<PAGE>
The information in this Prospectus Supplement is not complete and may be
changed. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. A final Prospectus Supplement and
Prospectus will be delivered to purchasers of these securities. This Prospectus
Supplement and the Prospectus are not an offer to sell and are not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-16125
SUBJECT TO COMPLETION, DATED JANUARY 25, 1999
P R O S P E C T U S S U P P L E M E N T
(TO PROSPECTUS DATED NOVEMBER 9, 1998)
$100,000,000
[LOGO]
Forest Oil Corporation
% Senior Subordinated Notes Due 2006
--------------
The Notes will bear interest at the rate of % per year. We will pay
interest on the Notes twice a year on January 15 and July 15, beginning on July
15, 1999. The Notes will mature on , 2006. If we default, your right to
payment under the Notes will be junior to our secured debt and our other senior
debt, whether current or future. We do not intend to list the Notes on any
national securities exchange or on Nasdaq. We have the right to redeem the Notes
prior to their maturity at a redemption price that is described more fully in
this Prospectus.
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-12 FOR SEVERAL FACTORS THAT YOU
SHOULD CONSIDER CAREFULLY BEFORE YOU INVEST IN THE NOTES BEING OFFERED BY THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
Per Note Total
----------- -----------
<S> <C> <C>
Public Offering Price % $
Underwriting Discount % $
Proceeds to Forest (before expenses) % $
</TABLE>
The following underwriters are offering the Notes subject to various
conditions. The underwriters expect to deliver the Notes to you on or about
, 1999.
--------------
Salomon Smith Barney
Morgan Stanley Dean Witter
Warburg Dillon Read LLC
, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is the Prospectus Supplement,
which describes the specific terms of the Notes we are offering. The second
part, the base Prospectus, gives more general information, some of which may not
apply to the Notes we are offering. Generally, when we refer only to the
"Prospectus," we are referring to both parts combined.
IF THE DESCRIPTION OF YOUR NOTES VARIES BETWEEN THE PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THE NOTES IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS ACCURATE AS OF
ANY DATE LATER THAN JANUARY , 1999.
--------------
We include cross references in the Prospectus to captions in these materials
where you can find further related discussions. The following table of contents
tells you where to find these captions.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
Forward Looking Statements................................................................................ S-3
Prospectus Summary........................................................................................ S-4
Risk Factors.............................................................................................. S-12
Use of Proceeds........................................................................................... S-21
Capitalization............................................................................................ S-22
Description of the Notes.................................................................................. S-23
Underwriting.............................................................................................. S-65
Legal Matters............................................................................................. S-66
Experts................................................................................................... S-66
<CAPTION>
PROSPECTUS
<S> <C>
About this Prospectus..................................................................................... 2
Where You Can Find More Information....................................................................... 2
The Company............................................................................................... 3
Use of Proceeds........................................................................................... 3
Ratio of Earnings To Fixed Charges........................................................................ 3
Description of Debt Securities............................................................................ 3
Description of Capital Stock.............................................................................. 7
Anti-Takeover Provisions.................................................................................. 8
Plan of Distribution...................................................................................... 8
Legal Matters............................................................................................. 9
Experts................................................................................................... 9
</TABLE>
S-2
<PAGE>
FORWARD-LOOKING STATEMENTS
The information in this Prospectus may contain forward-looking statements.
You can identify these statements by words such as "may," "will," "expect,"
"anticipate," "estimate," "continue" or other similar words. These statements
discuss future expectations, contain projections of results of operations or
financial condition or state other forward-looking information. When considering
such forward-looking statements, you should keep in mind the risk factors and
other cautionary statements in this Prospectus. The risk factors noted in this
Prospectus and other factors noted throughout this Prospectus, including certain
risks and uncertainties, could cause our actual results to differ materially
from those contained in any forward-looking statement. Prices for oil and
natural gas fluctuate widely and have declined significantly recently. Numerous
uncertainties are inherent in estimating proved oil and natural gas reserves and
in projecting future rates of production and timing of development expenditures.
Many of these uncertainties are beyond our control. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact way. The accuracy of any reserve
estimate depends on the quality of available data and the interpretation of such
data by geological engineers. As a result, estimates made by different engineers
often vary from one another. In addition, the results of drilling, testing and
production activities may justify revisions of estimates that were made
previously. If significant, such revisions 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.
S-3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Forest was founded in 1916 making it one of the oldest independent oil and
gas companies in the United States. We operate in four core operating areas:
Western Canada, Western U.S., the Gulf Coast, and the Gulf of Mexico. Forest has
been a publicly traded company for almost 30 years.
Since 1995, The Anschutz Corporation, a private Denver based corporation,
has invested almost $175 million in Forest and currently owns approximately 40%
of our common stock.
RECENT DEVELOPMENTS
PRELIMINARY 1998 RESULTS. We believe that our estimated proved reserves as
of December 31, 1998 were in the range of 750 BCFE to 800 BCFE. Approximately
70% to 75% of our reserves are located in the United States and about 70% of
proved reserves are natural gas. Forest had a ceiling limitation writedown of
$125 million (after tax) for the quarter ended September 30, 1998. We may have a
further writedown of $25 million to $50 million for the fourth quarter of 1998
due to further reductions in oil prices. We estimate that our 1998 finding costs
were in the range of $1.35 to $1.40 per MCFE. We have not finalized our 1998
results and therefore we can give you no assurance that actual results will not
vary materially from these estimates.
SAXON TRANSACTION. In August 1998, we acquired all of the outstanding
common shares of Saxon Petroleum Inc. not owned by us in exchange for 1,081,256
shares of Forest common stock. We expect to realize general and administrative
cost savings of approximately $1.5 million (U.S.) per year as a result of the
consolidation of the operations of Saxon with those of our wholly owned Canadian
subsidiary, Canadian Forest Oil Ltd.
BANK OF AMERICA. In June 1998, we settled our only remaining nonrecourse
production payment loan by issuing 271,214 shares of common stock to the lender,
Bank of America National Trust & Savings Association. The loan, which originated
in May 1992, had a remaining principal amount of approximately $14.6 million and
a book value of approximately $9.9 million. The loan was secured primarily by
certain oil properties in Oklahoma and the Gulf of Mexico. As a result of the
settlement, we recorded an extraordinary gain of approximately $6.2 million in
June 1998.
ANSCHUTZ ACQUISITION. In June 1998, Forest issued 5.95 million shares of
common stock to Anschutz in exchange for certain oil and gas assets. The oil and
gas assets acquired included an interest in the Anschutz Ranch East Field
located in Utah and Wyoming. Our interest in this field had net proved developed
producing reserves estimated at approximately 72 BCFE at the date of
acquisition. We also acquired all of Anschutz's Canadian oil and gas assets,
comprised primarily of approximately 170,000 net acres of undeveloped land as
well as 5.2 BCFE of estimated proved reserves. Our acquisition included certain
of Anschutz's international oil and gas assets comprised of 13 international
projects encompassing approximately 18 million net acres of undeveloped land.
UNOCAL ACQUISITION. In May 1998, we acquired certain oil and gas interests
of Unocal Canada Exploration Limited and Unocal Canada Limited in the Northwest
Territories and frontier areas of Canada. The assets acquired included Unocal's
35% working interest in the P-66 discovery well on the Flett Prospect in the
southern Northwest Territories, approximately 225,000 net acres of lands in the
Northwest Territories held under exploration licenses on a work permit basis,
certain other working interests and Unocal's data base including seismic surface
geology, reservoir engineering and other information collected during Unocal's
40 years of exploration activity in the Northwest Territories.
LOUISIANA ACQUISITION. In February 1998, we purchased interests in oil and
natural gas properties in 13 fields located onshore in Louisiana from a private
company for total consideration of approximately $231 million. The consideration
consisted of approximately $217 million of cash and one million shares of
S-4
<PAGE>
Forest common stock. The properties had estimated proved reserves of
approximately 189 BCFE at the time of purchase.
STRATEGY
Our strategy is to focus on the exploration, development and acquisition of
oil and gas producing properties located in selected areas in North America
where we have expertise and experience.
Acquisitions have been an important component of our growth strategy, but we
have not made acquisitions simply to increase the size of the company. Both the
Louisiana and Anschutz acquisitions in 1998 offer Forest upside potential
through both exploration and development of these fields. The Anschutz
acquisition offers development opportunities at the Anschutz Ranch East Field,
as well as exploration internationally. Through recompletions and workovers, we
expect to increase production on the Louisiana properties in 1999. In addition,
we have identified numerous exploration opportunities in deeper horizons on
these properties.
DIVERSIFY NORTH AMERICAN GAS STRATEGY. We believe that through our
operations and acquisitions in Canada, we have significantly diversified our
operations and added long-lived reserves and production assets to our
development portfolio. These geographic regions also provide diversification to
the exploration portfolio through exploratory plays in which we can employ our
technical expertise.
In addition, we believe that these geographic positions also provide
attractive natural gas market diversification. We believe that this
diversification could benefit our operating margins as improvements in the
infrastructure of the North American gas transportation system create price
differentials that are more closely related to proximity to markets rather than
the availability of transportation. In support of this belief, the average price
differential between Canadian spot gas prices and Henry Hub spot gas prices for
the three months ended December 31, 1998 decreased by approximately $1.41 U.S.
per MMBTU compared to the same period in the prior year.
ENHANCE EXISTING PROPERTIES THROUGH ACTIVE DEVELOPMENT PROGRAM. We
continually evaluate new imaging, drilling and completion technologies and their
potential application to our existing properties in order to identify additional
development opportunities. We also pursue workovers, recompletions, secondary
recovery operations and other production enhancement techniques on our
properties to increase production. Our development expenditures and activities
on our existing properties increased in 1998 as compared to prior years. We have
increased our expenditures for development from $13.2 million in 1995 to
approximately $70 million in 1998. We have, however, reduced our 1999 capital
expenditure budget (exploration and development) due to lower oil and gas
prices. We have budgeted $60 million for 1999, which is less than our expected
cash flow from our producing properties. Approximately two-thirds of the $60
million budget is dedicated to development spending and one-third to
exploration, and approximately two-thirds to U.S. projects and one-third to
Canadian projects.
CONTROL OPERATIONS TO MAXIMIZE EFFICIENCIES. We emphasize control of
operations in all of our core operating areas and in our evaluation of
acquisition opportunities. Control of operations positions us to maximize
synergies and operating efficiencies and control the timing and costs of
drilling operations in order to increase margins and the returns on capital
investments.
CONSERVE CAPITAL RESOURCES. Under the current difficult operating
environment caused by low oil and gas prices, we have reduced budgeted capital
spending for 1999 by 53% from $130 million to $60 million. By reducing our
planned spending, we plan to improve our liquidity position by using excess cash
flow from operations to reduce indebtedness.
MAINTAIN FINANCIAL FLEXIBILITY. We are committed to maintaining financial
flexibility, which we believe is important for the successful execution of our
strategy. From January 1, 1995 through September 30, 1998, Forest added a total
of approximately $385 million of common equity through the issuance of common
stock. We seek to continue to reduce our level of debt as a percentage of our
capitalization.
S-5
<PAGE>
PURSUE ATTRACTIVE ACQUISITIONS. We continue to pursue acquisitions of
producing properties. Our selection criteria 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 development, (iii) attractive
potential return on investment, and (iv) opportunities for improved operating
efficiencies. In Canada, we have an additional criterion that natural gas
properties include sufficient plant processing capacity and adequate access to
markets.
LIQUIDITY AND CAPITAL RESOURCES
We have historically addressed our 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.
During the first nine months of 1998, Forest had approximately $442 million
of capital expenditures, consisting of approximately $336 million of acquisition
costs and $106 million of exploration and development costs. Forest used the
following sources to fund the cash portion of the expenditures (in millions):
<TABLE>
<S> <C>
Cash balances............................................... $ 56
8 3/4% Senior Subordinated Notes............................ 75
Bank borrowings under lines of credit....................... 215
---------
$ 346
</TABLE>
The remainder of the capital expenditure costs represent the recorded value of
Forest's common stock issued in acquisitions.
We continue 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 Forest, the issuance of net
profits interests, sales of non-strategic assets, prospects and technical
information, or joint venture financing.
BANK CREDIT FACILITIES. Forest and its subsidiaries, Canadian Forest and
Producers Marketing Ltd. (ProMark) have a $300,000,000 global credit facility
which currently provides for a global borrowing base of $300,000,000 through a
syndicate of banks led by The Chase Manhattan Bank and The Chase Manhattan Bank
of Canada. The maximum credit facility allocations in the United States and
Canada are $275,000,000 and $25,000,000, respectively. The borrowing base will
be reduced to $250,000,000 after this offering is completed. The borrowing base
is subject to redeterminations. Funds borrowed under the global credit facility
can be used for general corporate purposes. Under the terms of the global credit
facility, Forest, Canadian Forest and ProMark are subject to certain covenants
and financial tests, including restrictions or requirements with respect to cash
dividends, including cash dividends on the preferred stock, working capital,
cash flow, additional debt, liens, asset sales, investments, mergers and
reporting responsibilities.
The global credit facility is secured by a lien on, and a security interest
in, a portion of our 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.
In addition Saxon, a wholly-owned subsidiary of Canadian Forest Oil Ltd.,
has a $38,100,000 CDN borrowing base, of which $38,021,320 CDN is currently
drawn.
At December 31, 1998, the outstanding borrowings under the global credit
facility were $272 million in the United States and Canada with an average
effective interest rate of 7.2%. Forest has also used the global credit facility
for Letters of Credit in the amount of $233,000 in the United States and
$3,839,000 CDN in Canada.
