agent further amended and
restated the Original Credit Agreement pursuant to a Second Amended and Restated
Credit Agreement dated as of January 31, 1997 (the "SECOND AMENDED AND RESTATED
CREDIT AGREEMENT").
D. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 1 and Waiver
dated April 1, 1997.
E. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 2 dated as of
August 19, 1997.
F. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 3 dated as of
September 26, 1997.
G. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 4 dated as of
January 6, 1998.
H. Mortgagor, certain banks (collectively, the "BANKS") and the
Agent have agreed to further amend and restate the Second Amended and Restated
Credit Agreement pursuant to a Third Amended and Restated Credit Agreement dated
as of February 3, 1998 (as the same may be further amended and restated and in
effect from time to time, being referred to herein as the "CREDIT AGREEMENT").
I. The Credit Agreement is secured by, among other things, that
certain Deed of Trust, Mortgage, Security Agreement, Assignment of Production,
Financing Statement (Personal Property Including Hydrocarbons), and Fixture
Filing dated as of June 3, 1994 from Mortgagor to Secured Party and Trustee (as
heretofore modified and supplemented, the "DEED OF TRUST").
J. The Deed of Trust was amended by Amendment No. 1 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated
as of August 31, 1995. The Deed of Trust was further amended by Amendment No. 2
to Deed of Trust, Mortgage, Security Agreement, Assignment of Production,
Financing Statement (Personal Property Including
2
<PAGE>
Hydrocarbons), and Fixture Filing dated as of January 31, 1997 and Amendment
No. 3 to Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property Including Hydrocarbons),
and Fixture Filing dated as of August 19, 1997. The Deed of Trust, Amendment
No. 1, Amendment No. 2 and Amendment No. 3 were duly recorded as set forth on
Schedule 1 attached hereto.
K. Mortgagor and Secured Party now desire to further amend the Deed
of Trust to secure all indebtedness under the Credit Agreement, notwithstanding
any extensions or renewals of the Credit Agreement or any amendments to the
Credit Agreement at any time maturing August 19, 2001 and secure all obligations
arising pursuant to the guarantee (the "CANADIAN GUARANTEE") among the Mortgagor
and The Chase Manhattan Bank of Canada, as administrative agent (the "CANADIAN
AGENT") for the lenders (the "CANADIAN LENDERS") party to the Second Amended and
Restated Credit Agreement dated as of April 1, 1997 among 611852 Saskatchewan
Ltd. (the "CANADIAN SUBSIDIARY"), the Canadian Lenders and the Canadian Agent,
as amended by Amendment No. 1 dated as of August 19, 1997, Amendment No. 2 dated
as of September 26, 1997, Amendment No. 3 dated as of January 6, 1998 and
Amendment No. 4 dated as of February 3, 1998 and as the same may be amended,
restated, modified and supplemented and in effect from time to time (the
"CANADIAN CREDIT AGREEMENT").
L. Mortgagor and Secured Party now desire to further amend the Deed
of Trust to provide for the continuation of the mortgage lien and security
interest provided under the Deed of Trust by Mortgagor to the Secured Party, for
the benefit of itself, the Banks and the Canadian Lenders.
NOW, THEREFORE, in view of the foregoing, Mortgagor and Secured Party
do hereby agree as follows:
1. All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Deed of Trust.
2. All references in the Deed of Trust to "this Instrument", as
defined in the opening paragraph of the Deed of Trust shall mean the Deed of
Trust as amended hereby and as the same may from time to time be further amended
or supplemented.
3. The Deed of Trust is hereby amended: (i) by deleting Recital 1
in its entirety and substituting the following therefor:
"1. Pursuant to the terms of the Third Amended and Restated
Credit Agreement dated as of February 3, 1998, among Mortgagor,
certain banks (collectively, the "BANKS"), the Subsidiary Guarantors
and the Secured Party (and as the same may be amended, supplemented
and otherwise modified and in effect from time to time, the "CREDIT
AGREEMENT"), the Banks have agreed to make loans from time to time
under a revolving credit facility to the Mortgagor the aggregate
principal or stated amount of which shall not exceed $300,000,000 at
any one time (maturing August 19, 2001), and issue or acquire
participation interests in letters of credit for account of Mortgagor
the aggregate amount of the liabilities of the Banks under which shall
not exceed $10,000,000.00. Pursuant to the terms of
3
<PAGE>
the Canadian Credit Agreement (as defined below), the Canadian
Lenders have agreed to make loans and issue or acquire
participation interests in bankers' acceptances from time to time
under a revolving credit facility to the Canadian Subsidiary (as
defined below) the aggregate principal or stated amount of which
shall not exceed $25,000,000 at any one time outstanding (maturing
August 19, 2001), and issue or acquire participations in letters of
credit for the account of the Canadian Subsidiary the aggregate
amount of the liabilities of the Canadian Lenders under which shall
not exceed Canadian dollars $15,000,000, provided that the
Mortgagor provides the Canadian Guarantee (as defined below) in
favor of the Canadian Agent (as defined below) and the Canadian
Lenders (as defined below)."; and
(ii) By deleting Section 9.01(ii) and substituting the following
therefor:
"(ii) the maximum amount of the Obligations that
may be outstanding at any time and from time to time
that this Instrument secures is fixed at $350,000,000."
4. Mortgagor hereby confirms that pursuant to and subject to the
terms of the Deed of Trust, it has heretofore absolutely and unconditionally
granted, bargained, sold, assigned, transferred and conveyed the DT Collateral
to the Trustee and granted to the Secured Party a security interest in those
portions of the Collateral which (i) are located in the State of Texas or in
offshore waters adjacent to the State of Texas and subject to the laws of the
State of Texas and (ii) do not constitute DT Collateral.
5. Mortgagor hereby confirms that pursuant to and subject to the
Deed of Trust, it has heretofore absolutely and unconditionally granted,
bargained, sold, assigned, transferred, pledged, mortgaged, warranted and
conveyed to the Secured Party and granted the Secured Party a security interest
in all of the Collateral (except the DT Collateral), including, without
limitation, all severed and extracted Hydrocarbons and other minerals produced
from or attributable to the Mortgaged Property, including, without limitation,
all of the proceeds thereof.
6. Mortgagor hereby acknowledges the Obligations, whether now
existing or to arise hereafter, and confesses judgement thereon in favor of the
Secured Party if the Obligations are not paid when due.
7. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Deed of Trust shall remain
in full force and effect in accordance with its terms. None of the rights,
titles and interests existing and to exist under the Deed of Trust are hereby
released, diminished or impaired, and Mortgagor hereby reaffirms all agreements
and covenants and acknowledges and agrees that, except as previously disclosed
by Mortgagor under the Deed of Trust (except to the extent same relate to
Collateral that is no longer owned by Mortgagor and other than the
representation and warranty set forth in the first sentence of Section 2.02(c)
of the Deed of Trust) are true and correct in all material respects as of the
date hereof. Mortgagor also represents and warrants to the Banks that the
current net overproduced position of the Mortgagor with respect to Hydrocarbons
produced from
4
<PAGE>
the Mortgaged Properties (expressed in volumetric terms) is not materially
greater than the overproduced position of the Mortgagor with respect to the
Mortgaged Properties as of January 31, 1997.
8. INSOFAR AS PERMITTED BY OTHERWISE APPLICABLE LAW, THIS AMENDMENT
SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW RULES). MORTGAGOR HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS OF THE STATE OF NEW YORK AND EACH OTHER STATE WHERE THE
COLLATERAL IS LOCATED AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE
MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AMENDMENT, THE BASIC
DOCUMENTS OR THE OBLIGATIONS IN THE CASE OF A PROCEEDING IN ANY OF SUCH STATES,
BY SERVING THE SECRETARY OF STATE OF SUCH STATE IN ACCORDANCE WITH ANY
APPLICABLE PROVISIONS OF SUCH STATE'S LAW GOVERNING SERVICE OF PROCESS UPON
FOREIGN CORPORATIONS OR ENTITIES.
9. This Amendment may be executed in two or more counterparts, and
it shall not be necessary that the signatures of all parties hereto be contained
on any one counterpart hereof.
10. Mortgagor and the Agent acknowledge that the execution of
Amendment No. 4 does not constitute a payment or prepayment of the Second
Amended and Restated Credit Agreement, but constitutes an amendment, extension,
increase, and modification of the terms thereof.
11. For purposes of executory process under Louisiana law, the
Mortgagor declares that on this ___ day of February 1998, but effective for all
purposes as of the Effective Date, it has appeared in the presence of the
undersigned Notary Public and two witnesses and has executed this amendment
through Forest Dorn its Vice President, duly authorized pursuant to Resolutions
of the Board of Directors of the Mortgagor, a certified copy of which is annexed
hereto as Exhibit "A".
12. Mortgagor and the Secured Party acknowledges that none of the
Obligations have been presented to the undersigned Notary Public to be paraphed
for identification with this amendment.
13. Notwithstanding any reference herein to the Credit Agreement, the
Canadian Guarantee or any other Basic Document, no third party shall be
obligated to inquire as to whether any term or condition set forth therein has
occurred but shall be entitled to rely upon the certificate of the Secured Party
as to all events, including but not limited to the occurrence of an Event of
Default.
14. For purposes of executory process, the Mortgagor acknowledges and
agrees that the existence, amount, terms, and maturity of the Obligations may be
proven by affidavit or verified petition, in accordance with Louisiana law as
now existing or hereafter enacted.