S-6
<PAGE>
HEDGING PROGRAM. In addition to the volumes of natural gas and oil sold
under long-term sales contracts, we also use 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, Forest 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, Forest pays the difference. Our current swaps are settled on a monthly
basis. At December 31, 1998 Forest had natural gas swaps for an aggregate of
approximately 78 BBTU (billion British Thermal Units) per day of natural gas
during 1999 at fixed prices ranging from $1.51 per MMBTU (million British
Thermal Units) on an Alberta Energy Company "C" (AECO "C", U.S. $) basis to
$2.66 per MMBTU on a New York Mercantile Exchange (NYMEX) basis. The weighted
average hedged price for natural gas under such agreements is $2.20 per MMBTU in
1999. Forest does not currently have any oil swaps.
S-7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Issuer................................. Forest Oil Corporation
Securities offered..................... $100.0 million aggregate principal amount of %
Senior Subordinated Notes Due 2006.
Maturity............................... , 2006.
Interest payment dates................. January 15 and July 15 of each year, commencing
July 15, 1999.
Ranking................................ The Notes will be unsecured senior subordinated
obligations and will rank junior to our existing
and future senior indebtedness. The Notes will rank
equally with our existing and future senior
subordinated indebtedness and will rank senior to
our subordinated indebtedness. The Notes
effectively will rank junior to all liabilities of
our subsidiaries. The terms "Senior Indebtedness"
and "Subordinated Indebtedness" are defined in the
"Description of the Notes--Certain Definitions"
section of this Prospectus Supplement. As of
September 30, 1998, after giving pro forma effect
to this Offering and our use of the net proceeds
from this Offering, we would have had outstanding
$165 million of senior indebtedness and we would
have had outstanding $9 million of senior
subordinated indebtedness other than the Notes. As
of September 30, 1998, our Subsidiaries (as defined
herein) had approximately $257 million of balance
sheet liabilities, of which $237 million was
indebtedness, including $200 million of 8 3/4%
Senior Subordinated Notes due 2007 issued by
Canadian Forest Oil Ltd.
Optional redemption.................... We cannot redeem the Notes before January 15, 2003,
except as described immediately below. Thereafter,
we can redeem some or all of the Notes at the
redemption prices listed in the "Description of the
Notes--Optional Redemption" section of this
Prospectus Supplement, plus accrued interest.
Optional Redemption after Equity
Offerings............................ At any time (which may be more than once) before
January 15, 2003, we can choose to redeem up to
33 1/3% of the amount of the Notes originally
issued with money that we raise in certain equity
offerings as long as:
- we redeem the Notes within 90 days of completing
such equity offering; and
- at least 66 2/3% of the initial aggregate
principal amount of the Notes remains outstanding
afterwards.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Change of Control Offer................ If a change in control of our company occurs, we
must give holders of the Notes the opportunity to
sell to us their Notes at a purchase price of 101%
of their face amount, plus accrued interest. The
term "Change of Control" is defined in the
"Description of the Notes-- Repurchase at the
Option of the Holders upon a Change of Control"
section of this Prospectus Supplement.
Certain Covenants...................... The indenture governing the Notes will contain
certain covenants that, among other things, will
limit our ability and that of our Subsidiaries to:
- incur additional indebtedness;
- pay dividends or make distributions on, or redeem
or repurchase, capital stock;
- enter into transactions with certain affiliates,
and
- consolidate, merge or transfer all or
substantially all of our assets.
These covenants are subject to important exceptions
and qualifications, which are described in the
"Description of the Notes--Certain Covenants"
section of this Prospectus Supplement.
Use of Proceeds........................ We estimate that the net proceeds we will receive
from this Offering will be approximately $
million. We intend to use these proceeds to repay a
portion of our existing bank indebtedness.
Risk Factors........................... You should consider carefully the information set
forth under "Risk Factors" beginning on page S-12
of this Prospectus.
</TABLE>
S-9
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary historical financial data for Forest
for the nine months ended September 30, 1998 and 1997, and for each of the years
in the three-year period ended December 31, 1997; and pro forma data for the
nine months ended September 30, 1998 and the year ended December 31, 1997. The
summary financial data set forth below should be read in conjunction with the
consolidated financial statements of Forest (including the Notes thereto)
included in our Report on Form 10-K for the year ended December 31, 1997, the
condensed consolidated financial statements included in our Report on Form 10-Q
for the nine months ended September 30, 1998 and the condensed pro forma
combined financial statements in our Report on Form 8-K/A dated February 3, 1998
and our Reports on Form 8-K dated June 25, 1998 and January 22, 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------------------- --------------------------------------------
PRO FORMA PRO FORMA
1998(1) 1998(2) 1997(2) 1997(1) 1997(2) 1996(2) 1995
----------- ----------- --------- --------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Marketing and processing.............. $ 104,748 104,748 140,470 184,399 184,399 187,374 --
Oil and gas sales..................... 136,129 123,936 112,225 209,750 155,242 128,713 82,275
----------- ----------- --------- --------- ---------- ---------- ---------
Total revenue....................... $ 240,877 228,684 252,695 394,149 339,641 316,087 82,275
Expenses:
Marketing and processing.............. $ 99,502 99,502 134,268 175,847 175,847 178,706 --
Oil and gas production................ 31,802 29,997 27,583 45,581 36,284 32,199 22,463
General and administrative............ 15,192 15,192 12,448 17,614 16,864 13,623 9,081
Interest.............................. 29,861 28,429 15,652 42,039 21,403 23,307 25,323
Depreciation and depletion............ 79,276 74,163 58,820 103,423 79,991 63,068 43,592
Impairment of oil and gas
properties.......................... 140,000 140,000 -- -- -- -- --
Minority interest in earnings (loss)
of subsidiary....................... (517) (517) 209 108 108 (19) --
Translation (gain) loss on
subordinated debt................... 8,328 8,328 -- 4,051 4,051 -- --
Miscellaneous, net.................... (7,951) (7,951) (1,882) (1,289) (1,289) (1,387) (181)
----------- ----------- --------- --------- ---------- ---------- ---------
Total expenses...................... 395,493 387,143 247,098 387,374 333,259 309,497 100,278
----------- ----------- --------- --------- ---------- ---------- ---------
Earnings (loss) before income taxes and
extraordinary item.................... $ (154,616) (158,459) 5,597 6,775 6,382 6,590 (18,003)
----------- ----------- --------- --------- ---------- ---------- ---------
----------- ----------- --------- --------- ---------- ---------- ---------
Earnings (loss) before extraordinary
item.................................. $ (139,656) (143,499) 1,909 3,482 3,089 1,139 (17,996)
----------- ----------- --------- --------- ---------- ---------- ---------
----------- ----------- --------- --------- ---------- ---------- ---------
Net earnings (loss)..................... $ (133,460) (137,303) (10,450) (8,877) (9,270) 3,305 (17,996)
----------- ----------- --------- --------- ---------- ---------- ---------
----------- ----------- --------- --------- ---------- ---------- ---------
SELECTED FINANCIAL DATA:
Cash provided (used) by operating
activities............................ $ 59,163 35,043 $ 60,535 70,442 (5,452)
Cash used by investing activities....... $ 338,163 111,494 $ 151,638 226,870 17,710
Cash provided by financing activities... $ 265,736 92,387 $ 101,233 161,876 23,579
Total capital expenditures.............. $ 442,416 114,799 $ 156,195 244,118 52,744
EBITDA (3).............................. $ 91,944 80,278 $ 111,935 92,946 50,912
Historical ratio of earnings to fixed
charges (4)........................... -- 1.3 1.3 1.3 --
Pro forma ratio of earnings to fixed
charges (5)...........................
----------- ----------
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
--------------------------------------
UNITED
STATES CANADA CONSOLIDATED
------------ ---------- ------------
<S> <C> <C> <C>
AVERAGE DAILY PRODUCTION:
Natural gas (MCF).......................................... 135,770 42,370 178,140
Liquids (BBLS)............................................. 7,110 4,880 11,990
Total (MCFE)............................................. 178,430 71,650 250,080
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998
-----------------------
(IN THOUSANDS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net property and equipment............................................................... $ 718,426
Total assets............................................................................. $ 819,076
Long-term debt........................................................................... $ 510,294
Shareholders' equity..................................................................... $ 223,786
</TABLE>
- ------------------------
(1) The pro forma consolidated statement of operations data for the nine months
ended September 30, 1998 and the year ended December 31, 1997 include the
effects of the Louisiana Acquisition and the Anschutz Transaction as if they
had occurred on January 1, 1998 and 1997, respectively.
(2) In the first nine months of 1998, Forest recorded a gain on the
extinguishment of debt of $6,196,000 as a result of the settlement of its
remaining nonrecourse production payment obligation. In the first nine
months of 1997, Forest recorded a loss on extinguishment of debt of
$12,359,000 as a result of the tender offer for its 11 1/4% Notes. In 1996,
Forest recorded a gain on extinguishment of debt of $2,166,000 as a result
of the extinguishment of nonrecourse secured debt.
(3) EBITDA represents earnings before income taxes, extraordinary items,
interest, depreciation and depletion, translation of subordinated debt, and
impairment of oil and gas properties. EBITDA is included as supplemental
disclosure because it is commonly accepted as providing useful information
regarding a company's ability to incur and service debt and to fund capital
expenditures. In evaluating EBITDA, Forest believes that investors should
consider, among other things, the amount by which EBITDA exceeds interest
costs for the period, how EBITDA compares to principal repayments on debt
for the period and how EBITDA compares to capital expenditures for the
period. To evaluate EBITDA, the components of EBITDA, such as revenue and
operating expenses, and the variability of such components over time, should
be also considered. You should not construe EBITDA as an alternative to
operating income (as determined in accordance with GAAP), as an indicator of
Forest's operating performance, or to cash provided by operating activities
(as determined in accordance with GAAP) as a measure of liquidity. Forest's
method of calculating EBITDA may differ from the methods used by other
companies, and as a result the EBITDA measures disclosed herein may not be
comparable to other similarly titled measures disclosed by other companies.
The definition of EBITDA contained in the indenture pursuant to which the
Notes will be issued varies from this definition. See "Description of
Notes--Certain Definitions."
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of net earnings before income taxes and fixed charges. Fixed charges
consist of interest expense (which includes amortization of debt discount)
and that portion of rental cost equivalent to interest (estimated to be
one-third of rental cost). The historical earnings for the nine months ended
September 30, 1998 and the year ended December 31, 1995 were inadequate to
cover fixed charges. The coverage deficiencies were $87,535,000 and
$18,327,000, respectively.
(5) The pro forma ratio of earnings to fixed charges gives effect to the
application of the proceeds of the Notes in this offering to repay
outstanding borrowings under Forest's Credit Facility.
S-11
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE INVESTING IN OUR SECURITIES.
RECENT PRICE DECLINES AND VOLATILITY OF OIL AND NATURAL GAS PRICES.
Prices for oil and natural gas fluctuate widely and have declined
significantly recently. The average spot price received by Forest for natural
gas produced in the Gulf Coast decreased from approximately $2.61 per MCF at
December 31, 1997 to $2.17 per MCF at December 31, 1998. During the same period,
NYMEX postings for West Texas Intermediate crude oil decreased from $17.61 per
barrel to $12.06 per barrel at December 31, 1998.
Natural gas prices affect Forest more than oil prices, because most of its
production and reserves are natural gas. At December 31, 1997, 72% of our
estimated proved reserves consisted of natural gas on an MCFE basis and, for the
first nine months of 1998, approximately 70% of our total production consisted
of natural gas.
Forest's revenues, profitability and future rate of growth depend
substantially upon the prevailing prices of oil and natural gas. Prices also
affect the amount of cash flow available for capital expenditures and our
ability to borrow money or raise additional capital. We have recently reduced
our 1999 capital expenditures budget because of lower oil and gas prices. The
amount we can borrow from banks is subject to redetermination based on current
prices. In addition, we may have a ceiling test writedown when prices decline.
See "--Ceiling Limitation Writedowns." Lower prices may also reduce the amount
of oil and natural gas that Forest can produce economically. We expect that our
estimated proved reserves at December 31, 1998 may be lower due to lower oil
prices.
We cannot predict future oil and natural gas prices and prices may decline
further. Factors that can cause this fluctuation include:
- relatively minor changes in the supply of and demand for oil and natural
gas;
- market uncertainty;
- 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.
We enter into energy swap agreements and other financial arrangements at
various times to attempt to minimize the effect of oil and natural gas price
fluctuations. We cannot assure you that such transactions will reduce risk or
minimize the effect of any decline in oil or natural gas prices. Any substantial
or extended decline in oil or natural gas prices would have a material adverse
effect on our business and financial results. Energy swap arrangements may limit
the risk of declines in prices, but such arrangements may also limit further
revenues from price increases.
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES.
This Prospectus contains estimates of our proved oil and gas reserves and
the estimated future net revenues from such reserves. These estimates are based
upon various assumptions, including assumptions
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required by the SEC relating 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. Such process requires significant
decisions and assumptions in the evaluation of available geological,
geophysical, engineering and economic data for each reservoir. Therefore, these
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 most likely will vary from those estimated. Any significant variance
could materially affect the estimated quantities and present value of reserves
set forth in this Prospectus Supplement. In addition, we may adjust estimates of
proved reserves to reflect production history, results of exploration and
development, prevailing oil and gas prices and other factors, many of which are
beyond our control.
At December 31, 1997, approximately 22% of our estimated proved reserves
were undeveloped. Recovery of undeveloped reserves requires significant capital
expenditures and successful drilling operations. The reserve data assumes that
we will make significant capital expenditures to develop our reserves. Although
we have prepared estimates of our oil and gas reserves and the costs associated
with these reserves in accordance with industry standards, we cannot assure you
that the estimated costs are accurate, that development will occur as scheduled
or that the results will be as estimated.
You should not assume that the present value of future net revenues referred
to in this Prospectus Supplement is the current market value of our estimated
oil and gas reserves. In accordance with SEC requirements, the estimated
discounted future net cash flows from proved reserves are generally based on
prices and costs as of the date of the estimate. Actual future prices and costs
may be materially higher or lower than the prices and costs as of the date of
the estimate. Recent significant declines in oil and gas prices have reduced
Forest's present value of future net revenues. See "--Recent Price Declines and
Volatility of Oil and Natural Gas Prices." Any changes in consumption by gas
purchasers or in governmental regulations or taxation will also affect actual
future net cash flows. The timing of both the production and the expenses from
the development and production of oil and gas properties will affect the timing
of actual future net cash flows from proved reserves and their present value.
For example, we have reduced our 1999 capital expenditure budget. This reduction
may delay cash flows and thereby reduce present value. In addition, the 10%
discount factor, which is required by the SEC to be used in calculating
discounted future net cash flows for reporting purposes, is not necessarily the
most accurate discount factor. The effective interest rate at various times and
the risks associated with Forest or the oil and gas industry in general will
affect the accuracy of the 10% discount factor.
EFFECTS OF LEVERAGE.
As of September 30, 1998, our long-term debt was $510 million, including
$277 million outstanding under our global bank credit facility with a syndicate
of banks led by The Chase Manhattan Bank and The Chase Manhattan Bank of Canada.
Our long-term debt represented 70% of our total capitalization at September 30,
1998.
Our level of debt affects our operations in several important ways,
including the following:
- a large portion of our cash flow from operations is used to pay interest
on borrowings;
- the covenants contained in the agreements governing our debt limit our
ability to borrow additional funds or to dispose of assets;
- the covenants contained in the agreements governing our debt may affect
our flexibility in planning for, and reacting to, changes in business
conditions;
- a high level of debt may impair our ability to obtain additional financing
in the future for working capital, capital expenditures, acquisitions,
general corporate or other purposes; and
- the terms of the agreements governing our debt permit our creditors to
accelerate payments upon an event or default or a change of control.
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In addition, we may significantly alter our capitalization in order to make
future acquisitions or develop our properties. These changes in capitalization
may significantly increase our level of debt. A high level of debt increases the
risk that Forest may default on its debt obligations. Our ability to meet our
debt obligations and to reduce our level of debt depends on our future
performance. General economic conditions and financial, business and other
factors affect our operations and our future performance. Many of these factors
are beyond our control.
If Forest is unable to repay its debt at maturity out of cash on hand, it
could attempt to refinance such debt, or repay such debt with the proceeds of an
equity offering. We cannot assure you that Forest will be able to generate
sufficient cash flow to pay the interest on its debt or that future borrowings
or equity financing will be available to pay or refinance such debt. If we are
not able to negotiate renewals of our borrowings or to arrange new financing, we
may have to sell significant assets. Any such sale would have a material adverse
effect on our business and financial results. Factors that will affect our
ability to raise cash through an offering of its capital stock or a refinancing
of our debt include financial market conditions and our value and performance at
the time of such offering or other financing. We cannot assure you that any such
offering or refinancing can be successfully completed. See "--Availability of
Financing".
CEILING LIMITATION WRITEDOWNS.
We use the full cost method of accounting to report our operations for oil
and gas properties. Forest 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, we must charge the amount of the excess to earnings.
This is called a "ceiling limitation writedown." This charge does not impact
cash flow from operating activities, but does impact the amount of our
shareholders' equity. The risk that we will be required to write down the
carrying value of its oil and gas properties increases when oil and gas prices
are low or volatile. In addition, writedowns may occur if Forest has substantial
downward adjustments to its estimated proved reserves or if purchasers cancel
long-term contracts for its natural gas production. The recent significant
declines in oil and gas prices increase the risk that we will have a ceiling
limitation writedown. We may have a further writedown of $25 million to $50
million for the fourth quarter of 1998 due to lower oil prices. See "--Recent
Price Declines and Volatility of Oil and Natural Gas Prices." We cannot assure
you that we will not experience ceiling limitation writedowns in the future. In
the third quarter of 1998 Forest had a ceiling test writedown of $125 million,
net of related deferred taxes ($140 million pre-tax).
AVAILABILITY OF FINANCING.
We have historically addressed our long-term liquidity needs through the
issuance of debt and equity securities and the use of debt and cash from
operating activities. We continue to examine the following alternative sources
of long-term capital:
- bank borrowings or the issuance of debt;
- the sale of common stock, preferred stock or other equity securities;
- the issuance of nonrecourse production-based financing or net profits
interests;
- sales of non-strategic properties;
- sales of prospects and technical information; or
- joint venture financing.
The availability of these sources of capital will depend upon a number of
factors, some of which are beyond our control. These factors include general
economic and financial market conditions, oil and
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natural gas prices and the value and performance of Forest. We may be unable to
execute our operating strategy if we cannot obtain capital from these sources.
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.
Gulf of Mexico reservoirs experience steep declines, while the declines in
long-lived fields in other regions are relatively slow. A significant portion of
our production is from Gulf of Mexico reservoirs. Our reserves will decline as
they are produced unless we acquire properties with proved reserves or conduct
successful development and exploration activities. Forest's future natural gas
and oil production is 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 and uncertain. We may be unable to make
the necessary capital investment to maintain or expand our oil and gas reserves
if cash flow from operations is reduced and external sources of capital become
limited or unavailable. We cannot assure you that our future development,
acquisition and exploration activities will result in additional proved reserves
or that we will be able to drill productive wells at acceptable costs.
We have reduced our 1999 capital expenditures budget. Therefore, it is
unlikely that we will replace 1999 production based on the lower level of
capital expenditures.
INDUSTRY RISKS.
Oil and gas drilling and production activities are subject to numerous
risks, many of which are beyond our control. These risks include the following:
- that no commercially productive oil or natural gas reservoirs will be
found;
- that oil and gas drilling and production activities may be shortened,
delayed or canceled; and
- that our ability to develop, produce and market our reserves may be
limited by:
(1) title problems,
(2) weather conditions,
(3) compliance with governmental requirements, and
(4) mechanical difficulties or shortages or delays in the delivery of
drilling rigs, work boats and other equipment.
In the past, we have had difficulty securing drilling equipment in certain
of our core areas. We cannot assure you that the new wells we drill will be
productive or that we will recover all or any portion of our investment.
Drilling for oil and natural gas may be unprofitable. Dry wells and wells that
are productive but do not produce sufficient net revenues after drilling,
operating and other costs are unprofitable. In addition, our properties may be
susceptible to hydrocarbon drainage from production by other operators on
adjacent properties.
Our industry also experiences numerous operating risks. These operating
risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards. Environmental hazards include
oil spills, gas leaks, ruptures or discharges of toxic gases. If any of these
industry operating risks occur, we could have substantial losses. Substantial
losses may be caused by 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 our oil and gas
operations is located in the Gulf of Mexico. The Gulf of Mexico area experiences
tropical weather disturbances, some of which can be severe enough to cause
substantial damage to facilities and possibly interrupt production. In
accordance with industry practice, we maintain insurance against some, but not
all, of the risks described above. We
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cannot assure you that our insurance will be adequate to cover losses or
liabilities. Also, we cannot predict the continued availability of insurance at
premium levels that justify its purchase.
CONCENTRATION OF ASSETS.
At November 1, 1998, the combined production from six of our offshore Gulf
of Mexico wells represented approximately 27% of our consolidated daily
deliverability. Our production, revenue and cash flow could be adversely
affected if production from these six wells decreases significantly.
GAS MARKETING--TRADING AND CREDIT RISK.
Our operations include gas marketing through our subsidiary, ProMark.
ProMark's gas marketing operations consist of the marketing of gas production in
Canada, 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 on our ability to assess and respond to changing market
conditions, including credit risk. Profitability also depends on our ability to
maximize the volume of third party natural gas that we purchase and resell and
to obtain a satisfactory margin between the purchase price and the sales price
for such volumes. If we are unable to respond accurately to changing conditions
in the gas marketing business, our results of operations could be materially
adversely affected. In addition, ProMark sells a significant portion of its
volumes at fixed prices under long-term contracts. The loss of one or more such
long-term buyers could have a material adverse effect on Forest. ProMark buys
and sells gas in its trading operations for terms varying from one day to two
years. Profits from trading are derived from the difference between the price of
gas purchased and the price of gas sold. ProMark tries to limit its exposure to
price risk by offsetting its gas purchase or sales commitments with other gas
purchase or sales contracts. However, ProMark is exposed to credit risk because
the counterparties to agreements might not perform their contractual
obligations.
INTERNATIONAL OPERATIONS.
We have significant operations in Canada. The expenses of such operations
are payable in Canadian dollars while most of the revenue from natural gas and
oil sales is based upon U.S. dollar price indices. As a result, Canadian
operations are subject to the risk of fluctuations in the relative value of the
Canadian and U.S. dollar. Forest is also required to recognize foreign currency
translation gains or losses related to the debt issued by our Canadian
subsidiary because the debt is denominated in U.S. dollars and the functional
currency of such subsidiary is the Canadian dollar. We recently acquired
international oil and gas assets. Our foreign operations may also be adversely
affected by local political and economic developments, royalty and tax increases
and other foreign laws or policies, as well as U.S. policies affecting trade,
taxation and investment in other countries.
COMPETITION.
We operate in a highly competitive environment. Forest competes with major
and independent oil and gas companies for the acquisition of desirable oil and
gas properties and the equipment and labor required to develop and operate such
properties. Forest also competes with major and independent oil and gas
companies in the marketing and sale of oil and natural gas. Many of these
competitors have financial and other resources substantially greater than ours.
DRILLING RISKS.
Drilling involves numerous risks, including the risk that drilling efforts
will not find commercially productive oil or gas reservoirs. The cost of
drilling and completing wells is often unpredictable, and drilling operations
may be shortened, delayed or canceled as a result of a variety of risks. These
risks include unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions and shortages or
delays in delivery of equipment. We cannot assure you that
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our future drilling activities will be successful. Forest's current inventory of
seismic survey will not necessarily increase the likelihood that it will drill
or complete commercially productive wells. In addition, the volumes of reserves
discovered, if any, would not necessarily be greater than Forest would have
discovered without its current inventory of seismic surveys.
ACQUISITION RISKS.
Our recent growth is due in part to acquisitions of producing properties.
The successful acquisition of producing properties requires an assessment of a
number of factors beyond our control. These factors include recoverable
reserves, future oil and gas prices, operating costs, potential environmental
and other liabilities. Such assessments are inexact and their accuracy is
inherently uncertain. In connection with such assessments, we perform a review
of the subject properties, which we believe is generally consistent with
industry practices. However, such a review will not reveal all existing or
potential problems. In addition, the review will not permit a buyer to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities. We do not inspect every platform or well. Even when a platform or
well is inspected, structural and environmental problems are not necessarily
discovered. We are generally not entitled to contractual indemnification for
preclosing liabilities, including environmental liabilities. Normally, we
acquire interests in 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 our competitors have
financial and other resources which are substantially greater than those
available to us. Therefore, we cannot assure you that we will be able to acquire
oil and gas properties that contain economically recoverable reserves or that we
will acquire such properties at acceptable prices.
MARKETABILITY OF OIL AND GAS PRODUCTION.
The marketability of our production depends in part upon the availability,
proximity and capacity of gas gathering systems, pipelines and processing
facilities. U.S. federal and state and Canadian regulation of oil and gas
production and transportation, general economic conditions, and changes in
supply and demand all could adversely affect our ability to produce and market
oil and natural gas. If market factors dramatically changed, the financial
impact on Forest could be substantial. The availability of markets is beyond our
control.
GOVERNMENT REGULATION.
Our oil and gas operations are subject to various U.S. federal, state and
local and Canadian federal and provincial governmental regulations. Matters
regulated 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. At various times, regulatory
agencies have imposed price controls and limitations on production. In order to
conserve supplies of oil and gas, these agencies have restricted the rates of
flow of oil and gas wells below actual production capacity. In addition, the Oil
Pollution Act of 1990 requires operators of offshore facilities to prove that
they have the financial responsibility to address potential oil spills. Under
such law and other federal and state environmental statutes, owners and
operators of certain defined facilities are strictly liable for such spills,
subject to certain limitations. A substantial spill from one of our facilities
could have a material adverse effect on our results of operations, competitive
position or financial condition. Federal, state, provincial and local laws
regulate production, handling, storage, transportation and disposal of oil and
gas, by-products from oil and gas and other substances and materials produced or
used in connection with oil and gas operations. To date, our expenditures
related to complying with these laws and for remediation of existing
environmental contamination have not been significant. We believe that we are in
substantial compliance with all applicable laws and regulations. However, the
requirements of such laws and regulations are frequently changed. We cannot
predict the ultimate cost of compliance with these requirements or their effect
on its operations.
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OWNERSHIP POSITION OF ANSCHUTZ.
As of December 31, 1998, Anschutz owned approximately 40% of the outstanding
shares of our common stock. Pursuant to a shareholder agreement between Anschutz
and Forest, Anschutz may designate three of the Forest's 11 directors.
Therefore, Anschutz can substantially influence matters considered by Forest's
Board of Directors. This shareholder agreement prohibits Anschutz from acquiring
in excess of 49.9% of the outstanding shares of common stock. Under certain
circumstances, Anschutz could veto proposed transactions between Forest and
third parties. For example, Anschutz could veto a merger of Forest, which under
applicable law, requires the approval of the holders of two-thirds of the
outstanding shares of common stock. Control of Forest most likely could not be
transferred to a third party without Anschutz's consent and agreement. A third
party probably would not offer to pay a premium to acquire Forest without the
prior agreement of Anschutz, even if the Board of Directors should choose to
attempt to sell Forest in the future. The shareholder agreement terminates on
July 27, 2000.
ABSENCE OF PUBLIC MARKET FOR THE NOTES.
The Notes will be new securities for which there is currently no trading
market. We do not intend to apply for listing of the Notes on any securities
exchange or stock market. Although the Underwriters have informed us that they
currently intend to make a market in the Notes, they are not obligated to do so,
and any such market making may be discontinued at any time without notice to us.
Such market making activities will be subject to the limits imposed by the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended. The liquidity of any market for the Notes will depend upon the number
of Holders of the Notes, the interest of securities dealers in making a market
in the Notes and other factors. Accordingly, we cannot assure you of the
development or liquidity of any market for the Notes. If a market were to exist,
the Notes could trade at prices that may be lower than the initial offering
price thereof depending on many factors, including prevailing interest rates and
the markets for similar securities, general economic conditions and the
financial condition and performance of, and prospects for, Forest.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. We cannot assure you that the market, if any, for the
Notes will not be subject to similar disruptions. Any such disruptions may have
an adverse effect on the Holders of the Notes.