5
<PAGE>
THUS DONE AND PASSED on this day 2nd day of February, 1998, (the
"EFFECTIVE DATE") effective for all purposes as of the Effective Date, in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with Mortgagor and me, Notary, after reading of the whole.
MORTGAGOR:
FOREST OIL CORPORATION
By: /s/ Daniel G. Blanchard
---------------------------------
Name: Daniel G. Blanchard
Title: Treasurer
WITNESSES:
/s/ Teresa J. Marano
- ------------------------------
/s/ Barbara E. Chesebro
- ------------------------------
/s/ Michele M. Miller
------------------------------
Notary Public
S-1
<PAGE>
THUS DONE AND PASSED on this 2nd day of February, 1998, (the
"EFFECTIVE DATE") effective for all purposes as of the Effective Date in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with the Agent and the Trustee and me, Notary, after reading of
the whole.
AGENT:
THE CHASE MANHATTAN BANK
By: /s/ Mary Jo Woodford
--------------------------------
Name: Mary Jo Woodford
Title: Vice President
TRUSTEE:
By: /s/ Mary Jo Woodford
--------------------------------
Name: Mary Jo Woodford
Title: Vice President
WITNESSES:
/s/ Esther C. Alleyne
- -------------------------------
Esther C. Alleyne
/s/ Jackson Eng
- -------------------------------
Jackson Eng
/s/ Kan Louie
------------------------------
Notary Public
Kan Louie
S-2
<PAGE>
EXHIBIT A
NOTARY'S CERTIFICATE
The undersigned Notary Public hereby certifies that attached hereto are
certified copies of Resolutions produced by the Mortgagor and attached by me to
this Amendment No. 4 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including Hydrocarbons),
and Fixture Filing executed by Mortgagor this 2nd day of February, 1998 and
effective for all purposes as of February 2, 1998.
/s/ B. L. Affleck
--------------------------------------
Notary Public
Notary: State of Colorado
Printed Name: B. L. Affleck
My Commission Expires: August 19, 1999
S-3
<PAGE>
RESOLUTIONS OF THE BOARD OF DIRECTORS
RESOLVED, that this Company be, and hereby is, authorized to borrow and
receive up to an aggregate amount of $275,000,000 under a revolving
credit facility, including a $10,000,000 letter of credit subfacility
(the "LOANS"), as set forth in the Third Amended and Restated Credit
Agreement between Company, the Chase Manhattan Bank, as administrative
agent for the Banks ("AGENT"), and other lenders signatory thereto (the
"BANKS"); and be it further
RESOLVED, that any officer of this Company is hereby authorized and
empowered to agree upon with the Agent and the Banks the terms and
provisions of and execute and deliver for and on behalf of this Company
the Third Amended and Restated Credit Agreement, promissory notes,
certificates, borrowing, conversion or continuation notices in
connection with the Loans; and be it further
RESOLVED, that this Company grant to the Agent and the Banks a lien
upon and/or a security interest in such assets of this Company as may
be agreed upon between any of said officers and the Agent and Banks as
security for this Company's indebtedness, obligations and liabilities
to the Banks under the Third Amended and Restated Credit Agreement and
the other agreements executed in connection therewith; and that any of
said officers are authorized to execute and deliver for and on behalf
of this Company, mortgages, deeds of trust, assignments, security or
pledge agreements, financing statements and such other instruments as
may be required by the Banks in connection with such lien and/or
security interest and containing such terms and conditions as may be
acceptable or agreeable to any of said officers, including, without
limitation, a waiver of appraisement, pact de non alienando, confession
of judgment and the usual Louisiana security clauses; such acceptance
and agreement to be conclusively evidenced by any of said officer's
execution; and be it further
RESOLVED, that any of said officers are authorized and empowered to do
or cause to be done all such acts or things and to sign and deliver, or
cause to be signed and delivered, all such amendments, supplements,
extensions and other documents, instruments or certificates (including
without limitation any and all amendments, supplements, extensions and
other documents, notices and certificates required or permitted to be
given or made to the Agent and the Banks under the terms of any of the
instruments executed on behalf of this Company in connection with the
Third Amended and Restated Credit Agreement, the other agreements
executed in connection therewith, the grant of a lien and/or security
interest as authorized by these Resolutions or otherwise contemplated
by the Third Amended and Restated Credit Agreement), in the name and on
the behalf of this Company or otherwise, as any of said officers, in
their discretion, may deem necessary, advisable or appropriate to
effectuate or
<PAGE>
carry out the purposes and intent of the foregoing Resolutions and to
perform the obligations of this Company under all instruments and
agreements executed on behalf of this Company in connection with the
Third Amended and Restated Credit Agreement and the grant of a lien
upon and/or security interest in assets of this Company as authorized
by these Resolutions; and be it further
RESOLVED, that this Company guarantee the payments and performance of
the indebtedness, obligations, liabilities of (a) 611852 SASKATCHEWAN
LTD., a corporation duly organized and validly existing under the laws
of the Province of Saskatchewan, Canada ("SASKATCHEWAN") up to an
aggregate principal amount of $25,000,000 under a revolving credit
facility including a $15,000,000 (CDN) letter of credit subfacility, as
set forth in that certain Second Amended and Restated Credit Agreement
(such agreement, as amended "FUNDING CO. CREDIT AGREEMENT") between
Saskatchewan, each of the lenders that is signatory thereto ("CANADIAN
LENDERS") and THE CHASE MANHATTAN BANK OF CANADA as administrative
agent for the Canadian Lenders (the "CANADIAN AGENT"), and (b) CANADIAN
FOREST OIL LTD., a corporation organized under the laws of the Province
of Alberta, Canada ("CANADIAN FOREST") up to an aggregate principal
amount of $25,000,000 under a revolving credit facility, including a
$15,000,000 (CDN) letter of credit subfacility, as set forth in that
certain Second Amended and Restated Credit Agreement (such agreement,
as amended, the "CANADIAN FOREST CREDIT AGREEMENT") between Canadian
and Saskatchewan as lender; and be it further
RESOLVED, that such guaranties authorized by these Resolutions may
reasonably be expected to benefit, directly or indirectly, this
Company; and be it further
RESOLVED, that any officer of this Company is hereby authorized and
empowered to agree upon with the Canadian Agent and the Canadian
Lenders the terms and provisions of and execute and deliver for and on
behalf of this Company instruments of guaranty, which guaranties may be
absolute and primary and extend to principal and interest on such
indebtedness, obligations and liabilities and with such agreement to
the terms and provisions of such instruments of guaranty to be
conclusively evidenced by any of said officers' execution and delivery
of such instruments of guaranty; and be it further
RESOLVED, that any of said officers are authorized and empowered to do
or cause to be done all such acts of things and to sign and deliver, or
cause to be signed and delivered, all such amendments, supplements,
extensions and other documents, instruments or certificates (including
<PAGE>
without limitation any and all notices and certificates required or
permitted to be given or made to the Canadian Agent and Canadian
Lenders under the terms of any of the instruments executed on behalf of
this Company in connection with its guarantee and the other agreements
executed in connection therewith, or as authorized by these
Resolutions, in the name and on behalf of this Company or otherwise, as
any of said officers, in their discretion, may deem necessary,
advisable or appropriate to effectuate or carry out the purposes and
intent of the foregoing Resolutions and to perform the obligations of
this Company under all instruments and agreements executed on behalf of
this Company in connection with its guarantee; and be it further
RESOLVED, that all acts, transactions or agreements undertaken prior to
the adoption of these Resolutions by any of the officers or
representatives of this Company in its name and for its account with
the Agent, the Canadian Agent, the Banks and the Canadian Lenders in
connection with the foregoing matters are hereby ratified, confirmed
and adopted by this Company; and be it further
RESOLVED, that the execution by any of said officers of any document
authorized by the foregoing Resolutions or any document executed in the
accomplishment of any action or actions so authorized, is (or shall
become upon delivery) the enforceable and binding act and obligation of
this Company, without the necessity of the signature or attestation of
any other officer of this Company or the affixing of the corporate
seal; and be it further
RESOLVED, that the Secretary of this Company is hereby authorized and
directed to certify these Resolutions to the Agent, the Canadian Agent,
the Banks and Canadian Lenders.
<PAGE>
ACKNOWLEDGEMENT
STATE OF COLORADO )
: ss.
COUNTY OF COLORADO )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 2, 1998 there personally appeared before me, the
following person, being the designated officer of the corporation set opposite
his name, and such corporation being a party to the foregoing Amendment:
Daniel G. Blanchard, the Treasurer of Forest Oil Corporation,
This Amendment was acknowledged before me on this 2nd day of
February, 1998 by Daniel G. Blanchard, of Forest Oil Corporation, a New York
corporation, on behalf of said corporation.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the designated
officer of said corporation described in and which executed the foregoing
Amendment, that he signed his name thereto by order of the Board of Directors of
said corporation, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official
notarial seal, in the County of Denver, State of Colorado, this 2nd day of
February, 1998.
/s/ Michele M. Miller
-----------------------------------------
Notary Public, State of Colorado
Notary's Printed Name: Michele M. Miller
My Commission expires: 9/29/00
S-4
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 2, 1998 there personally appeared before me, the
following person, being the designated officer of the bank set opposite her
name, and such corporation being a party to the foregoing Amendment:
Mary Jo Woodford, a Vice President of The Chase Manhattan Bank.
This Amendment was acknowledged before me on this 2nd day of
February, 1998 by Mary Jo Woodford, of The Chase Manhattan Bank, on behalf of
said bank.
LOUISIANA
Who being by me duly sworn, deposed and said that she is the
designated officer of said bank described in and which executed the foregoing
Amendment, that she signed her name thereto by order of the Board of Directors
of said bank, and acknowledged to me that she executed the same for the purposes
and consideration therein expressed, in the capacity therein stated, and as the
free act and deed of said bank.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of New York, State of New York, this 2nd day of February,
1998.
/s/ Ruby V. Tulloch
---------------------------------------
Notary Public, State of New York
Ruby V. Tulloch
S-5
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 2, 1998 there personally appeared before me, the
following person, being a party to the foregoing Amendment:
This Amendment was acknowledged before me on this 2nd day of
February, 1998 by Mary Jo Woodford.
LOUISIANA
Who being by me duly sworn, deposed and said that she is the Trustee
described in the foregoing Amendment, that she signed her name thereto, and
acknowledged to me that she executed the same for the purposes and consideration
therein expressed, in the capacity therein stated, and as her free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official
notarial seal, in the County of New York, State of New York, this 2nd day of
February, 1998.
/s/ Ruby V. Tulloch
---------------------------------------
Notary Public, State of New York
Ruby V. Tulloch
S-6
<PAGE>
Schedule 1
SCHEDULE OF RECORDING INFORMATION
FOREST OIL CORPORATION
and
THE CHASE MANHATTAN BANK
as Agent
1. Deed of Trust, Mortgage, Security Agreement, Assignment of Production,
Financing Statement (Personal Property Including Hydrocarbons), and Fixture
Filing dated June 3, 1994 executed by Forest Oil Corporation ("FOREST") in
favor of Bettylou J. Robert, as Trustee, for the benefit of The Chase
Manhattan Bank, as Agent and in favour of the Agent (all recording
references are to the Real Property Records):
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Brazoria 6/8/94 Recorded 6/8/94 as
#94-021547
Chambers 6/10/94 Recorded 6/10/94 as
Volume 94-240, Page 215
Fort Bend 6/21/94 Recorded 6/21/94 as
Volume 2668, Page 1568
Harris 6/7/94 Recorded 6/7/94 as
#P899134
Matagorda 6/8/94 Recorded 6/8/94 as
Volume 381, Page 505
Waller 6/8/94 Recorded 6/8/94 as
Volume 496, Page 88
2. Financing Statement by Forest in connection with item #1 above and
filed as follows:
LOCATION DATE FILED FILING INFORMATION
-------- ---------- ------------------
Secretary of 6/7/94 Recorded 6/7/94 #110234
State of Texas
<PAGE>
RECORDED IN THE STATE OF LOUISIANA
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 6/7/94 Recorded 6/7/94 as
MOB 200, File No. 236409
Iberia 2/9/97 MOB A-695, Entry 97-1260
St. Bernard 6/6/94 Recorded 6/6/94 as
MOB 732, page 71
St. Mary 2/9/97 MOB 748, Entry 221, 376
Vermilion 6/6/94 Recorded 6/6/94 as
Entry No. 9405601
B. Mineral Management Service, Gulf of Mexico Region, June 6, 1994:
Lease Files:
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393,
OCS-G 8645, OCS-G 10658, OCS-G 13301, OCS-G 0479, OCS-G 6156
2. UCC-1 Financing Statement by Forest Oil Corporation as Debtor, and The
Chase Manhattan Bank, as Secured Party.
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Orleans 6/6/94 Recorded 6/6/94 as
Instrument No. 36-84158
B. Mineral Management Service, Gulf of Mexico Region,
June 6, 1994:
Lease Files:
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393,
OCS-G 8645, OCS-G 10658, OCS-G 13301, 0479 and 6156
2. Amendment No. 1 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated August 31,1995 executed by Forest
Oil Corporation ("FOREST") in favor of Bettylou J. Robert, as Trustee, for
the benefit of The Chase Manhattan Bank, as Agent and in favour of the
Agent:
2
<PAGE>
RECORDED IN THE STATE OF TEXAS
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Brazoria 9/27/95 Recorded 9/27/95 as #95-031806
Chambers 9/28/95 Recorded 9/29/95 in
Volume 95-277, Page 473
Fort Bend 10/20/95 Recorded 10/20/95 as
#9563356
Harris 9/27/95 Recorded 9/27/95 as
#R598435
Matagorda 9/27/95 Recorded 9/27/95 in
Volume 420, Page 664
Waller 9/28/95 Recorded 9/28/95 in
Volume 525, Page 32
RECORDED IN THE STATE OF LOUISIANA
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Vermilion 9/19/95 MOB Entry No. 9509529
Iberia 2/9/97 MOB A-695, Entry 97-1261
St. Bernard 9/19/95 Act No. 315858 MOB 773,
folio 105
St. Mary 2/9/97 MOB 748, Entry 221, 377
Cameron 9/19/95 File No. 242693 MOB 212
B. Minerals Management Service, Gulf of Mexico Region, September 19,
1995:
Lease Files:
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393, OCS-G 8645,
OCS-G 10658, OCS-G 13301, OCS-G 0479, OCS-G 6156
3. Amendment No. 2 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated January 31, 1997 executed by Forest
Oil Corporation ("FOREST") in
3
<PAGE>
favour of Mary Jo Woodford, as Trustee, for the benefit of The Chase
Manhattan Bank, as Agent:
RECORDED IN THE STATE OF LOUISIANA
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 2/9/97 Recorded 2/9/97 as
MOB 223 File 249343
Iberia 2/9/97 Recorded 2/9/97 as
MOB A-695 Entry 97-1262
St. Bernard 2/9/97 Recorded 2/9/97 as
MOB 824 Page 1, Act 332018
St. Mary 2/9/97 Recorded 2/9/97 as
MOB 748 Entry 221 378
Vermilion 2/9/97 Recorded 2/9/97 as
Entry 9701943
B. Minerals Management Service, Gulf of Mexico Region, September 19,
1995:
Lease Files:
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393, OCS-G 8645,
OCS-G 10658, OCS-G 13301, OCS-G 0479, OCS-G 6156
4
<PAGE>
RECORDED IN THE STATE OF TEXAS
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Fort Bend 2/17/97 Recorded 2/17/97 as
#9709520
Harris 2/12/97 Recorded 2/12/97 as
#S319107
Waller 2/13/97 Recorded 2/13/97 as
Volume 555, Page 267
B. UCC-3 Financing Statement Change (Amendment) by Forest Oil
Corporation, as Debtor, and The Chase Manhattan Bank, as Secured
Party.
a. Orleans Parish, Louisiana (Recorded in Louisiana)
February 7, 1997
Under UCC Entry No. 36-114842
b. Secretary of State of Texas
June 7, 1994
Under UCC Entry No. 110234
4. Amendment No. 3 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated August 19, 1997 executed by Forest
Oil Corporation ("FOREST") in favour of Mary Jo Woodford, as Trustee, for
the benefit of The Chase Manhattan Bank, as Agent:
RECORDED IN THE STATE OF LOUISIANA
A. Parish Date Filed Recording Information
------ ---------- ---------------------
Cameron 9-8-97 File #252020, MOB 228
Iberia 9-8-97 Entry 97-7777, MOB A-710
St. Bernard 9-5-97 Act 338883, MOB 851, folio 154
St. Mary 9-8-97 Entry 224, 644, MOB 765
Vermilion Entry 9710889
B. Minerals Management Service, Gulf of Mexico Region, September 8, 1997.
OCS-G 1152, OCS-G 1153, OCS-G 1977, OCS-G 3393, OCS-G 8645,
OCS-G 10658, OCS-G 13301, OCS-G 0479, OCS-G 6156
5
<PAGE>
EXHIBIT 4.14
Execution Counterpart
AMENDMENT NO. 5 TO DEED OF TRUST, MORTGAGE, SECURITY
AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT
(PERSONAL PROPERTY INCLUDING HYDROCARBONS),
AND FIXTURE FILING
THIS AMENDMENT NO. 5 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING
HYDROCARBONS) AND FIXTURE FILING (this "AMENDMENT") is entered into as of
February 3, 1998 at 9:00 a.m., Mountain Time (the "EFFECTIVE DATE") by and
between FOREST OIL CORPORATION, a New York corporation with an address for
notice hereunder of 1500 Colorado National Building, 950 17th Street, Denver,
Colorado 80202 ("MORTGAGOR") to:
1. THE CHASE MANHATTAN BANK, with an address at One Chase Manhattan
Plaza, New York, New York 10081, as agent for each bank referred to
below and as agent for The Chase Manhattan Bank of Canada and the
Canadian Lenders (as defined below) in connection with the Canadian
Guarantee (as defined below) (in such capacity, the "AGENT") (the
Agent, together with its successors in such capacity, is hereinafter
referred to as the "SECURED PARTY"), as to any and all portions of the
Collateral EXCEPT those portions of the Collateral which (i) are
located in the State of Texas or in offshore waters adjacent to the
State of Texas and subject to the laws of the State of Texas and
(ii) constitute interests in or to real property under the law of the
State of Texas (the "DT COLLATERAL"); and
2. Mary Jo Woodford, with an address at 270 Park Avenue, New York,
New York 10017, as trustee (successor to Richard F. Betz) (in such
capacity, together with her successors and assigns in such capacity,
the "TRUSTEE"), but only as to the DT Collateral.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE SECURED PARTY TO TAKE THE COLLATERAL AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS
INSTRUMENT.