SUBORDINATION OF NOTES.
We will be limited, but not prohibited, by the Indenture governing the Notes
from incurring additional indebtedness that is senior in right of payment to the
Notes. In the event of the bankruptcy, liquidation, reorganization or other
winding up of Forest, our assets will be available to pay our obligations on the
Notes only after all senior indebtedness, as described in the Indenture, has
been paid in full. In such event there may not be sufficient assets remaining to
pay amounts due on the Notes. If there is a default on such senior indebtedness,
under certain circumstances, no payments may be made on the Notes. See
"Description of the Notes--Subordination."
The Notes will be effectively subordinated to any indebtedness and
liabilities (including trade payables) of our subsidiaries that do not become
guarantors of the Notes. At September 30, 1998, our subsidiaries as defined
herein, had approximately $257 million of balance sheet liabilities, of which
$237 million was indebtedness, including $200 million of 8 3/4% Senior
Subordinated Notes due 2007, issued by Canadian Forest Oil Ltd. Canadian Forest
will not guarantee the Notes.
There are limits in the Indenture on the ability of Forest (and its
Restricted Subsidiaries as described in the Indenture) to incur additional
indebtedness and liens and to enter into agreements that would restrict the
ability of such Restricted Subsidiaries to make distributions, loans or other
payments to Forest. These limitations are subject to various qualifications.
Subject to certain limitations, Forest and its
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subsidiaries may incur additional secured indebtedness. For additional details
of these provisions and applicable qualifications, see "Description of the
Notes--Subordination" and "--Certain Covenants."
PAYMENT UPON A CHANGE OF CONTROL.
Upon a Change of Control, as defined in the Indenture governing the Notes,
you may request Forest to purchase all or a portion of your Notes at a price of
101% of the principal amount of such Notes, together with accrued and unpaid
interest, if any, to the date of purchase. Before we can purchase any Notes, we
may be required to:
- repay all or a portion of our bank debt or other debt that ranks senior to
the Notes, if such debt has a similar change of control provision, or
- obtain a consent from lenders of such debt to permit purchase of the
Notes.
We will be unable to purchase the Notes if we are unable to repay such debt
or obtain such consents. The failure to purchase the Notes would be an Event of
Default under the Indenture. We cannot assure you that we will have sufficient
funds available at the time of a Change of Control to make any debt payment
(including purchase of the Notes) as described above.
The definition of Change of Control in the Indenture includes a sale, lease,
conveyance or other disposition of all or substantially all of the assets of
Forest and its Restricted Subsidiaries, taken as a whole, to a person or group
of persons. There is little case law interpreting the phrase "all or
substantially all" in the context of an indenture. Because there is no precise
established definition of this phrase, your ability to require Forest to
purchase Notes as a result of such occurrence may be uncertain. See "Description
of the Notes--Repurchase at the Option of Holders Upon a Change of Control."
The events that are a Change of Control under the Indenture may also be
events of default under our bank agreements and other senior indebtedness. Such
events may permit our banks and other senior lenders to reduce the borrowing
base under such indebtedness or accelerate such indebtedness. If the borrowing
base is reduced or such indebtedness is accelerated and if such indebtedness is
not repaid, such lenders could enforce security interests in, or commence
litigation that could require a sale of, substantially all of our assets,
thereby limiting our ability to raise cash to repay the Notes.
POSSIBLE LIMITATIONS ON ENFORCEABILITY OF SUBSIDIARY GUARANTEES
Our obligations under the Notes may under certain circumstances be
guaranteed on an unsecured senior subordinated basis by our domestic
subsidiaries. Various fraudulent conveyance laws have been enacted for the
protection of creditors and may be utilized by a court of competent jurisdiction
to subordinate or void any guarantee issued by a subsidiary. It is also possible
that under certain circumstances a court could hold that the direct obligations
of a subsidiary could be superior to the obligations under its guarantee.
If a court were to find that at the time a subsidiary entered into a
guarantee either
- the guarantee was incurred by the subsidiary with the intent to hinder,
delay or defraud any present or future creditor or that the subsidiary
contemplated insolvency with a design to favor one or more creditors to
the exclusion in whole or in part of others or
- the subsidiary did not receive fair consideration or reasonably equivalent
value for issuing the guarantee and, at the time it issued the guarantee,
the guarantor (a) was insolvent or rendered insolvent by reason of the
issuance of the guarantee, (b) was engaged or about to engage in a
business or transaction for which the remaining assets of the subsidiary
constituted unreasonably small capital or (c) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts
as they matured, the court could void or subordinate the guarantee in
favor of the subsidiary's other creditors. Among other things, a legal
challenge of a guarantee issued by a
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subsidiary on fraudulent conveyance grounds may focus on the benefits, if
any, realized by the subsidiary as a result of the issuance by Forest of
the Notes. Because we are going to use proceeds from the Offering to
refinance indebtedness of Forest, a court might find that the subsidiaries
did not benefit from incurrence of indebtedness represented by the Notes.
The measure of insolvency of purposes of determining whether a transfer is
voidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its debts, including contingent
liabilities, was greater than the value of all its assets at a fair valuation or
if the present fair saleable value of the debtor's assets was less than the
amount required to repay its probable liability on its debts, including
contingent liabilities, as they become absolute and mature.
To the extent that a guarantee is voided as a fraudulent conveyance or found
unenforceable for any other reason, holders of the Notes would cease to have any
claim in respect of the applicable subsidiary. In such event, the claims of the
holders of the Notes against such subsidiary would be subject to the prior
payment of all liabilities and preferred stock claims of such subsidiary. We can
give no assurance that, after providing for all prior claims and preferred stock
interests, if any, there would be sufficient assets to satisfy the claims of the
holders of the Notes relating to any voided portion of such guarantee.
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USE OF PROCEEDS
We estimate that the net proceeds to Forest from the Offering will be
approximately $ million, which will be used to reduce borrowings under our
bank credit facility. After such repayment, we anticipate that our borrowing
base under the bank credit facility will be reduced to $250 million (subject to
redetermination by the banks). The bank credit facility is secured by
substantially all of our assets.
Our debt under the bank credit facility bears interest at a floating rate
based (at our option) upon (i) the Base Rate with respect to Base Rate loans,
plus the Applicable Margin for Base Rate loans or (ii) LIBOR for one, two, three
or six months, plus the Applicable Margin for Eurodollar loans. The bank credit
facility will terminate on August 19, 2001. As of December 31, 1998, $272
million was outstanding under the bank credit facility with an average effective
interest rate of 7.2%.
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CAPITALIZATION
The following table sets forth the actual capitalization of Forest as of
September 30, 1998, and as adjusted to give effect to the issuance of the Notes
in this Offering and the use of the proceeds therefrom. See "Use of Proceeds".
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
---------- --------------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
U.S. Credit Facility................................................................ $ 264,700 164,700
Canadian Credit Facility............................................................ 12,077 12,077
Saxon Credit Credit Facility........................................................ 24,866 24,866
8 3/4% Senior Subordinated Notes.................................................... 199,975 199,975
11 1/4% Senior Subordinated Notes................................................... 8,676 8,676
% Senior Subordinated Notes................................................... -- 100,000
---------- --------------
Total long-term debt.................................................................. 510,294 510,294
Shareholders' equity:
Common stock, par value $.10 per share, 44,646,542 shares issued and
outstanding(2).................................................................... 4,464 4,464
Capital surplus..................................................................... 589,613 589,613
Accumulated deficit................................................................. (360,763) (360,763)
Accumulated other comprehensive loss................................................ (9,433) (9,433)
Treasury stock...................................................................... (95) (95)
---------- --------------
Total shareholders' equity........................................................ 223,786 223,786
---------- --------------
Total capitalization.................................................................. $ 734,080 734,080
---------- --------------
---------- --------------
</TABLE>
- ------------------------
(1) Reflects issuance of $100,000,000 of % Senior Subordinated Notes and the
use of the proceeds to reduce the U.S. Credit Facility. Assumes that
expenses of the transaction are funded from available cash.
(2) Does not include a total of 1,886,260 shares reserved for issuance upon
exercise of outstanding stock options.
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DESCRIPTION OF THE NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to Forest Oil Corporation and not to any of its subsidiaries.
The Company will issue the Notes under an indenture (the "Indenture")
between itself and State Street Bank and Trust Company, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "1939 Act"). The following description is a summary of the material
provisions of the Indenture. It does not restate the Indenture in its entirety.
We urge you to read the Indenture because it, and not this description, defines
your rights as Holders of these Notes. We have filed a copy of the proposed form
of Indenture as an exhibit to the Registration Statement which includes this
Prospectus Supplement.
The Indenture provides for the issuance of up to $100 million of Offered
Notes and additional notes or additional series of notes in aggregate principal
amount not to exceed $100 million in the aggregate (the Offered Notes and any
additional notes or series of notes issued under the Indenture are collectively
referred to herein as the "Notes"). All the Notes will be identical in all
respects except issue price and issuance date.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on , 2006, and will be limited to an
aggregate principal amount of $200 million. The Offered Notes will be issued in
an aggregate principal amount of $100 million. Interest on the Notes will accrue
at a rate of % per annum and will be payable semiannually in arrears on
January 15 and July 15 of each year, commencing on July 15, 1999. The Company
will make each interest payment to the Holders of record of the Notes on the
immediately preceding January 1 or July 1, as the case may be. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Company will pay principal, interest and any premium on the Notes in
immediately available funds. The Notes will be exchangeable and transferable at
an office or agency of the Company. An office or agency will be maintained for
such purpose in The City of New York (which initially will be an office of the
Trustee) or such other office or agency permitted under the Indenture. However,
at any time when Certificated Notes have been issued, payment of interest may be
made at the option of the Company to any Holder who shall not have provided wire
transfer instructions to the Trustee by check payable in next-day funds mailed
to the person entitled thereto as shown on the Security Register. The Company
will issue the Notes only in fully registered form without coupons, in
denominations of $1,000 and integral multiples of $1,000.
SUBSIDIARY GUARANTEES
Under the circumstances described below under "--Certain Covenants--Future
Subsidiary Guarantors," one or more Subsidiary Guarantors will jointly and
severally guarantee the Company's payment obligations under the Notes. The
Subsidiary Guarantee of each Subsidiary Guarantor will be an unsecured senior
subordinated obligation of such Subsidiary Guarantor. See "--Subordination."
Certain mergers, consolidations and dispositions of Property may result in
the addition of additional Subsidiary Guarantors or the release of Subsidiary
Guarantors. See "--Merger, Consolidation and Sale of Substantially All Assets."
Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in
accordance with the terms of the Indenture shall be released from and relieved
of its obligations under its Subsidiary Guarantee upon execution and delivery of
a supplementary indenture satisfactory to the Trustee.
Each of the Company and any Subsidiary Guarantor will agree to contribute to
any Subsidiary Guarantor which makes payments pursuant to its Subsidiary
Guarantee, as applicable, an amount equal to
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the Company's or such Subsidiary Guarantor's proportionate share of such
payment, based on the net worth of the Company or such Subsidiary Guarantor
relative to the aggregate net worth of the Company and the Subsidiary
Guarantors.
SUBORDINATION
The Notes will be senior subordinated, unsecured obligations of the Company
and:
- the payment of principal, interest and any premium on the Notes will be
subordinated in their right of payment to all Senior Indebtedness of the
Company;
- the Notes will rank equally in their right of payment with all existing
and future Pari Passu Indebtedness, and senior to all future Subordinated
Indebtedness of the Company; and
- the Subsidiary Guarantee of any Subsidiary Guarantor will rank subordinate
in right of payment to any Senior Indebtedness, PARI PASSU with any Pari
Passu Indebtedness and senior to any Subordinated Indebtedness of such
Subsidiary Guarantor.
At September 30, 1998 after giving pro forma effect to the Offering and the
application of the proceeds therefrom, the Company would have had $164.7 million
of outstanding Senior Indebtedness (not including borrowing capacity available
under the Bank Credit Facilities (as defined) which, if borrowed, would be
Senior Indebtedness of the Company). As of September 30, 1998, the Company had
$8.7 million of outstanding Pari Passu Indebtedness (excluding $200 million of
8 3/4% Senior Subordinated Notes due 2007 issued by Canadian Forest (the
"Canadian Forest Notes"), which are guaranteed on a senior subordinated basis by
the Company). Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and its Restricted Subsidiaries may
Incur, the amounts of such Indebtedness could be substantial and such
indebtedness may be Senior Indebtedness or Pari Passu Indebtedness. In addition,
any Subsidiary Guarantees could be effectively subordinated to all the
obligations of the Subsidiary Guarantors under certain circumstances. The Notes
and any Subsidiary Guarantees will also be effectively subordinated to any
secured Indebtedness of the Company and the Subsidiary Guarantors that is not
otherwise Senior Indebtedness. All debt and other liabilities of the Company's
Subsidiaries that are not Subsidiary Guarantors, including the claims of trade
creditors, secured creditors and creditors holding debt and guarantees issued by
such Subsidiaries, and claims of preferred stockholders, if any, of such
Subsidiaries, will be effectively senior to the Notes. As of September 30, 1998,
the Company's Subsidiaries (none of which initially will be Subsidiary
Guarantors) had approximately $257.1 million of balance sheet liabilities, of
which $236.9 million was indebtedness, including $200 million of Canadian Forest
Notes. See "--Certain Covenants--Limitation on Indebtedness" and "Risk
Factors--Subordination" and "--Possible Limitations on Enforceability of
Guarantees."
The Company may not pay principal, interest, or any premium on the Notes, or
make any deposit pursuant to the provisions described under "--Defeasance and
Covenant Defeasance" or repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes"), if:
(1) a payment default on Senior Indebtedness of the Company occurs
(including at maturity or after acceleration) and continues beyond any
applicable grace period; or
(2) any other default on Senior Indebtedness of the Company occurs resulting
in the acceleration of the maturity of such Senior Indebtedness of the Company
in accordance with its terms.
Notwithstanding the preceding, the Company may pay the Notes if:
- such default is has been cured or waived and any such acceleration has
been rescinded;
- such Senior Indebtedness has been paid in full; or
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- the Company and the Trustee receive written notice approving such payment
from the Representative of each issue of Designated Senior Indebtedness of
the Company.
During the continuance of any default (other than those described in (1) or
(2) above) relating to Designated Senior Indebtedness of the Company pursuant to
which the maturity may be accelerated immediately without further notice (except
any notice required to effect the acceleration), or the expiration of any
applicable grace period, the Company may not pay the Notes if the Company and
the Trustee receive written notice of such default from the Representative of
the holders of the Designated Senior Indebtedness of the Company specifying an
election to effect a payment blockage (a "Payment Blockage Notice").
Payments on the Notes may and shall be resumed on the earliest of:
- the date on which such nonpayment default is no longer continuing;
- the date on which such Designated Senior Indebtedness is repaid in full in
cash;
- the date on which such nonpayment default is waived (by written notice to
the Trustee and Company from the Representative which gave such Payment
Blockage Notice); and
- 179 days after the date on which the applicable Payment Blockage Notice is
received,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness and not rescinded such acceleration.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
The holders of Senior Indebtedness of the Company will be entitled to
receive payment in full of all obligations due in respect of Senior Indebtedness
of the Company (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before the Holders
of Notes will be entitled to receive any payment with respect to the Notes
(except that Holders of Notes may receive and retain shares of stock and any
debt securities that are subordinated to all Senior Indebtedness of the Company
to at least the same extent as the Notes), in the event of any distribution to
creditors of the Company:
(1) in a liquidation, dissolution or winding up of the Company; or
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property.
Until all Senior Indebtedness of the Company is paid in full in cash, any
distribution to which Holders of the Notes are entitled, but for the
subordination provisions of the Indenture, will be made to holders of the Senior
Indebtedness of the Company. If a payment or distribution is made to Holders of
Notes that, in light of the subordination provisions, was improperly made, such
Holders are required to hold it in trust for the holders of Senior Indebtedness
of the Company and pay it over to them.
The Subsidiary Guarantee of any Subsidiary Guarantor will be subordinated to
Senior Indebtedness of such Subsidiary Guarantor to the same extent and in the
same manner as the Notes are subordinated to Senior Indebtedness of the Company.
The Indenture will provide that the subordination provisions of the
Indenture applicable to the Notes and any Subsidiary Guarantees may not be
amended, waived or modified in a manner that would adversely affect the rights
of the holders of any Designated Senior Indebtedness unless the holders of such
Indebtedness consent in writing (in accordance with the provisions of such
Indebtedness) to such amendment, waiver or modification.
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OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the Company's option prior to January 15, 2003. Thereafter, the
Company may on one or more occasions redeem all or any part of the Notes upon
not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed as percentages of principal amount), if redeemed
during the 12-month period commencing January 15 of the years indicated below.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. %
2004............................................................................. %
2005 and thereafter.............................................................. 100.000%
</TABLE>
The Company will also pay Holders of Notes being redeemed accrued and unpaid
interest, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
The Company may on any one or more occasions redeem up to 33 1/3% of the
aggregate principal amount of the Notes originally issued under the Indenture at
a redemption price of % of the principal amount thereof with the net proceeds
of one or more Equity Offerings of the Company, so long as:
- at least 66 2/3% of the aggregate principal amount of the Notes originally
issued remains outstanding; and
- the redemption occurs within 90 days of the date of closing of the related
Equity Offering with not less than 30 nor more than 60 days' prior notice.
The Company will also pay Holders of Notes being redeemed accrued and unpaid
interest, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
If less than all the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 in principal
amount or an integral multiple thereof) of that Holder's Notes pursuant to a
Change of Control Offer. In the Change of Control Offer, the Company will offer
a Change of Control Payment equal to 101% of the principal amount of the Notes
repurchased. The Company will also pay Holders of Notes being redeemed accrued
and unpaid interest, if any, to the date of purchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
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Within 30 days following any Change of Control, the Company will mail a
notice to each Holder stating, among other things:
- that a Change of Control has occurred and a Change of Control Offer is
being made pursuant to the Indenture and that all Notes (or portions
thereof) properly tendered will be accepted for payment;
- the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, no fewer than 30 days nor more
than 60 days from the date the Company mails such notice (the "Change of
Control Payment Date");
- that any Note (or portion thereof) accepted for payment (and duly paid on
the Change of Control Payment Date) pursuant to the Change of Control
Offer shall cease to accrue interest on the Change of Control Payment
Date;
- that any Notes (or portions thereof) not properly tendered will continue
to accrue interest;
- a description of the transaction or transactions constituting the Change
of Control;
- the procedures that Holders of Notes must follow in order to tender their
Notes (or portions thereof) for payment and the procedures that Holders of
Notes must follow in order to withdraw an election to tender Notes (or
portions thereof) for payment; and
- all other instructions and materials necessary to enable Holders to tender
Notes pursuant to the Change of Control Offer.
Prior to the mailing of the notice to Holders of Notes described above, but in
any event within 30 days following any Change of Control, the Company covenants
to:
(1) repay or cause to be repaid in full all Indebtedness of the Company and
any Subsidiary Guarantor that would prohibit the repurchase of the Notes
pursuant to such Change of Control Offer; or
(2) obtain any requisite consents under instruments governing any such
Indebtedness of the Company and any Subsidiary Guarantor to permit the
repurchase of the Notes.
The Company shall first comply with the covenant in the preceding sentence
before it shall repurchase Notes pursuant to this "Repurchase at the Option of
Holders Upon a Change of Control" covenant.
If the Company is unable to repay or cause to be repaid all Indebtedness
that would prohibit the repurchase of the Notes or is unable to obtain the
consents of the holders of Indebtedness, if any, outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
the Notes validly tendered, or if the Company for any other reason fails to
commence the Change of Control Offer when required to do so by the terms of this
covenant, then the Company will have breached such covenant. This failure to
commence the Change of Control Offer will constitute an Event of Default under
the Indenture if it continues for a period of 30 consecutive days after written
notice is given to the Company by the Trustee or the Holders of at least 25% in
aggregate principal amounts of the Notes outstanding. In addition, the failure
by the Company to repurchase Notes at the conclusion of the Change of Control
Offer will constitute an Event of Default under the Indenture without any
waiting period or notice requirements. Such Event of Default would, in turn,
constitute a default under the existing Bank Credit Facilities and may
constitute a default under the terms of any other Indebtedness of the Company or
any Subsidiary Guarantor then outstanding. In such circumstances, the
subordination provisions in the Indenture would likely prohibit payments to
Holders of Notes. See "--Subordination."
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
as a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company will
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comply with the applicable securities laws and regulations and will not be
deemed to have breached any covenant.
The Company's obligation to repurchase the Notes upon a Change of Control
will be guaranteed on a senior subordinated basis, to the extent any Restricted
Subsidiary becomes a Subsidiary Guarantor, by such Subsidiary Guarantor pursuant
to its Subsidiary Guarantee.
If a Change of Control were to occur, there can be no assurance that the
Company and the Subsidiary Guarantors, if any, would have sufficient financial
resources, or would be able to arrange financing, to repay any Indebtedness that
would prohibit the repurchase of the Notes and pay the purchase price for all
Notes tendered by the Holders thereof. In addition, as of the Issue Date the
existing Bank Credit Facilities will, and any future Bank Credit Facilities or
other agreements relating to Indebtedness (including Senior Indebtedness or Pari
Passu Indebtedness) to which the Company or a Subsidiary Guarantor becomes a
party may contain restrictions on the purchase of Notes. The provisions under
the Indenture related to the Company's obligations to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified (at any time prior to the occurrence of such Change of Control) with
the written consent of the Holders of a majority in principal amount of the
Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party (including any Subsidiary of the Company)
makes the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture applicable to a
Change of Control Offer made by the Company and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
A "Change of Control" shall be deemed to occur if:
(1) any "person" or "group" (within the meaning of Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a Person will be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time) of more than 50% of the total voting power of all classes of the Voting
Stock of the Company or currently exercisable warrants or options to acquire
such Voting Stock;
(2) the sale, lease, conveyance or transfer of all or substantially all the
assets of the Company and the Restricted Subsidiaries taken as a whole (other
than to any Wholly Owned Subsidiary) shall have occurred;
(3) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company;
(4) the Company consolidates with or merges into another Person or any
Person consolidates with or merges into the Company in any such event pursuant
to a transaction in which the outstanding Voting Stock of the Company is
reclassified into or exchanged for cash, securities or other property, other
than any such transaction where the outstanding Voting Stock of the Company is
reclassified into or exchanged for Voting Stock of the surviving corporation
that is Capital Stock and 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 in substantially the same proportion as before the transaction;
or
(5) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of Directors (together
with any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the
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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
Company's Board of Directors then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, conveyance or transfer of "all or substantially all" the Company's and
its Restricted Subsidiaries' assets taken as a whole. The Indenture is governed
by New York law, and there is no established quantitative definition under New
York law of "substantially all" the assets of a corporation. Accordingly, the
ability of a Holder of Notes to require the Company to repurchase such Notes as
a result of a sale, lease, conveyance or transfer of less than all the assets of
the Company and its Restricted Subsidiaries taken as a whole may be uncertain.
Except as described above with respect to a Change of Control, the Indenture
does not contain any other provision that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of one or more Global
Securities in book-entry form. The Notes will be deposited with, or on behalf
of, the Depository and registered in the name of the Depository's nominee.
Except as set forth below, a Global Security may not be transferred except as a
whole by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository. Global Securities will be deposited with The
Depository Trust Company ("DTC"), as Depository, and registered in the name of
Cede & Co., as DTC's nominee.
Upon the issuance of a Global Security, the Depository or its nominee will
credit, on its internal system, the accounts of persons holding through it with
the respective principal amounts of the individual beneficial interests
represented by such Global Security purchased by such persons in the Offering.
Such accounts shall initially be designated by the Underwriters with respect to
the Offered Notes. Ownership of beneficial interests in a Global Security will
be limited to persons that have accounts with the Depository ("participants") or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in a Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depository or its nominee for such Global Security. Ownership
of beneficial interests in such Global Security by persons that hold through
participants will be shown on, and the transfer of that ownership interest
within such participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
Payment of principal, interest and any premium on Notes represented by any
such Global Security will be made to the Depository or its nominee, as the case
may be, as the sole registered owner and the sole Holder of the Notes
represented thereby for all purposes under the Indenture. None of the Company,
the Trustee, any agent of the Company and the Underwriters will have any
responsibility or liability for any aspect of the Depository's reports relating
to or payments made on account of beneficial ownership interests in a Global
Security representing any Notes or for maintaining, supervising or reviewing any
of the Depository's records relating to such beneficial ownership interests.
The Company has been advised by the Depository that upon receipt of any
payment of principal, interest or any premium on any Global Security, the
Depository will immediately credit, on its book-entry registration and transfer
system, the accounts of participants with payments in amounts proportionate to
their respective beneficial interests in the principal or face amount of such
Global Security, as shown on the records of the Depository. The Company expects
that payments by participants to owners of beneficial interests in a Global
Security held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
customer accounts registered in "street name" and will be the sole
responsibility of such participants.
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So long as the Depository or its nominee is the registered owner or holder
of such Global Security, the Depository or such nominee, as the case may be,
will be considered the sole owner or holder of the Notes represented by such
Global Security for the purposes of receiving payment on the Notes, receiving
notices and for all other purposes under the Indenture and the Notes. Beneficial
interests in Notes will be evidenced only by, and transfers thereof will be
effected only through, records maintained by the Depository and its
participants. Except as provided above, owners of beneficial interests in a
Global Security will not be entitled to and will not be considered the holders
of such Global Security for any purposes under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Security must rely on the
procedures of the Depository and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders or that an owner of a beneficial interest in a Global Security desires
to give or take any action that a Holder is entitled to give or take under the
Indenture, the Depository would authorize the participants holding the relevant
beneficial interest to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
The Depository has advised the Company that it will take any action
permitted to be taken by a Holder of Notes (including the presentation of Notes
for exchange as described below) only at the direction of one or more
participants to whose account with the Depository interests in a Global Security
are credited and only in respect of such portion of the aggregate principal
amount of the Notes as to which such participant or participants has or have
given such direction.
The Depository has advised the Company that the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depository was created to hold the
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including the
Placement Agent), banks, trust companies, clearing corporations and certain
other organizations some of whom (or their representatives) own the Depository.
Access to the Depository's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
CERTIFICATED NOTES
The Notes represented by a Global Security are exchangeable for certificated
Notes only if:
- the Depository notifies the Company that it is unwilling or unable to
continue as a depository for such Global Security or if at any time the
Depository ceases to be a clearing agency registered under the Exchange
Act, and a successor depository is not appointed by the Company within 90
days;
- the Company executes and delivers to the Trustee a notice that such Global
Security shall be so transferable, registrable and exchangeable, and such
transfer shall be registrable; or
- there shall have occurred and be continuing a Default or Event of Default
with respect to the Notes represented by such Global Security.
Any Global Security that is exchangeable for certificated Notes pursuant to
the preceding sentence will be transferred to, and registered and exchanged for,
certificated Notes in authorized denominations and registered in such names as
the Depository or its nominee holding such Global Security may direct. Subject
to the foregoing, a Global Security is not exchangeable, except for a Global
Security of like
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denomination to be registered in the name of the Depository or its nominee. If a
Global Security becomes exchangeable for certificated Notes:
- certificated Notes will be issued only in fully registered form in
denominations of $1,000 or an integral multiple thereof;
- payment of principal of, and premium, any repurchase price and interest
on, the certificated Notes will be payable, and the transfer of the
certificated Notes will be registrable, at the office or agency of the
Company maintained for such purposes; and
- no service charge will be made for any issuance of the certificated Notes,
although the Company may require payment of a sum sufficient to cover any
transfer tax, assessment or similar governmental charge imposed in
connection therewith.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness unless, after giving pro forma effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, no Default
or Event of Default would occur as a consequence of, or be continuing following,
such Incurrence and application and either:
(1) the Consolidated Interest Coverage Ratio would exceed 2.5 to 1.0; or
(2) such Indebtedness is Permitted Indebtedness.