R E C I T A L S
A. Mortgagor, certain banks (collectively, the "ORIGINAL BANKS"),
and the Agent were parties to a Credit Agreement dated as of December 1, 1993
(as heretofore modified and supplemented and in effect on the date hereof (the
"ORIGINAL CREDIT AGREEMENT").
<PAGE>
B. Mortgagor, certain banks (collectively, the "EXISTING BANKS"),
and the Agent amended and restated the Original Credit Agreement pursuant to an
Amended and Restated Credit Agreement dated as of August 31, 1995.
C. Mortgagor, the Existing Banks and the Agent further amended and
restated the Original Credit Agreement pursuant to a Second Amended and Restated
Credit Agreement dated as of January 31, 1997 (the "SECOND AMENDED AND RESTATED
CREDIT AGREEMENT").
D. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 1 and Waiver
dated as of April 1, 1997.
E. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 2 dated as of
August 19, 1997.
F. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 3 dated as of
September 26, 1997.
G. Mortgagor, the Existing Banks and the Agent amended the Second
Amended and Restated Credit Agreement pursuant to an Amendment No. 4 dated as of
January 6, 1998.
H. Mortgagor, certain banks (collectively, the "BANKS") and the
Agent have agreed to further amend and restate the Second Amended and Restated
Credit Agreement pursuant to a Third Amended and Restated Credit Agreement dated
as of February 3, 1998 (as the same may be further amended and restated and in
effect from time to time, being referred to herein as the "CREDIT AGREEMENT").
I. The Credit Agreement is secured by, among other things, that
certain Deed of Trust, Mortgage, Security Agreement, Assignment of Production,
Financing Statement (Personal Property Including Hydrocarbons), and Fixture
Filing dated as of December 1, 1993 from Mortgagor to Secured Party and Trustee
(as heretofore modified and supplemented, the "DEED OF TRUST").
J. The Deed of Trust was amended by Amendment No. 1 to Deed of
Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated
as of June 3, 1994. The Deed of Trust was further amended by Amendment No. 2 to
Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing
Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated
as of August 31, 1995, by Amendment No. 3 to Deed of Trust, Mortgage, Security
Agreement, Assignment of Production, Financing Statement (Personal Property
Including Hydrocarbons), and Fixture Filing dated as of January 31, 1997 and by
Amendment No. 4 to Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property Including Hydrocarbons), and
Fixture Filing dated as of August 19, 1997. The Deed of Trust, Amendment No. 1,
Amendment No. 2, Amendment No. 3
2
<PAGE>
and Amendment No. 4 were duly recorded as set forth on Schedule 1 attached
hereto.
K. Mortgagor and Secured Party now desire to further amend the Deed
of Trust to secure all indebtedness under the Credit Agreement, notwithstanding
any extensions or renewals of the Credit Agreement or any amendments to the
Credit Agreement at any time maturing August 19, 2001 and secure all obligations
arising pursuant to the guarantee (the "CANADIAN GUARANTEE") among the Mortgagor
and The Chase Manhattan Bank of Canada, as administrative agent (the "CANADIAN
AGENT") for the lenders (the "CANADIAN LENDERS") party to the Second Amended and
Restated Credit Agreement dated as of April 1, 1997 among 611852 Saskatchewan
Ltd. (the "CANADIAN SUBSIDIARY"), the Canadian Lenders and the Canadian Agent,
as amended by Amendment No. 1 dated as of August 19, 1997, Amendment No. 2 dated
as of September 26, 1997, Amendment No. 3 dated as of January 6, 1998 and
Amendment No. 4 dated as of February 3, 1998 and as the same may be amended,
restated, modified and supplemented and in effect from time to time (the
"CANADIAN CREDIT AGREEMENT").
L. Mortgagor and Secured Party now desire to further amend the Deed
of Trust to provide for the continuation of the mortgage lien and security
interest provided under the Deed of Trust by Mortgagor to the Secured Party, for
the benefit of itself, the Banks and the Canadian Lenders.
NOW, THEREFORE, in view of the foregoing, Mortgagor and Secured Party
do hereby agree as follows:
1. All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Deed of Trust.
2. All references in the Deed of Trust to "this Instrument", as
defined in the opening paragraph of the Deed of Trust shall mean the Deed of
Trust as amended hereby and as the same may from time to time be further amended
or supplemented.
3. The Deed of Trust is hereby amended: (i) by deleting Recital 1
in its entirety and substituting the following therefor:
"1. Pursuant to the terms of the Third Amended and Restated
Credit Agreement dated as of February 3, 1998, among Mortgagor,
certain banks (collectively, the "BANKS"), the Subsidiary Guarantors
and the Secured Party (and as the same may be amended, supplemented
and otherwise modified and in effect from time to time, the "CREDIT
AGREEMENT"), the Banks have agreed to make loans from time to time
under a revolving credit facility to the Mortgagor the aggregate
principal or stated amount of which shall not exceed $300,000,000 at
any one time (maturing August 19, 2001), and issue or acquire
participation interests in letters of credit for account of Mortgagor
the aggregate amount of the liabilities of the Banks under which shall
not exceed $10,000,000.00. Pursuant to the terms of the Canadian
Credit Agreement (as defined below), the Canadian Lenders have agreed
to make loans and issue or acquire participation interests in bankers'
acceptances from time to time under a revolving credit facility to the
Canadian Subsidiary (as defined below) the aggregate principal or
stated amount of which
3
<PAGE>
shall not exceed $25,000,000 at any one time outstanding (maturing
August 19, 2001), and issue or acquire participations in letters of
credit for the account of the Canadian Subsidiary the aggregate
amount of the liabilities of the Canadian Lenders under which shall
not exceed Canadian dollars $15,000,000, provided that the Mortgagor
provides the Canadian Guarantee (as defined below) in favor of the
Canadian Agent (as defined below) and the Canadian Lenders (as
defined below)."; and
(ii) By deleting Section 9.01(ii) and substituting the following
therefor:
"(ii) the maximum amount of the Obligations that
may be outstanding at any time and from time to time
that this Instrument secures is fixed at $350,000,000."
4. Mortgagor hereby confirms that pursuant to and subject to the
terms of the Deed of Trust, it has heretofore absolutely and unconditionally
granted, bargained, sold, assigned, transferred and conveyed the DT Collateral
to the Trustee and granted to the Secured Party a security interest in those
portions of the Collateral which (i) are located in the State of Texas or in
offshore waters adjacent to the State of Texas and subject to the laws of the
State of Texas and (ii) do not constitute DT Collateral.
5. Mortgagor hereby confirms that pursuant to and subject to the
Deed of Trust, it has heretofore absolutely and unconditionally granted,
bargained, sold, assigned, transferred, pledged, mortgaged, warranted and
conveyed to the Secured Party and granted the Secured Party a security interest
in all of the Collateral (except the DT Collateral), including, without
limitation, all severed and extracted Hydrocarbons and other minerals produced
from or attributable to the Mortgaged Property, including, without limitation,
all of the proceeds thereof.
6. Mortgagor hereby acknowledges the Obligations, whether now
existing or to arise hereafter, and confesses judgement thereon in favor of the
Secured Party if the Obligations are not paid when due.
7. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Deed of Trust shall remain
in full force and effect in accordance with its terms. None of the rights,
titles and interests existing and to exist under the Deed of Trust are hereby
released, diminished or impaired, and Mortgagor hereby reaffirms all agreements
and covenants and acknowledges and agrees that, except as previously disclosed
by Mortgagor under the Deed of Trust (except to the extent same relate to
Collateral that is no longer owned by Mortgagor and other than the
representation and warranty set forth in the first sentence of Section 2.02(c)
of the Deed of Trust) are true and correct in all material respects as of the
date hereof. Mortgagor also represents and warrants to the Banks that the
current net overproduced position of the Mortgagor with respect to Hydrocarbons
produced from the Mortgaged Properties (expressed in volumetric terms) is not
materially greater than the overproduced position of the Mortgagor with respect
to the Mortgaged Properties as of January 31, 1997.
4
<PAGE>
8. INSOFAR AS PERMITTED BY OTHERWISE APPLICABLE LAW, THIS AMENDMENT
SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW RULES). MORTGAGOR HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS OF THE STATE OF NEW YORK AND EACH OTHER STATE WHERE THE
COLLATERAL IS LOCATED AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE
MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AMENDMENT, THE BASIC
DOCUMENTS OR THE OBLIGATIONS IN THE CASE OF A PROCEEDING IN ANY OF SUCH STATES,
BY SERVING THE SECRETARY OF STATE OF SUCH STATE IN ACCORDANCE WITH ANY
APPLICABLE PROVISIONS OF SUCH STATE'S LAW GOVERNING SERVICE OF PROCESS UPON
FOREIGN CORPORATIONS OR ENTITIES.
9. This Amendment may be executed in two or more counterparts, and
it shall not be necessary that the signatures of all parties hereto be contained
on any one counterpart hereof.
10. Mortgagor and the Agent acknowledge that the execution of
Amendment No. 5 does not constitute a payment or prepayment of the Second
Amended and Restated Credit Agreement, but constitutes an amendment, extension,
increase, and modification of the terms thereof.
11. For purposes of executory process under Louisiana law, the
Mortgagor declares that on this ___ day of ___________, 1998, but effective for
all purposes as of the Effective Date, it has appeared in the presence of the
undersigned Notary Public and two witnesses and has executed this amendment
through Forest Dorn its Vice President, duly authorized pursuant to Resolutions
of the Board of Directors of the Mortgagor, a certified copy of which is annexed
hereto as Exhibit "A".
12. Mortgagor and the Secured Party acknowledges that none of the
Obligations have been presented to the undersigned Notary Public to be paraphed
for identification with this amendment.
13. Notwithstanding any reference herein to the Credit Agreement, the
Canadian Guarantee or any other Basic Document, no third party shall be
obligated to inquire as to whether any term or condition set forth therein has
occurred but shall be entitled to rely upon the certificate of the Secured Party
as to all events, including but not limited to the occurrence of an Event of
Default.
14. For purposes of executory process, the Mortgagor acknowledges and
agrees that the existence, amount, terms, and maturity of the Obligations may be
proven by affidavit or verified petition, in accordance with Louisiana law as
now existing or hereafter enacted.
5
<PAGE>
THUS DONE AND PASSED on this day 2nd day of February, 1998, (the
"EFFECTIVE DATE") effective for all purposes as of the Effective Date, in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with Mortgagor and me, Notary, after reading of the whole.
MORTGAGOR:
FOREST OIL CORPORATION
By: /s/ Daniel G. Blanchard
----------------------------------
Name: Daniel G. Blanchard
Title: Treasurer
WITNESSES:
/s/ Teresa J. Marano
- ------------------------------
/s/ Barbara E. Chesebro
- ------------------------------
/s/ Michele M. Miller
------------------------------
Notary Public
S-1
<PAGE>
THUS DONE AND PASSED on this 2nd day of February, 1998, (the
"EFFECTIVE DATE") effective for all purposes as of the Effective Date, in my
presence and in the presence of the undersigned competent witnesses who hereunto
sign their names with the Agent and the Trustee and me, Notary, after reading of
the whole.
AGENT:
THE CHASE MANHATTAN BANK
By: /s/ Mary Jo Woodford
----------------------------------
Name: Mary Jo Woodford
Title: Vice President
TRUSTEE:
By: /s/ Mary Jo Woodford
----------------------------------
Name: Mary Jo Woodford
Title: Vice President
WITNESSES:
/s/ Esther C. Alleyne
- ------------------------------
Esther C. Alleyne
/s/ Paul Common
- ------------------------------
Paul Common
/s/ Ruby V. Tulloch
------------------------------
Notary Public
Ruby V. Tulloch
S-2
<PAGE>
EXHIBIT A
NOTARY'S CERTIFICATE
The undersigned Notary Public hereby certifies that attached hereto are
certified copies of Resolutions produced by the Mortgagor and attached by me to
this Amendment No. 5 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including Hydrocarbons),
and Fixture Filing executed by Mortgagor this 2nd day of February, 1998 and
effective for all purposes as of February 2, 1998.
/s/ B. L. Affleck
--------------------------------------
Notary Public
Notary: State of Colorado
Printed Name: B. L. Affleck
My Commission Expires: August 19, 1999
S-3
<PAGE>
RESOLUTIONS OF THE BOARD OF DIRECTORS
RESOLVED, that this Company be, and hereby is, authorized to borrow and
receive up to an aggregate amount of $275,000,000 under a revolving
credit facility, including a $10,000,000 letter of credit subfacility
(the "LOANS"), as set forth in the Third Amended and Restated Credit
Agreement between Company, the Chase Manhattan Bank, as administrative
agent for the Banks ("AGENT"), and other lenders signatory thereto (the
"BANKS"); and be it further
RESOLVED, that any officer of this Company is hereby authorized and
empowered to agree upon with the Agent and the Banks the terms and
provisions of and execute and deliver for and on behalf of this Company
the Third Amended and Restated Credit Agreement, promissory notes,
certificates, borrowing, conversion or continuation notices in
connection with the Loans; and be it further
RESOLVED, that this Company grant to the Agent and the Banks a lien upon
and/or a security interest in such assets of this Company as may be
agreed upon between any of said officers and the Agent and Banks as
security for this Company's indebtedness, obligations and liabilities to
the Banks under the Third Amended and Restated Credit Agreement and the
other agreements executed in connection therewith; and that any of said
officers are authorized to execute and deliver for and on behalf of this
Company, mortgages, deeds of trust, assignments, security or pledge
agreements, financing statements and such other instruments as may be
required by Banks in connection with such lien and/or security interest
and containing such terms and conditions as may be acceptable or
agreeable to any of said officers, including, without limitation, a
waiver of appraisement, pact de non alienando, confession of judgment
and the usual Louisiana security clauses; such acceptance and agreement
to be conclusively evidenced by any of said officer's execution; and be
it further
RESOLVED, that any of said officers are authorized and empowered to do
or cause to be done all such acts or things and to sign and deliver, or
cause to be signed and delivered, all such amendments, supplements,
extensions and other documents, instruments or certificates (including
without limitation any and all amendments, supplements, extensions and
other documents, notices and certificates required or permitted to be
given or made to the Agent and the Banks under the terms of any of the
instruments executed on behalf of this Company in connection with the
Third Amended and Restated Credit Agreement, the other agreements
executed in connection therewith, the grant of a lien and/or security
interest as authorized by these Resolutions or otherwise contemplated by
the Third Amended and Restated Credit Agreement), in the name and on
behalf of this Company or otherwise, as any of said officers, in their
discretion, may deem necessary, advisable or appropriate to effectuate or
<PAGE>
carry out the purposes and intent of the foregoing Resolutions and to
perform the obligations of this Company under all instruments and
agreements executed on behalf of this Company in connection with the
Third Amended and Restated Credit Agreement and the grant of a lien upon
and/or security interest in assets of this Company as authorized by
these Resolutions; and be it further
RESOLVED, that this Company guarantee the payments and performance of
the indebtedness, obligations, liabilities of (a) 611852 SASKATCHEWAN
LTD., a corporation duly organized and validly existing under the laws
of the Province of Saskatchewan, Canada ("SASKATCHEWAN") up to an
aggregate principal amount of $25,000,000 under a revolving credit
facility including a $15,000,000 (CDN) letter of credit subfacility, as
set forth in that certain Second Amended and Restated Credit Agreement
(such agreement, as amended "FUNDING CO. CREDIT AGREEMENT") between
Saskatchewan, each of the lenders that is signatory thereto ("CANADIAN
LENDERS") and THE CHASE MANHATTAN BANK OF CANADA as administrative agent
for the Canadian Lenders (the "CANADIAN AGENT"), and (b) CANADIAN FOREST
OIL LTD., a corporation organized under the laws of the Province of
Alberta, Canada ("CANADIAN FOREST") up to an aggregate principal amount
of $25,000,000 under a revolving credit facility, including a
$15,000,000 (CDN) letter of credit subfacility, as set forth in that
certain Second Amended and Restated Credit Agreement (such agreement, as
amended, the "CANADIAN FOREST CREDIT AGREEMENT") between Canadian and
Saskatchewan as lender; and be it further
RESOLVED, that such guaranties authorized by these Resolutions may
reasonably be expected to benefit, directly or indirectly, this Company;
and be it further
RESOLVED, that any officer of this Company is hereby authorized and
empowered to agree upon with the Canadian Agent and the Canadian Lenders
the terms and provisions of and execute and deliver for and on behalf
of this Company instruments of guaranty, which guaranties may be
absolute and primary and extend to principal and interest on such
indebtedness, obligations and liabilities and with such agreement to the
terms and provisions of such instruments of guaranty to be conclusively
evidenced by any of said officers' execution and delivery of such
instruments of guaranty; and be it further
RESOLVED, that any of said officers are authorized and empowered to do or
cause to be done all such acts or things and to sign and deliver, or
cause to be signed and delivered, all such amendments, supplements,
extensions and other documents, instruments or certificates (including
<PAGE>
without limitation any and all notices and certificates required or
permitted to be given or made to the Canadian Agent and Canadian Lenders
under the terms of any of the instruments executed on behalf of this
Company in connection with its guarantee and the other agreements
executed in connection therewith, or as authorized by these Resolutions,
in the name and on behalf of this Company or otherwise, as any of said
officers, in their discretion, may deem necessary, advisable or appropriate
to effectuate or carry out the purposes and intent of the foregoing
Resolutions and to perform the obligations of this Company under all
instruments and agreements executed on behalf of this Company in
connection with its guarantee; and be it further
RESOLVED, that all acts, transactions or agreements undertaken prior to
the adoption of these Resolutions by any of the officers or
representatives of this Company in its name and for its account with the
Agent, the Canadian Agent, the Banks and the Canadian Lenders in
connection with the foregoing matters are hereby ratified, confirmed and
adopted by this Company, and be it further
RESOLVED, that the execution by any said officers of any document
authorized by the foregoing Resolutions or any document executed in the
accomplishment of any action or actions so authorized, is (or shall
become upon delivery) the enforceable and binding act and obligation of
this Company, without the necessity of the signature or attestation of
any other officer of this Company or the affixing of the corporate seal;
and be it further
RESOLVED, that the Secretary of this Company is hereby authorized and
directed to certify these Resolutions to the Agent, the Canadian Agent,
the Banks and Canadian Lenders.
<PAGE>
ACKNOWLEDGEMENT
STATE OF COLORADO )
: ss.
COUNTY OF COLORADO )
BE IT REMEMBERED that I, the undersigned Notary Public duly
qualified, commissioned, sworn and acting in and for the county and state
aforesaid, hereby certify that, on February 2, 1998 there personally appeared
before me, the following person, being the designated officer of the
corporation set opposite his name, and such corporation being a party to the
foregoing Amendment:
Daniel G. Blanchard, the Treasurer of Forest Oil Corporation,
This Amendment was acknowledged before me on this 2nd day of
February, 1998 by Daniel G. Blanchard, of Forest Oil Corporation, a New York
corporation, on behalf of said corporation.