"PERMITTED INDEBTEDNESS" means any and all of the following:
(1) Indebtedness arising under the Indenture with respect to the Offered
Notes and any Subsidiary Guarantees relating thereto;
(2) Indebtedness under Bank Credit Facilities, PROVIDED that the aggregate
principal amount of all Indebtedness under Bank Credit Facilities, together with
all Indebtedness Incurred pursuant to clause (10) of this paragraph in respect
of Indebtedness previously Incurred under Bank Credit Facilities, at any one
time outstanding does not exceed the greater of:
- $300.0 million, which amount shall be permanently reduced by the amount of
Net Available Cash from Asset Sales used to permanently repay Indebtedness
under Bank Credit Facilities and not subsequently reinvested in Additional
Assets or used to permanently reduce other Indebtedness to the extent
permitted pursuant to the provisions of the Indenture described under
"--Limitation on Asset Sales;" and
- an amount equal to the sum of (a) $125.0 million and (b) 25% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the
Incurrence of such Indebtedness;
(3) Indebtedness to the Company or any Restricted Subsidiary by any of its
Restricted Subsidiaries or Indebtedness of the Company to any of its Restricted
Subsidiaries (but only so long as such Indebtedness is held by the Company or a
Restricted Subsidiary);
(4) Indebtedness in respect of bid, performance, reimbursement or surety
obligations issued by or for the account of the Company or any Restricted
Subsidiary in the ordinary course of business, including Guarantees and letters
of credit functioning as or supporting such bid, performance, reimbursement or
surety obligations (in each case other than for an obligation for money
borrowed);
(5) Indebtedness under Permitted Hedging Agreements;
(6) in-kind obligations relating to oil or gas balancing positions arising
in the ordinary course of business;
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(7) Indebtedness outstanding on the Issue Date not otherwise permitted in
clauses (1) through (6) above;
(8) Non-recourse Purchase Money Indebtedness;
(9) Indebtedness not otherwise permitted to be Incurred pursuant to this
paragraph (excluding any Indebtedness Incurred pursuant to clause (1) of the
immediately preceding paragraph), PROVIDED that the aggregate principal amount
of all Indebtedness Incurred pursuant to this clause (9), together with all
Indebtedness Incurred pursuant to clause (10) of this paragraph in respect of
Indebtedness previously Incurred pursuant to this clause (9), at any one time
outstanding does not exceed $30.0 million;
(10) Indebtedness Incurred in exchange for, or the proceeds of which are
used to refinance, (a) Indebtedness referred to in clauses (1), (2), (7), (8)
and (9) of this paragraph (including Indebtedness previously Incurred pursuant
to this clause (10)) and (b) Indebtedness Incurred pursuant to clause (1) of the
immediately preceding paragraph, PROVIDED that, in the case of each of the
foregoing clauses (a) and (b), such Indebtedness is Permitted Refinancing
Indebtedness; and
(11) Indebtedness consisting of obligations in respect of purchase price
adjustments, indemnities or Guarantees of the same or similar matters in
connection with the acquisition or disposition of Property.
For purposes of determining compliance with the foregoing covenant:
- in the event that an item of Indebtedness (including Indebtedness Incurred
by the Company to banks or other lenders) could be Incurred pursuant to
more than one of the above provisions, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in (and to have
Incurred such Indebtedness pursuant to) one of the above clauses; and
- an item of Indebtedness (including Indebtedness Incurred by the Company to
banks or other lenders) may for this purpose be divided into more than one
of the types of Indebtedness described above.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, enter into, create, Incur,
assume or suffer to exist any Lien on or with respect to any Property of the
Company or such Restricted Subsidiary, whether owned on the Issue Date or
acquired thereafter, or any interest therein or any income or profits therefrom,
unless the Notes or any Subsidiary Guarantee of such Restricted Subsidiary, as
applicable, are secured equally and ratably with (or prior to) any and all other
obligations secured by such Lien, except that the Company and its Restricted
Subsidiaries may enter into, create, incur, assume or suffer to exist Liens
securing Senior Indebtedness and Permitted Liens.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, make any Restricted
Payment if, at the time of and after giving effect to the proposed Restricted
Payment:
(1) any Default or Event of Default would have occurred and be continuing;
(2) the Company could not Incur at least $1.00 of additional Indebtedness
pursuant to clause (1) of the first paragraph under "--Limitation on
Indebtedness;" or
(3) the aggregate amount expended or declared for all Restricted Payments
from September 29, 1997 would exceed the sum (without duplication) of the
following:
(a) 50% of the aggregate Consolidated Net Income of the Company accrued
on a cumulative basis commencing on the last day of the fiscal quarter
immediately preceding September 29, 1997, and ending on the last day of the
fiscal quarter ending on or immediately preceding the date of such proposed
Restricted Payment (or, if such aggregate Consolidated Net Income shall be a
loss, minus 100% of such loss), plus
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(b) the aggregate net cash proceeds, or the Fair Market Value of
Property other than cash, received by the Company on or after September 29,
1997 from the issuance or sale (other than to a Subsidiary of the Company)
of Capital Stock of the Company or any options, warrants, or rights to
purchase Capital Stock of the Company, plus
(c) the aggregate net cash proceeds, or the Fair Market Value of
Property other than cash, received by the Company as capital contributions
to the Company (other than from a Subsidiary of the Company) on or after
September 29, 1997, plus
(d) the aggregate net cash proceeds received by the Company from the
issuance or sale (other than to any Subsidiary of the Company) on or after
September 29, 1997 of convertible Indebtedness that has been converted into
or exchanged for Capital Stock of the Company, together with the aggregate
cash received by the Company at the time of such conversion or exchange or
received by the Company from any such conversion or exchange of convertible
Indebtedness issued or sold (other than to any Subsidiary of the Company)
prior to September 29, 1997, plus
(e) to the extent not otherwise included in the Company's Consolidated
Net Income, an amount equal to the net reduction in Investments made by the
Company and its Restricted Subsidiaries subsequent to September 29, 1997 in
any Person resulting from (a) payments of interest on debt, dividends,
repayments of loans or advances or other transfers or distributions of
Property, in each case to the Company or any Restricted Subsidiary from any
Person other than the Company or a Restricted Subsidiary, and in an amount
not to exceed the book value of such Investments previously made in such
Person that were treated as Restricted Payments, or (b) the designation of
any Unrestricted Subsidiary as a Restricted Subsidiary, and in an amount not
to exceed the lesser of (x) the book value of all Investments previously
made in such Unrestricted Subsidiary that were treated as Restricted
Payments and (y) the Fair Market Value of such Unrestricted Subsidiary, plus
(f) $25.0 million.
The limitations set forth in the preceding paragraph will not prevent the
following Restricted Payments so long as, at the time thereof, no Default or
Event of Default shall have occurred and be continuing (except in the case of
clause (1) below under which the payment of a dividend is permitted);
(1) the payment of any dividend on Capital Stock or Redeemable Stock of the
Company or any Restricted Subsidiary within 60 days after the declaration
thereof, if at such declaration date such dividend could have been paid in
compliance with the preceding paragraph;
(2) the repurchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company or any of its Subsidiaries held by any
current or former officers, directors, or employees of the Company or any of its
Subsidiaries pursuant to the terms of agreements (including employment
agreements) or plans approved by the Company's Board of Directors, including any
such repurchase, redemption, acquisition or retirement of shares of such Capital
Stock that is deemed to occur upon the exercise of stock options or similar
rights if such shares represent all or a portion of the exercise price or are
surrendered in connection with satisfying United States or Canadian Federal
income tax obligations; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases, redemptions, acquisitions and retirements shall not exceed the sum
of (a) $1.0 million in any twelve-month period and (b) the aggregate net
proceeds, if any, received by the Company during such twelve-month period from
any issuance of such Capital Stock pursuant to such agreements or plans;
(3) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock or Redeemable Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of, a
substantially concurrent issuance and sale (other than to a Subsidiary of the
Company or an employee stock ownership plan or trust established by the Company
or any of its Subsidiaries, for the benefit of their employees) of Capital Stock
of the Company;
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(4) the making of any principal payment on or the repurchase, redemption,
legal defeasance or other acquisition or retirement for value, prior to any
scheduled principal payment, scheduled sinking fund payment or maturity, of any
Subordinated Indebtedness (other than Redeemable Stock) in exchange for, or out
of the aggregate net cash proceeds of, a substantially concurrent issuance and
sale (other than to a Subsidiary of the Company or an employee stock ownership
plan or trust established by the Company or any of its Subsidiaries, for the
benefit of their employees) of Capital Stock of the Company;
(5) the making of any principal payment on or the repurchase, redemption,
legal defeasance or other acquisition or retirement for value of Subordinated
Indebtedness in exchange for, or out of the aggregate net cash proceeds of a
substantially concurrent Incurrence (other than a sale to a Subsidiary of the
Company) of Subordinated Indebtedness so long as such new Indebtedness is
Permitted Refinancing Indebtedness and (a) has an Average Life that is longer
than the Average Life of the Notes and (b) has a Stated Maturity for its final
scheduled principal payment that is more than one year after the Stated Maturity
of the final scheduled principal payment of the Notes; and
(6) loans made to officers, directors or employees of the Company or any
Restricted Subsidiary approved by the Board of Directors (or a duly authorized
officer), the net cash proceeds of which are used solely (a) to purchase common
stock of the Company in connection with a restricted stock or employee stock
purchase plan, or to exercise stock options received pursuant to an employee or
director stock option plan or other incentive plan, in a principal amount not to
exceed the exercise price of such stock options or (b) to refinance loans,
together with accrued interest thereon, made pursuant to item (a) of this clause
(6).
The actions described in clauses (1) and (2) of this paragraph shall be
included in the calculation of the amount of Restricted Payments. The actions
described in clauses (3), (4), (5) and (6) of this paragraph shall be excluded
in the calculation of the amount of Restricted Payments, PROVIDED that the net
cash proceeds from any issuance or sale of Capital Stock of the Company pursuant
to such clauses (3), (4) or (6) shall be excluded from any calculations pursuant
to clauses (b) or (c) under the immediately preceding paragraph.
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not (a) permit any Restricted Subsidiary to
issue any Capital Stock or Redeemable Stock other than to the Company or one of
its Wholly Owned Subsidiaries or (b) permit any Person other than the Company or
a Wholly Owned Subsidiary to own any Capital Stock or Redeemable Stock of any
other Restricted Subsidiary (other than directors' qualifying shares), except,
in each case, for:
(1) the sale of the Capital Stock or Redeemable Stock of a Restricted
Subsidiary owned by the Company or any other Restricted Subsidiary effected in
accordance with the provisions of the Indenture described under "--Limitation on
Asset Sales;"
(2) the issuance of Capital Stock or Redeemable Stock by a Restricted
Subsidiary to a Person other than the Company or a Restricted Subsidiary; and
(3) the Capital Stock or Redeemable Stock of a Restricted Subsidiary owned
by a Person at the time such Restricted Subsidiary became a Restricted
Subsidiary or acquired by such Person in connection with the formation of the
Restricted Subsidiary, or transfers thereof;
PROVIDED, that any sale or issuance of Capital Stock of a Restricted Subsidiary
shall be deemed to be an Asset Sale to the extent the percentage of the total
outstanding Voting Stock of such Restricted Subsidiary owned directly and
indirectly by the Company is reduced as a result of such sale or issuance;
PROVIDED, FURTHER that if a Person whose Capital Stock was issued or sold in a
transaction described in this paragraph is, as a result of such transaction, no
longer a Restricted Subsidiary, then the Fair Market Value of Capital Stock of
such Person retained by the Company and the other Restricted Subsidiaries shall
be treated as an Investment for purposes of the provisions of the Indenture
described under "--Limitation on Restricted Payments." In the event of the
consummation of a sale of all the Capital Stock of a Restricted Subsidiary
pursuant to the foregoing clause (1) and the execution and delivery of a
supplemental indenture in form
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satisfactory to the Trustee, any such Restricted Subsidiary that is also a
Subsidiary Guarantor shall be released from all its obligations under its
Subsidiary Guaranty.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale unless:
(1) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the Property subject to such Asset Sale; and
(2) all of the consideration paid to the Company or such Restricted
Subsidiary in connection with such Asset Sale is in the form of cash, cash
equivalents, Liquid Securities, Exchanged Properties or the assumption by the
purchaser of liabilities of the Company (other than liabilities of the Company
that are by their terms subordinated to the Notes) or liabilities of any
Restricted Subsidiary that made such Asset Sale (other than liabilities of any
Subsidiary Guarantor that are by their terms subordinated to such Subsidiary
Guarantor's Subsidiary Guarantee), in each case as a result of which the Company
and its remaining Restricted Subsidiaries are no longer liable for such
liabilities ("Permitted Consideration"); PROVIDED, HOWEVER, that the Company and
its Restricted Subsidiaries shall be permitted to receive Property other than
Permitted Consideration, so long as the aggregate Fair Market Value of all such
Property other than Permitted Consideration received from Asset Sales and held
by the Company and the Restricted Subsidiaries at any one time shall not exceed
10.0% of Adjusted Consolidated Net Tangible Assets.
The Net Available Cash from Asset Sales by the Company or a Restricted
Subsidiary may be applied by the Company, such Restricted Subsidiary or another
Restricted Subsidiary, to the extent the Company elects (or is required by the
terms of any Senior Indebtedness of the Company or a Restricted Subsidiary), to:
(1) prepay, repay or purchase Senior Indebtedness of the Company or a
Subsidiary Guarantor or any Indebtedness of a Restricted Subsidiary that is not
a Subsidiary Guarantor (in each case excluding Indebtedness owed to the Company
or an Affiliate of the Company);
(2) to reinvest in Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available Cash received by
the Company or another Restricted Subsidiary); or
(3) purchase Notes or purchase both Notes and one or more series or issues
of other Pari Passu Indebtedness on a pro rata basis (excluding Notes and Pari
Passu Indebtedness owned by the Company or an Affiliate of the Company).