LOUISIANA
Who being by me duly sworn, deposed and said that he is the designated
officer of said corporation described in and which executed the foregoing
Amendment, that he signed his name thereto by order of the Board of Directors of
said corporation, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of Denver, State of Colorado, this 2nd
day of February, 1998.
/s/ Michele M. Miller
----------------------------------------
Notary Public, State of Colorado
Notary's Printed Name: Michele M. Miller
My Commission expires: 9/29/00
S-4
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 2, 1998 there personally appeared before me, the
following person, being the designated officer of the bank set opposite her
name, and such corporation being a party to the foregoing Amendment:
Mary Jo Woodford, a Vice President of The Chase Manhattan Bank.
This Amendment was acknowledged before me on this 2nd day of
February, 1998 by Mary Jo Woodford, of The Chase Manhattan Bank, on behalf of
said bank.
LOUISIANA
Who being by me duly sworn, deposed and said that she is the
designated officer of said bank described in and which executed the foregoing
Amendment, that she signed her name thereto by order of the Board of Directors
of said bank, and acknowledged to me that she executed the same for the purposes
and consideration therein expressed, in the capacity therein stated, and as the
free act and deed of said bank.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of New York, State of New York, this 2nd day of February,
1998.
/s/ Ruby V. Tulloch
----------------------------------------
Ruby V. Tulloch
Notary Public, State of New York
S-5
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned Notary Public duly qualified,
commissioned, sworn and acting in and for the county and state aforesaid, hereby
certify that, on February 2, 1998 there personally appeared before me, the
following person, being a party to the foregoing Amendment:
This Amendment was acknowledged before me on this 2nd day of
February, 1998 by Mary Jo Woodford.
LOUISIANA
Who being by me duly sworn, deposed and said that she is the Trustee
described in the foregoing Amendment, that she signed her name thereto, and
acknowledged to me that she executed the same for the purposes and consideration
therein expressed, in the capacity therein stated, and as her free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official notarial
seal, in the County of New York, State of New York, this 2nd day of February,
1998.
/s/ Ruby V. Tulloch
----------------------------------------
Ruby V. Tulloch
Notary Public, State of New York
S-6
<PAGE>
Schedule 1
SCHEDULE OF RECORDING INFORMATION
FOREST OIL CORPORATION
and
THE CHASE MANHATTAN BANK
as Agent
1. Deed of Trust, Mortgage, Security Agreement, Assignment of Production,
Financing Statement (Personal Property Including Hydrocarbons), and Fixture
Filing dated December 1, 1993 executed by Forest Oil Corporation ("Forest")
in favor of Bettylou J. Robert, as Trustee, for the benefit of The Chase
Manhattan Bank, as Agent and in favour of the Agent (all recording
references are to the Real Property Records):
RECORDED IN THE STATE OF TEXAS
------------------------------
COUNTY DATE FILED RECORDING INFORMATION
----------------- ----------------------------
Aransas 12/8/93 Recorded 12/10/93 as
#192065
Brazoria 12/8/93 Recorded 12/8/93 as
#93-044178
Calhoun 12/8/93 Recorded 12/8/93 in
Volume 116, Page 73
Chambers 12/8/93 Recorded 12/10/93 in
Volume 93-225, Page 522
Galveston 12/16/93 Recorded 12/16/93 as
#9353245
Hidalgo 12/8/93 Recorded 12/8/93 as
#357731
Jefferson 12/8/93 Recorded 12/8/93 as
#93-41412
Loving 12/8/93 Recorded 12/8/93 in
Volume 45, Page 688
Matagorda 12/8/93 Recorded 12/8/93 in
Volume 366, Page 787
<PAGE>
Pecos 12/8/93 Recorded 12/8/93 in
Volume 272, Page 25
Reeves 12/8/93 Recorded 12/8/93 in
Volume 533, Page 315
Ward 12/8/93 Recorded 12/9/93 in
Volume 175, Page 524
RECORDED IN THE STATE OF OKLAHOMA
---------------------------------
COUNTY DATE FILED RECORDING INFORMATION
----------------- ----------------------------
Caddo 12/8/93 Recorded 12/8/93 as
No. 93 9150
Oklahoma 12/8/93 Recorded 12/8/93 as
No. 03908
Washita 12/8/93 Recorded 12/8/93 as
E-1333
RECORDED IN THE STATE OF WYOMING
--------------------------------
COUNTY DATE FILED RECORDING INFORMATION
----------------- ----------------------------
Natrona 12/8/93 Recorded 12/8/93 as
Instrument #535014
RECORDED IN THE STATE OF LOUISIANA
----------------------------------
A. PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Iberia 12/7/93 Entry No. 93-8912
MOB A-633
Vermilion 12/7/93 Mortgage Entry No. 9311419
St. Mary 12/7/93 Entry No. 206,342
MOB 677, folio 650
Cameron 12/7/93 File 233834
MOB 197, folio _____
Plaquemines 12/7/93 MOB 231, folio 1
2
<PAGE>
Lafourche 12/7/93 Entry No. 759883
MOB 657
Terrebonne 12/7/93 Entry No. 927906
MOB 959
Jefferson 12/8/93 Entry No. 9368844
MOB 3629, folio 248
B. Minerals Management Service
Gulf of Mexico Region
December 7, 1993
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987, OCS-G 0991,
OCS-G 0992, OCS-G 0993, OCS-G 0994, OCS-G 0995,
OCS-G 0996, OCS-G 0997, OCS-G 1216, OCS-G 1217,
OCS-G 1979, OCS-G 1980, OCS-G 1981, OCS-G 1982,
OCS-G 5517, OCS-G 5625, OCS-G 7793, OCS-G 8434,
OCS-G 8457, OCS-G 9627, OCS-G 9651, OCS-G 10742,
OCS-G 10785, OCS-G 6178, OCS-G 6156, OCS-G 9086,
OCS-G 5171, OCS-G 6048, OCS-G 6069, OCS-G 3738,
OCS-G 8553, OCS-G 12509, OCS-G 0479.
C. Financing Statement executed by Forest in connection with item # 1
above and filed as follows:
LOCATION DATE FILED FILING INFORMATION
-------- ---------- ------------------
Secretary of 12/8/93 #230027
State of Texas
2. UCC-1 Financing Statement by Forest Oil Corporation, as Debtor, and The
Chase Manhattan Bank, as Secured Party.
a. Orleans Parish, Louisiana
December 8, 1993
Under UCC Entry No. 36-79419.
b. Minerals Management Service
Gulf of Mexico Region
December 7, 1993
3
<PAGE>
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987,
OCS-G 0991, OCS-G 0992, OCS-G 0993, OCS-G 0994,
OCS-G 0995, OCS-G 0996, OCS-G 0997, OCS-G 1216,
OCS-G 1217, OCS-G 1979, OCS-G 1980, OCS-G 1981,
OCS-G 1982, OCS-G 5517, OCS-G 5625, OCS-G 7793,
OCS-G 8434, OCS-G 8457, OCS-G 9627, OCS-G 9651,
OCS-G 10742, OCS-G 10785, OCS-G 6178, OCS-G 6156,
OCS-G 9086, OCS-G 5171, OCS-G 6048, OCS-G 6069,
OCS-G 3738, OCS-G 8553, OCS-G 12509, OCS-G 0479.
3. Amendment No. 1 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated June 3, 1994 executed by Forest Oil
Corporation ("Forest") in favor of Bettylou J. Robert, as Trustee, for the
benefit of The Chase Manhattan Bank, as Agent and in favour of the Agent:
RECORDED IN THE STATE OF TEXAS
------------------------------
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Aransas 6/9/94 Recorded 6/13/94 as #195102
Brazoria 6/8/94 Recorded 6/8/94 as #94-021546
Calhoun 6/8/94 Recorded 6/9/94 in Volume 125,
Page 905-915 #35684
Chambers 6/8/94 Recorded 6/10/94 in
Volume 94-240, Page 214
Galveston 6/22/94 Recorded 6/22/94 as #9428381
Hidalgo 6/14/94 Recorded 6/14/94 as #392138
Jefferson 6/8/94 Recorded 6/8/94 as #94-9418637
Loving 6/9/94 Recorded 6/9/94 in Volume 46,
Page 231
Matagorda 6/8/94 Recorded 6/8/94 in Volume 381,
Page 504
Pecos 6/9/94 Recorded 6/9/94 in Volume 274,
Page 231
4
<PAGE>
Reeves 6/9/94 Recorded 6/10/94 in
Volume 538, Page 228
Ward 6/23/94 Recorded 6/23/94 in
Volume 177, Page 41
RECORDED IN THE STATE OF LOUISIANA
----------------------------------
A. COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 6/7/94 Recorded 6/7/94
File 236410
MOB 200
Iberia 6/6/94 Recorded 6/6/94
Entry No. 94-4017
MOB A-641
Jefferson 6/6/94 Recorded 6/6/94
Entry No. 9432596
MOB 3656, folio 855
Lafourche 6/6/94 Recorded 6/6/94
Entry No. 767362
MOB 670, page 682
Plaquemines 6/7/94 Recorded 6/7/94
MOB 235, folio 1083
St. Mary 6/6/94 Recorded 6/6/94
Entry No. 208,538
MOB 687
Terrebonne 6/6/94 Recorded 6/6/94
Entry No. 938445
MOB 980
Vermilion 6/6/94 Recorded 6/6/94
Mortgage Entry No. 9405602
5
<PAGE>
B. Minerals Management Service, Gulf of Mexico Region, June 6, 1994.
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987,
OCS-G 0991, OCS-G 0992, OCS-G 0993, OCS-G 0994,
OCS-G 0995, OCS-G 0996, OCS-G 0997, OCS-G 1216,
OCS-G 1217, OCS-G 1979, OCS-G 1980, OCS-G 1981,
OCS-G 1982, OCS-G 5517, OCS-G 5625, OCS-G 7793,
OCS-G 8434, OCS-G 8457, OCS-G 9627, OCS-G 9651,
OCS-G 10742, OCS-G 10785, OCS-G 6178, OCS-G 6156,
OCS-G 9086, OCS-G 5171, OCS-G 6048, OCS-G 6069,
OCS-G 3738, OCS-G 8553, OCS-G 12509, OCS-G 0479.
To cover Texas Deed of Trust also filed in OCS-G 6178, 6156, 9086,
5171, 6048, 6069, 3738, 8553 and 12509.
4. Amendment No. 2 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated August 31, 1995 executed by Forest
Oil Corporation ("Forest") in favor of Ian G.P. Schottlaender, as Trustee,
for the benefit of The Chase Manhattan Bank, as Agent and in favour of the
Agent:
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Aransas 9/28/95 Recorded 9/28/95 as
#202631
Brazoria 9/27/95 Recorded 9/27/95 as
#95-031805
Calhoun 9/27/95 Recorded 9/27/95 in
Volume 149, Page 818
Chambers 9/28/95 Recorded 9/29/95 in
Volume 95-277, Page 484
Galveston 10/11/95 Recorded 10/11/95 as
#9539437
Hidalgo 9/29/95 Recorded 9/29/95 as
#477853
6
<PAGE>
Jefferson 9/27/95 Recorded 9/27/95 as
#95-9528748
Loving 9/28/95 Recorded 9/28/95 in
Volume 48, Page 602
Matagorda 9/27/95 Recorded 9/27/95 in
Volume 420, Page 675
Pecos 9/28/95 Recorded 9/28/95 in
Volume 280, Page 450
Reeves 9/29/95 Recorded 9/29/95 in
Volume 554, Page 415
Ward 9/29/95 Recorded 9/29/95 in
Volume 181, Page 615
RECORDED IN THE STATE OF OKLAHOMA
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Caddo 9/21/95 Recorded 9/21/95 in
Book 2006, Page 63-85
as #95-07098
Oklahoma 9/21/95 Recorded 9/21/95 No. 3098
Washita 9/22/95 Recorded 9/22/95 in
Book 826, Page 410-486
RECORDED IN THE STATE OF WYOMING
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- -------------------
Natrona 9/15/95 Recorded 9/15/95 as
Instrument #567140
Secretary
of State 9/19/95 Recorded 9/18/95
Current document ID:
9526112 1CO4
7
<PAGE>
RECORDED IN THE STATE OF LOUISIANA
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 9/19/95 File No: 242694
MOB 212
Iberia 9/19/95 Entry No: 95-7038
MOB A-665
Lafourche 9/19/95 Entry No: 787079
MOB 700, folio 23
Plaquemines 9/20/95 MOB 249, folio 856
St. Mary 9/19/95 Entry No. 214, 024
MOB 715
Terrebonne 9/19/95 Entry No. 962561
MOB 1031, page 402
Vermilion 9/19/95 MOB Entry No. 9509530
B. Minerals Management Service, Gulf of Mexico Region, October 10, 1995.
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987, OCS-G 0991,
OCS-G 0992, OCS-G 0993, OCS-G 0994, OCS-G 0995,
OCS-G 0996, OCS-G 0997, OCS-G 1216, OCS-G 1217,
OCS-G 1979, OCS-G 1980, OCS-G 1981, OCS-G 1982,
OCS-G 5517, OCS-G 5625, OCS-G 7793, OCS-G 8434,
OCS-G 8457, OCS-G 9627, OCS-G 9651, OCS-G 10742,
OCS-G 10785, OCS-G 6178, OCS-G 6156, OCS-G 9086,
OCS-G 5171, OCS-G 6048, OCS-G 6069, OCS-G 3738,
OCS-G 8553, OCS-G 12509, OCS-G 0479.
8
<PAGE>
5. Amendment No. 3 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated January 31, 1997 executed by Forest
Oil Corporation ("FOREST") in favour of Mary Jo Woodford, as Trustee, for
the benefit of The Chase Manhattan Bank, as Agent and in favour of the
Agent:
RECORDED IN THE STATE OF OKLAHOMA
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Washita 2/10/97 Recorded 2/10/97 as
Book 848, Pages 609-701,
#I-167
Oklahoma 2/11/97 Recorded 2/11/97 as
No. N00612
Caddo 2/11/97 Recorded 2/11/97 as
Book 2103, Pages 18-56,
#9701091
RECORDED IN THE STATE OF WYOMING
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Natrona 2/7/97 Recorded 2/7/97 as
Instrument #591287
RECORDED IN THE STATE OF LOUISIANA
PARISH DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Cameron 2/7/97 Recorded 2/7/97 as
MOB 223, File 249344
Iberia 2/7/97 Recorded 2/7/97 as
MOB A-695, Entry 97-1224
Jefferson 2/7/97 Recorded 2/7/97 as
MOB 3784, Folio 209, Entry 9706862
Lafourche 2/7/97 Recorded 2/7/97 as
MOB 733, Folio 862, Entry 809475
9
<PAGE>
Plaquemines 2/7/97 Recorded 2/7/97 as
MOB 263 Folio 91
St. Mary 2/7/97 Recorded 2/7/97 as
MOB 748, Entry 221,348
Terrebonne 2/7/97 Recorded 2/7/97 as
MOB 1090, Entry 991,729
Vermilion 2/7/97 Recorded 2/7/97 as
Mortgage Entry 9701944
B. Minerals Management Service, Gulf of Mexico Region, October 10, 1995.
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987, OCS-G 0991,
OCS-G 0992, OCS-G 0993, OCS-G 0994, OCS-G 0995,
OCS-G 0996, OCS-G 0997, OCS-G 1216, OCS-G 1217,
OCS-G 1979, OCS-G 1980, OCS-G 1981, OCS-G 1982,
OCS-G 5517, OCS-G 5625, OCS-G 7793, OCS-G 8434,
OCS-G 8457, OCS-G 9627, OCS-G 9651, OCS-G 10742,
OCS-G 10785, OCS-G 6178, OCS-G 6156, OCS-G 9086,
OCS-G 5171, OCS-G 6048, OCS-G 6069, OCS-G 3738,
OCS-G 8553, OCS-G 12509, OCS-G 0479.
RECORDED IN THE STATE OF TEXAS
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
A. Jefferson 2/12/97 Recorded 2/12/97 as
No. 97-9703920
B. UCC-3 Financing Statement Change (Amendment) by Forest Oil
Corporation, as Debtor, and The Chase Manhattan Bank, as Secured
Party.
a. Orleans Parish, Louisiana
February 10, 1997
Entry 36-114843
b. Secretary of State of Texas
December 8, 1993
Under Entry No. 230027
c. Secretary of State of Colorado
December 9, 1993
Under Entry No. 932089275
10
<PAGE>
6. Amendment No. 4 to Deed of Trust, Mortgage, Security Agreement, Assignment
of Production, Financing Statement (Personal Property Including
Hydrocarbons), and Fixture Filing dated August 19, 1997 executed by Forest
Oil Corporation ("FOREST") in favour of Mary Jo Woodford, as Trustee, for
the benefit of The Chase Manhattan Bank, as Agent and in favour of the
Agent:
RECORDED IN THE STATE OF OKLAHOMA
COUNTY DATE FILED RECORDING INFORMATION
------ ---------- ---------------------
Washita 9/12/97 Recorded 9/12/97 as
Book 860, Pages 910-1014,
No. J-1107
Oklahoma 9/11/97 Recorded 9/11/97 as No. NO 3503
Caddo 9/10/97 Recorded 9/10/97 as Book 2132, Pages 1-105,
No. 1657
11
<PAGE>
RECORDED IN THE STATE OF LOUISIANA
Parish Date Filed Recording Information
------ ---------- ---------------------
Cameron 9-8-97 File 252021
MOB 228
Iberia 9-8-97 Entry 97-7778
MOB A-710
Jefferson 9-5-97 Entry 9746676
MOB 8812, folio 423
Lafourche 9-8-97 Entry 820310
MOB 752, page 572
Plaquemines 9-8-97 MOB 270, folio 329
St. Mary 9-8-97 Entry 224,643
MOB 765
Terrebonne 9-8-97 Entry 1005, 527
MOB 1121
Vermilion 9-8-97 Entry 9710890
B. Minerals Management Service, Gulf of Mexico Region, September 8, 1997.
Lease Files:
OCS-G 0900, OCS-G 0986, OCS-G 0987, OCS-G 0991,
OCS-G 0992, OCS-G 0993, OCS-G 0994, OCS-G 0995,
OCS-G 0996, OCS-G 0997, OCS-G 1216, OCS-G 1217,
OCS-G 1979, OCS-G 1980, OCS-G 1981, OCS-G 1982,
OCS-G 5517, OCS-G 5625, OCS-G 7793, OCS-G 8434,
OCS-G 8457, OCS-G 9627, OCS-G 9651, OCS-G 10742,
OCS-G 10785, OCS-G 6178, OCS-G 6156, OCS-G 9086,
OCS-G 5171, OCS-G 6048, OCS-G 6069, OCS-G 3738,
OCS-G 8553, OCS-G 12509, OCS-G 0479.