Any Net Available Cash from an Asset Sale not applied in accordance with the
preceding paragraph within 365 days from the date of such Asset Sale will
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, an offer to purchase Notes having an aggregate principal
amount equal to the aggregate amount of Excess Proceeds (the "Prepayment Offer")
must be made by the Company at a purchase price equal to 100% of the principal
amount of such Notes plus accrued and unpaid interest, if any, to the Purchase
Date (as defined) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture, but, if the terms of any
Pari Passu Indebtedness require that a Pari Passu Offer be made
contemporaneously with the Prepayment Offer, then the Excess Proceeds shall be
prorated between the Prepayment Offer and such Pari Passu Offer in accordance
with the aggregate outstanding principal amounts of the Notes and such Pari
Passu Indebtedness, and the aggregate principal amount of Notes for which the
Prepayment Offer is made shall be reduced accordingly. If the aggregate
principal amount of Notes tendered by Holders thereof exceeds the amount of
available Excess Proceeds, then such Excess Proceeds will be allocated pro rata
according to the principal amount of the Notes tendered and the Trustee will
select the Notes to be purchased in accordance with the Indenture. To the extent
that any portion of the amount of Excess Proceeds remains after compliance with
the second sentence of this paragraph and PROVIDED that all Holders of Notes
have been given the opportunity to tender their Notes for purchase as described
in the following paragraph in
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accordance with the Indenture, the Company and its Restricted Subsidiaries may
use such remaining amount for purposes permitted by the Indenture and the amount
of Excess Proceeds will be reset to zero.
Within 30 days after the 365th day following the date of an Asset Sale, the
Company shall, if it is obligated to make an offer to purchase the Notes
pursuant to the preceding paragraph, send a written Prepayment Offer notice, by
first-class mail, to the Holders of the Notes (the "Prepayment Offer Notice"),
accompanied by such information regarding the Company and its Subsidiaries as
the Company believes will enable such Holders of the Notes to make an informed
decision with respect to the Prepayment Offer. The Prepayment Offer Notice will
state, among other things:
- that the Company is offering to purchase Notes pursuant to the provisions
of the Indenture;
- that any Note (or any portion thereof) accepted for payment (and duly paid
on the Purchase Date) pursuant to the Prepayment Offer shall cease to
accrue interest on the Purchase Date;
- that any Notes (or portions thereof) not properly tendered will continue
to accrue interest;
- the purchase price and purchase date, which shall be, subject to any
contrary requirements of applicable law, no less than 30 days nor more
than 60 days after the date the Prepayment Offer Notice is mailed (the
"Purchase Date");
- the aggregate principal amount of Notes to be purchased;
- a description of the procedure which Holders of Notes must follow in order
to tender their Notes and the procedures that Holders of Notes must follow
in order to withdraw an election to tender their Notes for payment; and
- all other instructions and materials necessary to enable Holders to tender
Notes pursuant to the Prepayment Offer.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws and regulations are applicable in connection with the purchase of Notes as
described above. To the extent that the provisions of any securities laws or
regulations conflict with the provisions relating to the Prepayment Offer, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached any covenant.
INCURRENCE OF LAYERED INDEBTEDNESS. The Company will not Incur any
Indebtedness which is subordinated or junior in right of payment to any Senior
Indebtedness of the Company unless such Indebtedness is junior to, or PARI PASSU
with, the Notes in right of payment. No Subsidiary Guarantor will Incur any
Indebtedness that is subordinated or junior in right of payment to any Senior
Indebtedness of such Subsidiary Guarantor unless such Indebtedness constitutes
Indebtedness which is junior to, or PARI PASSU with, such Subsidiary Guarantor's
Subsidiary Guarantee in right of payment.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
conduct any business or enter into any transaction or series of transactions
(including the sale, transfer, disposition, purchase, exchange or lease of
Property, the making of any Investment, the giving of any Guarantee or the
rendering of any service) with or for the benefit of any Affiliate of the
Company (other than the Company or a Restricted Subsidiary), unless:
(1) such transaction or series of transactions is on terms no less favorable
to the Company or such Restricted Subsidiary than those that could be obtained
in a comparable arm's-length transaction with a Person that is not an Affiliate
of the Company or such Restricted Subsidiary; and
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(2) with respect to a transaction or series of transactions involving
aggregate payments by or to the Company or such Restricted Subsidiary having a
Fair Market Value equal to or in excess of:
(a) $1.0 million but less than $7.5 million, an officer of the Company
certifies that such transaction or series of transactions complies with
clause (1) of this paragraph, as evidenced by an Officer's Certificate
delivered to the Trustee;
(b) $7.5 million but less than $30.0 million, the Board of Directors of
the Company (including a majority of the disinterested members of such Board
of Directors) approves such transaction or series of transactions and
certifies that such transaction or series of transactions complies with
clause (1) of this paragraph, as evidenced by a certified resolution
delivered to the Trustee; or
(c) $30.0 million,
- the Company receives from an independent, nationally recognized investment
banking firm or appraisal firm, in either case specializing or having a
specialty in the type and subject matter of the transaction (or series of
transactions) at issue, a written opinion that such transaction (or series
of transactions) is fair, from a financial point of view, to the Company
or such Restricted Subsidiary; and
- the Board of Directors of the Company (including a majority of the
disinterested members of such Board of Directors) approves such
transaction or series of transactions and certifies that such transaction
or series of transactions complies with clause (1) of this paragraph, as
evidenced by a certified resolution delivered to the Trustee.
The limitations of the preceding paragraph do not apply to:
(1) the payment of reasonable and customary regular fees to directors of the
Company or any of its Restricted Subsidiaries who are not employees of the
Company or any of its Restricted Subsidiaries;
(2) indemnities of officers and directors of the Company or any Subsidiary
consistent with such Person's charter, bylaws and applicable statutory
provisions;
(3) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements,
stock options and stock ownership plans approved by the Board of Directors of
the Company;
(4) loans made:
- to officers, directors or employees of the Company or any Restricted
Subsidiary approved by the Board of Directors (or by a duly authorized
officer) of the Company, the proceeds of which are used solely to purchase
common stock of the Company in connection with a restricted stock or
employee stock purchase plan, or to exercise stock options received
pursuant to an employee or director stock option plan or other incentive
plan, in a principal amount not to exceed the exercise price of such stock
options; or
- to refinance loans, together with accrued interest thereon, made pursuant
to this clause (4);
(5) advances and loans to officers, directors and employees of the Company
or any Subsidiary, PROVIDED such loans and advances (excluding loans or advances
made pursuant to the preceding clause (4)) do not exceed $5.0 million at any one
time outstanding;
(6) any Restricted Payment permitted to be paid pursuant to the provisions
of the Indenture described under "--Limitations on Restricted Payments;"
(7) any transaction or series of transactions between the Company and one or
more Restricted Subsidiaries or between two or more Restricted Subsidiaries in
the ordinary course of business, PROVIDED
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that no more than 10% of the total voting power of the Voting Stock of any such
Restricted Subsidiary is owned by an Affiliate of the Company (other than a
Restricted Subsidiary); or
(8) any transaction or series of transactions pursuant to any agreement or
obligation of the Company or any of its Restricted Subsidiaries in effect on the
Issue Date.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction on the legal
right of any Restricted Subsidiary to:
(1) pay dividends, in cash or otherwise, or make any other distributions on
or in respect of its Capital Stock or Redeemable Stock, or pay any Indebtedness
or other obligation owed, to the Company or any other Restricted Subsidiary;
(2) make loans or advances to the Company or any other Restricted
Subsidiary; or
(3) transfer any of its Property to the Company or any other Restricted
Subsidiary.
Such limitation will not apply:
(a) with respect to clauses (1), (2) and (3), to encumbrances and
restrictions:
(i) in Bank Credit Facilities and other agreements and instruments,
in each case as in effect on the Issue Date;
(ii) relating to Indebtedness of a Restricted Subsidiary and
existing at the time it became a Restricted Subsidiary if such
encumbrance or restriction was not created in anticipation of or in
connection with the transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary; or
(iii) which result from the renewal, refinancing, extension or
amendment of an agreement that is the subject of clause (a)(i) or (ii)
above or clause (b)(i) or (ii) below,
PROVIDED that such encumbrance or restriction is not materially less favorable
to the Holders of Notes than those under or pursuant to the agreement so
renewed, refinanced, extended or amended; and
(b) with respect to clause (3) only, to:
(i) any restriction on the sale, transfer or other disposition of
Property relating to Indebtedness that is permitted to be Incurred and
secured under the provisions of the Indenture described under
"--Limitation on Indebtedness" and "--Limitation on Liens;"
(ii) any encumbrance or restriction applicable to Property at the
time it is acquired by the Company or a Restricted Subsidiary, so long as
such encumbrance or restriction relates solely to the Property so
acquired and was not created in anticipation of or in connection with
such acquisition;
(iii) customary provisions restricting subletting or assignment of
leases and customary provisions in other agreements that restrict
assignment of such agreements or rights thereunder; and
(iv) customary restrictions contained in asset sale agreements
limiting the transfer of such assets pending the closing of such sale.
FUTURE SUBSIDIARY GUARANTORS. The Company shall cause each Domestic
Restricted Subsidiary having an aggregate of $10.0 million or more of
Indebtedness and Preferred Stock outstanding at any time to promptly execute and
deliver to the Trustee a Subsidiary Guarantee. In addition, any Restricted
Subsidiary
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that Guarantees Indebtedness of the Company will be required to execute and
deliver to the Trustee a Subsidiary Guarantee.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES. Unless defined or designated as
an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
or any of its Restricted Subsidiaries shall be classified as a Restricted
Subsidiary subject to the provisions of the next paragraph. The Company may
designate a Subsidiary (including a newly formed or newly acquired Subsidiary)
of the Company or any of its Restricted Subsidiaries as an Unrestricted
Subsidiary if:
(1) such Subsidiary does not at such time own any Capital Stock or
Indebtedness of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary:
(2) such Subsidiary does not at such time have any Indebtedness or other
obligations which, if in default, would result (with the passage of time or
notice or otherwise) in a default on any Indebtedness of the Company or any
Restricted Subsidiary; and
(3) (a) such designation is effective immediately upon such Subsidiary
becoming a Subsidiary of the Company or of a Restricted Subsidiary;
(b) the Subsidiary to be so designated has total assets of $1,000 or
less; or
(c) if such Subsidiary has assets greater than $1,000, then such
redesignation as an Unrestricted Subsidiary is deemed to constitute a
Restricted Payment in an amount equal to the Fair Market Value of the
Company's direct and indirect ownership interest in such Subsidiary and such
Restricted Payment would be permitted to be made at the time of such
designation under the provisions of the Indenture described under
"--Limitation on Restricted Payments."
Except as provided in the second sentence of this paragraph, no Restricted
Subsidiary may be redesignated as an Unrestricted Subsidiary. The designation of
an Unrestricted Subsidiary or removal of such designation shall be made by the
Board of Directors of the Company or a committee thereof pursuant to a certified
resolution delivered to the Trustee and shall be effective as of the date
specified in the applicable certified resolution, which shall not be prior to
the date such certified resolution is delivered to the Trustee.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions that
would result in a Person becoming a Restricted Subsidiary (whether through an
acquisition or otherwise) unless, after giving effect to such action,
transaction or series of transactions, on a pro forma basis;
- the Company could Incur at least $1.00 of additional Indebtedness pursuant
to clause (1) of the first paragraph under "--Limitation on Indebtedness;"
and
- no Default or Event of Default would occur or be continuing.
MERGER, CONSOLIDATION AND SALE OF SUBSTANTIALLY ALL ASSETS
The Company shall not consolidate with or merge with or into any Person, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all the Property of the Company and its Restricted
Subsidiaries, taken as a whole, unless:
(1) the resulting, surviving or transferee person (the "Successor Company")
shall be a Person organized or existing under the laws of:
- the United States of America, any State thereof or the District of
Columbia; or
- Canada or any province thereof;
(2) a supplemental indenture is executed and delivered to the Trustee, in
form satisfactory to the Trustee, by the Successor Company expressly assuming,
if the Successor Company is not the Company, the
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obligations of the Company to pay the principal of and interest on the Notes and
to perform all the covenants of the Company under the Indenture (in which case
the Successor Company shall be considered the issuer of the Notes);
(3) each Subsidiary Guarantor shall execute and deliver to the Trustee a
supplemental indenture, in form satisfactory to the Trustee, confirming the
obligation of such Subsidiary Guarantor to pay the principal of and interest on
the Notes pursuant to such Subsidiary Guarantor's Subsidiary Guarantee;
(4) in the case of a conveyance, transfer or lease of all or substantially
all the Property of the Company and its Restricted Subsidiaries, taken as a
whole, such Property shall have been so conveyed, transferred or leased as an
entirety or virtually as an entirety to one Person;
(5) immediately after giving effect to such transaction (and treating, for
purposes of this clause (5) and clauses (6) and (7) below, any Indebtedness
which becomes or is anticipated to become an obligation of the Successor Company
or any Restricted Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Restricted Subsidiary at the time of
such transaction), no Default or Event of Default shall have occurred and be
continuing;
(6) other than with respect to the consolidation of the Company with or
merger of the Company with or into, or the conveyance, transfer or lease of all
or substantially all the Property of the Company and its Restricted
Subsidiaries, taken as a whole, to, a Wholly Owned Subsidiary, immediately after
giving effect to such transaction, the Successor Company would be able to Incur
an additional $1.00 of Indebtedness pursuant to clause (1) of the first
paragraph under "--Limitation on Indebtedness;"
(7) other than with respect to the consolidation of the Company with or
merger of the Company with or into, or the conveyance, transfer or lease of all
or substantially all the Property of the Company and its Restricted
Subsidiaries, taken as a whole, to, a Wholly Owned Subsidiary, immediately after
giving effect to such transaction, the Successor Company shall have Consolidated
Net Worth in an amount that is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and
(8) the Company shall have delivered to the Trustee an Officer's
Certificate, stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of
the Company under the Indenture, and, except in the case of the lease of all or
substantially all the Property of the Company and its Restricted Subsidiaries,
taken as a whole, the Company shall be released from its obligations under the
Indenture.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will file with the Commission and furnish to the Holder of Notes all quarterly
and annual financial information required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual consolidated financial statements only, a report thereon by the
Company's independent auditors.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
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"ADDITIONAL ASSETS" means:
(1) any Property (other than cash, Permitted Short-Term Investments or
securities) used in the Oil and Gas Business or any business ancillary thereto;
(2) Investments in any other Person engaged in the Oil and Gas Business or
any business ancillary thereto (including the acquisition from third parties of
Capital Stock of such Person) as a result of which such other Person becomes a
Restricted Subsidiary in compliance with the provisions of the Indenture
described under "--Certain Covenants--Restricted and Unrestricted Subsidiaries;"
(3) the acquisition from third parties of Capital Stock of a Restricted
Subsidiary; or
(4) Permitted Business Investments.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means (without duplication), as
of the date of determination, the remainder of:
(1) the sum of:
(a) discounted future net revenues from proved oil and gas reserves of
the Company and its Restricted Subsidiaries calculated in accordance with
Commission guidelines before any provincial, territorial, state, federal or
foreign income taxes, as estimated by the Company and confirmed by a
nationally recognized firm of independent petroleum engineers in a reserve
report prepared as of the end of the Company's most recently completed
fiscal year for which audited financial statements are available, as
increased by, as of the date of determination, the estimated discounted
future net revenues from (i) estimated proved oil and gas reserves acquired
since such year-end, which reserves were not reflected in such year-end
reserve report; and (ii) estimated oil and gas reserves attributable to
upward revisions of estimates of proved oil and gas reserves since such
year-end due to exploration, development or exploitation activities, in each
case calculated in accordance with Commission guidelines (utilizing the
prices utilized in such year-end reserve report), and decreased by, as of
the date of determination, the estimated discounted future net revenues from
(iii) estimated proved oil and gas reserves produced or disposed of since
such year-end; and (iv) estimated oil and gas reserves attributable to
downward revisions of estimates of proved oil and gas reserves since such
year-end due to changes in geological conditions or other factors which
would, in accordance with standard industry practice, cause such revisions,
in each case calculated in accordance with Commission guidelines (utilizing
the prices utilized in such year-end reserve report); PROVIDED that, in the
case of each of the determinations made pursuant to clauses (i) through
(iv), such increases and decreases shall be as estimated by the Company's
petroleum engineers, unless there is a Material Change as a result of such
acquisitions, dispositions or revisions, in which event the discounted
future net revenues utilized for purposes of this clause (1)(a) shall be
confirmed in writing by a nationally recognized firm of independent
petroleum engineers;
(b) the capitalized costs that are attributable to oil and gas
properties of the Company and its Restricted Subsidiaries to which no proved
oil and gas reserves are attributable, based on the Company's books and
records as of a date no earlier than the date of the Company's latest
available annual or quarterly financial statements;
(c) the Net Working Capital on a date no earlier than the date of the
Company's latest annual or quarterly financial statements; and
(d) the greater of (i) the net book value on a date no earlier than the
date of the Company's latest annual or quarterly financial statements and
(ii) the appraised value, as estimated by independent appraisers, of other
tangible assets (including, without duplication, Investments in
unconsolidated Restricted Subsidiaries) of the Company and its Restricted
Subsidiaries, as of the date no earlier than the date of the Company's
latest audited financial statements, minus
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(2) the sum of:
(a) minority interests;
(b) any net gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest audited financial statements;
(c) to the extent included in (1)(a) above, the discounted future net
revenues, calculated in accordance with Commission guidelines (utilizing the
prices utilized in the Company's year-end reserve report), attributable to
reserves which are required to be delivered to third parties to fully
satisfy the obligations of the Company and its Restricted Subsidiaries with
respect to Volumetric Production Payments (determined, if applicable, using
the schedules specified with respect thereto); and
(d) the discounted future net revenues, calculated in accordance with
Commission guidelines, attributable to reserves subject to
Dollar-Denominated Production Payments which, based on the estimates of
production and price assumptions included in determining the discounted
future net revenues specified in (1)(a) above, would be necessary to fully
satisfy the payment obligations of the Company and its Restricted
Subsidiaries with respect to Dollar-Denominated Production Payments
(determined, if applicable, using the schedules specified with respect
thereto).
If the Company changes its method of accounting from the full cost method to the
successful efforts method or a similar method of accounting, "Adjusted
Consolidated Net Tangible Assets" will continue to be calculated as if the
Company were still using the full cost method of accounting.
"AFFILIATE" of any specified Person means any other Person:
(1) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person; or
(2) which beneficially owns or holds directly or indirectly 10% or more of
any class of the Voting Stock of such specified Person or of any Subsidiary of
such specified Person.
For the purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of such
Person directly or indirectly, whether through the ownership of Voting Stock, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"ASSET SALE" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (collectively, "dispositions," and including
dispositions pursuant to any consolidation or merger) by such Person in any
single transaction or series of transactions of:
(1) shares of Capital Stock or other ownership interests of another Person
(including Capital Stock of Restricted Subsidiaries and Unrestricted
Subsidiaries); or
(2) any other Property of such Person;
Notwithstanding the preceding, the term "Asset Sale" shall not include:
(1) the disposition of Permitted Short-Term Investments, inventory, accounts
receivable, surplus or obsolete equipment or other Property (excluding the
disposition of oil and gas in place and other interests in real property unless
made in connection with a Permitted Business Investment) in the ordinary course
of business;
(2) the abandonment, assignment, lease, sublease or farm-out of oil and gas
properties, or the forfeiture or other disposition of such properties pursuant
to standard form operating agreements, in each case in the ordinary course of
business in a manner that is customary in the Oil and Gas Business;
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(3) the disposition of Property received in settlement of debts owing to
such Person as a result of foreclosure, perfection or enforcement of any Lien or
debt, which debts were owing to such Person in the ordinary course of its
business;
(4) any disposition that constitutes a Restricted Payment made in compliance
with the provisions of the Indenture described under "--Certain
Covenants--Limitation on Restricted Payments;"
(5) when used with respect to the Company, any disposition of all or
substantially all of the Property of such Person permitted pursuant to the
provisions of the Indenture described under "--Merger, Consolidation and Sale of
Substantially All Assets;"
(6) the disposition of any Property by such Person to the Company or a
Wholly Owned Subsidiary;
(7) the disposition of any asset with a Fair Market Value of less than $2.0
million; or
(8) any Production Payments and Reserve Sales, PROVIDED that any such
Production Payments and Reserve Sales, other than incentive compensation
programs on terms that are reasonably customary in the Oil and Gas Business for
geologists, geophysicists and other providers of technical services to the
Company or a Restricted Subsidiary, shall have been created, Incurred, issued,
assumed or Guaranteed in connection with the financing of, and within 60 days
after the acquisition of, the Property that is subject thereto.
"AVERAGE LIFE" means, with respect to any Indebtedness, at any date of
determination, the quotient obtained by dividing:
(1) the sum of the products of:
- the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by
- the amount of each such principal payment, by
(2) the sum of all such principal payments.
"BANK CREDIT FACILITIES" means, with respect to any Person, one or more debt
facilities or commercial paper facilities with banks or other institutional
lenders (including pursuant to the Third Amended and Restated Credit Agreement
dated as of February 3, 1998, among the Company, the Lenders named therein and
The Chase Manhattan Bank, as agent, and the Second Amended and Restated Credit
Agreement dated as of April 1, 1997, as amended on August 19, 1997, among 611852
Saskatchewan Ltd., the Lenders named therein and The Chase Manhattan Bank of
Canada, as agent) providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or trade letters of credit, together with any extensions,
revisions, restatements, refinancings or replacements thereof by a lender or
syndicate of lenders; PROVIDED, HOWEVER, that any Indebtedness which otherwise
would come within this definition shall not constitute Indebtedness under Bank
Credit Facilities to the extent that the Company shall have determined at the
time of Incurrence that such Indebtedness was Incurred pursuant to another
provision of the covenant referred to under "Limitation on Indebtedness."
"CANADIAN FOREST" means Canadian Forest Oil Ltd., an Alberta corporation.
"CAPITAL LEASE OBLIGATION" means any obligation which is required to be
classified and accounted for as a capital lease obligation in accordance with
GAAP, and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with GAAP, and
the Stated Maturity thereof shall be the date of the last payment date of rent
or any other amount due in respect of such obligation.
"CAPITAL STOCK" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities
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convertible into an equity interest), warrants or options to subscribe for or to
acquire an equity interest in such Person; PROVIDED, HOWEVER, that "Capital
Stock" shall not include Redeemable Stock.
"CONSOLIDATED INTEREST COVERAGE RATIO" means, as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of:
(1) the aggregate amount of EBITDA of the Company and its consolidated
Restricted Subsidiaries for the four full fiscal quarters immediately prior to
the Transaction Date for which financial statements are available to
(2) the aggregate Consolidated Interest Expense of the Company and its
Restricted Subsidiaries that is anticipated to accrue during a period consisting
of the fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent thereto (based upon the pro forma amount and
maturity of, and interest payments in respect of, Indebtedness of the Company
and its Restricted Subsidiaries expected by the Company to be outstanding on the
Transaction Date), assuming for the purposes of this measurement the
continuation of market interest rates prevailing on the Transaction Date and
base interest rates in respect of floating interest rate obligations equal to
the base interest rates on such obligations in effect as of the Transaction
Date; PROVIDED, that if the Company or any of its Restricted Subsidiaries is a
party to any Interest Rate Protection Agreement which would have the effect of
changing the interest rate on any Indebtedness of the Company or any of its
Restricted Subsidiaries for such four quarter period (or a portion thereof), the
resulting rate shall be used for such four quarter period or portion thereof;
PROVIDED FURTHER that any Consolidated Interest Expense with respect to
Indebtedness Incurred or retired by the Company or any of its Restricted
Subsidiaries during the fiscal quarter in which the Transaction Date occurs
shall be calculated as if such Indebtedness was so Incurred or retired on the
first day of the fiscal quarter in which the Transaction Date occurs.
In addition, if since the beginning of the four full fiscal quarter period
preceding the Transaction Date, (a) the Company or any of its Restricted
Subsidiaries shall have engaged in any Asset Sale, EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale for such period calculated on a pro
forma basis as if such Asset Sale and any related retirement of Indebtedness had
occurred on the first day of such period or (b) the Company or any of its
Restricted Subsidiaries shall have acquired any material assets, EBITDA shall be
calculated on a pro forma basis as if such asset acquisitions had occurred on
the first day of such four fiscal quarter period.
"CONSOLIDATED INTEREST EXPENSE" means with respect to any Person for any
period, without duplication:
(1) the sum of:
(a) the aggregate amount of cash and noncash interest expense (including
capitalized interest) of such Person and its Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with GAAP in
respect of Indebtedness (including (i) any amortization of debt discount,
(ii) net costs associated with Interest Rate Protection Agreements
(including any amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) all accrued interest and (v) all
commissions, discounts, commitment fees, origination fees and other fees and
charges owed with respect to any Bank Credit Facilities and other
Indebtedness) paid, accrued or scheduled to be paid or accrued during such
period;
(b) Redeemable Stock dividends of such Person (and of its Restricted
Subsidiaries if paid to a Person other than such Person or its Restricted
Subsidiaries) and Preferred Stock dividends of such Person's Restricted
Subsidiaries if paid to a Person other than such Person or its other
Restricted Subsidiaries;
(c) the portion of any rental obligation of such Person or its
Restricted Subsidiaries in respect of any Capital Lease Obligation allocable
to interest expense in accordance with GAAP;
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(d) the portion of any rental obligation of such Person or its
Restricted Subsidiaries in respect of any Sale and Leaseback Transaction
that is Indebtedness allocable to interest expense (determined as if such
obligation were treated as a Capital Lease Obligation); and
(e) to the extent any Indebtedness of any other Person (other than
Restricted Subsidiaries) is Guaranteed by such Person or any of its
Restricted Subsidiaries, the aggregate amount of interest paid, accrued or
scheduled to be paid or accrued by such other Person during such period
attributable to any such Indebtedness; less
(2) to the extent included in (1) above, amortization or write-off of
deferred financing costs of such Person and its Restricted Subsidiaries during
such period; in the case of both (1) and (2) above, after elimination of
intercompany accounts among such Person and its Restricted Subsidiaries and as
determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" of any Person means, for any period, the aggregate
net income (or net loss, as the case may be) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom, without duplication:
(1) items classified as extraordinary gains or losses net of taxes (less all
fees and expenses relating thereto), including, with respect to the Company, any
loss realized in connection with the purchase of the 11 1/4% Notes;
(2) any gain or loss net of taxes (less all fees and expenses relating
thereto), realized on the sale or other disposition of Property, including the
Capital Stock of any other Person (but in no event shall this clause (2) apply
to any gains or losses on the sale in the ordinary course of business of oil,
gas or other hydrocarbons produced or manufactured);
(3) the net income of any Restricted Subsidiary of such specified person to
the extent the transfer to that Person of that income is restricted by contract
or otherwise, except for any cash dividends or cash distributions actually paid
by such Restricted Subsidiary to such Person during such period;
(4) the net income (or loss) of any other Person in which such Person or any
of its Restricted Subsidiaries has an interest (which interest does not cause
the net income of such other Person to be consolidated with the net income of
such Person in accordance with GAAP or is an interest in a consolidated
Unrestricted Subsidiary), except to the extent of the amount of cash dividends
or other cash distributions actually paid to such Person or its consolidated
Restricted