12
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT
TO SHAREHOLDERS AGREEMENT
THIS FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT ("Amendment") is entered
into by and between Forest Oil Corporation, a New York corporation
("Forest"), and The Anschutz Corporation, a Kansas corporation ("Anschutz").
W I T N E S S E T H
WHEREAS, Forest and Anschutz have heretofore entered into that certain
Shareholder's Agreement dated as of July 27, 1995 (the "Agreement"); and
WHEREAS, Forest and Anschutz desire to amend the Agreement in accordance
with the terms and provisions set forth below.
NOW, THEREFORE, in consideration of the premises for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by Forest and Anschutz, Forest and Anschutz hereby agree to
amend lines 5 and 6 of Section 3.1(a) of the Agreement by deleting the phrase
"(other than Equity Securities of the Company owned by Purchaser, any of its
Affiliates of any such Group)" and replacing it with the phrase "(other than
Equity Securities of the Company owned by JEDI, Purchaser, any of their
respective Affiliates or any Group of which any such entity is a member)".
Except as expressly amended hereby, the Agreement is hereby ratified and
confirmed, and as hereby amended, shall remain in full force and effect in
accordance with its terms, conditions and provisions.
EXECUTED in multiple counterparts, each having the force and effect of
an original, effective as of January 24, 1996.
FOREST OIL CORPORATION
By: /s/ Daniel L. McNamara
---------------------------------
Name: Daniel L. McNamara
-------------------------------
Title: Corporate Counsel
------------------------------
THE ANSCHUTZ CORPORATION
By: /s/ Craig D. Slater
---------------------------------
Name: Craig D. Slater
-------------------------------
Title: Vice President
------------------------------
<PAGE>
Exhibit 21
FOREST OIL CORPORATION
List of Subsidiaries of the Registrant
Name of Subsidiary Jurisdiction in Which Organized
- ------------------------- -------------------------------
Saxon Petroleum Inc. Alberta
Canadian Forest Oil, Ltd. Alberta
\<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
FOREST OIL CORPORATION
We consent to the incorporation by reference in (i) the Registration
Statements (Nos. 2-74151, 2-76946, 33-2748 and 33-59504) on Form S-8 of
Forest Oil Corporation - Retirement Savings Plan of Forest Oil Corporation,
(ii) the Registration Statement (No. 33-48440) on Form S-8 of Forest Oil
Corporation -1992 Stock Option Plan of Forest Oil Corporation, (iii) the
Registration Statements (Nos. 33-47477 and 33-47478) on Forms S-2 and S-3 of
Forest Oil Corporation - Common Stock issuable to Richard Dorn and resales
thereof, (iv) the Registration Statement (No. 333-45839) on Form S-3 of
Forest Oil Corporation of Common Stock issuable to LLOG Exploration Company
and resales thereof, and (v) the Registration Statement (No. 333-30973) on
Form S-3 of Forest Oil Corporation of Common Stock issuable to Saxon
Petroleum Inc. and resales thereof, of our report dated February 10, 1998
relating to the consolidated balance sheets of Forest Oil Corporation and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of
the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997 annual report on Form 10-K of Forest Oil
Corporation.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 30, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Philip F. Anschutz
------------------------------------
Philip F. Anschutz
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Robert S. Boswell
------------------------------------
Robert S. Boswell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ William L. Britton
------------------------------------
William L. Britton
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Cortlandt S. Dietler
------------------------------------
Cortlandt S. Dietler
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ William L. Dorn
------------------------------------
William L. Dorn
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Jordan L. Haines
------------------------------------
Jordan L. Haines
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ David H. Keyte
------------------------------------
David H. Keyte
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ James H. Lee
------------------------------------
James H. Lee
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Craig D. Slater
------------------------------------
Craig D. Slater
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Joan C. Sonnen
------------------------------------
Joan C. Sonnen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Drake S. Tempest
------------------------------------
Drake S. Tempest
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ Michael B. Yanney
------------------------------------
Michael B. Yanney
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation
and filing of the Form 10-K -- Annual Report for the year ended December 31,
1997 pursuant to Section 13 of the Securities Exchange Act of 1934, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as officer or director, or both, of the Company to a Form 10-K
- --Annual Report for the year ended December 31, 1997, pursuant to Section 13
of the Securities Exchange Act of 1934 or to any amendment thereto filed with
the Securities and Exchange Commission and to any instrument or document
filed as a part of, as an exhibit to or in connection with said Form 10-K --
Annual Report or amendment; and the undersigned does hereby ratify and
confirm as his own act and deed all that said attorneys and agents shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
30th day of March, 1998.
/s/ J. J. Simmons, III
------------------------------------
J. J. Simmons, III
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMNTS OF INCOME AND CONDENSED CONSOLIDATED BALANCE
SHEETS ON PAGES 45 AND 46 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,191
<SECURITIES> 0
<RECEIVABLES> 65,720
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,560
<PP&E> 1,605,600
<DEPRECIATION> 1,084,307
<TOTAL-ASSETS> 647,782
<CURRENT-LIABILITIES> 66,498
<BONDS> 254,760
0
0
<COMMON> 3,632
<OTHER-SE> 258,195
<TOTAL-LIABILITY-AND-EQUITY> 647,782
<SALES> 339,641
<TOTAL-REVENUES> 339,641
<CGS> 212,131
<TOTAL-COSTS> 228,995
<OTHER-EXPENSES> 79,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,403
<INCOME-PRETAX> 6,382
<INCOME-TAX> 3,293
<INCOME-CONTINUING> 3,089
<DISCONTINUED> 0
<EXTRAORDINARY> (12,359)
<CHANGES> 0
<NET-INCOME> (9,270)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.27)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME ON THE
COMPANY'S FORM 10-Q'S FOR THE QUARTERS ENDED MARCH 31, 1997, JUNE 30, 1997
AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 6,580 5,615 24,893
<SECURITIES> 0 0 0
<RECEIVABLES> 43,710 48,944 51,558
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 55,707 59,237 80,904
<PP&E> 1,508,702 1,542,509 1,574,266
<DEPRECIATION> 1,027,506 1,045,479 1,065,016
<TOTAL-ASSETS> 572,043 592,012 629,135
<CURRENT-LIABILITIES> 62,914 60,479 54,634
<BONDS> 194,252 223,884 244,865
0 0 0
0 0 0
<COMMON> 3,269 3,279 3,631
<OTHER-SE> 240,862 238,367 259,633
<TOTAL-LIABILITY-AND-EQUITY> 572,043 592,012 629,135
<SALES> 93,063 170,718 252,695
<TOTAL-REVENUES> 93,063 170,718 252,695
<CGS> 60,553 112,577 161,851
<TOTAL-COSTS> 64,019 121,124 174,299
<OTHER-EXPENSES> 18,539 36,756 58,820
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,774 10,033 15,652
<INCOME-PRETAX> 6,574 4,294 5,597
<INCOME-TAX> 2,052 2,968 3,688
<INCOME-CONTINUING> 4,522 1,326 1,909
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (12,359)
<CHANGES> 0 0 0
<NET-INCOME> 4,522 1,326 (10,450)
<EPS-PRIMARY> 0.14 0.04 (0.32)
<EPS-DILUTED> 0.13 0.03 (0.31)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME ON
THE COMPANY'S FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND ON THE COMPANY'S FORM 10-Q'S FOR THE QUARTERS ENDED MARCH 31, 1996,
JUNE 30, 1996 AND SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
JAN-01-1995
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
DEC-31-1995
<CASH> 5,437 4,176 7,676 8,626
3,287
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 45,867 44,104 46,768 55,462
17,395
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 55,044 51,916 58,712 69,084
23,239
<PP&E> 1,378,181 1,393,342 1,427,858 1,468,205
1,226,529
<DEPRECIATION> 961,546 975,064 991,457 1,009,963
948,930
<TOTAL-ASSETS> 523,238 520,834 533,166 563,458
321,043
<CURRENT-LIABILITIES> 60,325 60,964 63,381 81,733
32,420
<BONDS> 198,306 201,886 189,652 168,859
193,879
0 0 0 0
0
24,345 24,345 24,345 15,827
24,359
<COMMON> 2,453 2,460 2,686 3,053
1,066
<OTHER-SE> 155,480 151,732 177,221 223,563
18,872
<TOTAL-LIABILITY-AND-EQUITY> 523,238 520,834 533,166 563,458
321,043
<SALES> 60,406 140,111 223,676 316,087
82,275
<TOTAL-REVENUES> 60,406 140,111 223,676 316,087
82,275
<CGS> 37,666 95,021 152,339 210,905
22,463
<TOTAL-COSTS> 40,396 101,358 161,865 224,528
31,544
<OTHER-EXPENSES> 12,838 26,989 43,862 63,068
43,592
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 5,797 12,220 18,042 23,307
25,323
<INCOME-PRETAX> 1,739 (153) 614 6,590
(18,003)
<INCOME-TAX> 2,080 3,305 3,250 5,451
(7)
<INCOME-CONTINUING> (386) (3,287) (2,408) 1,139
(17,996)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 2,166
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (386) (3,287) (2,408) 3,305
(17,996)
<EPS-PRIMARY> (0.04) (0.19) (0.17) 0.05
(2.74)
<EPS-DILUTED> (0.04) (0.19) (0.17) 0.05
(2.74)
</TABLE>
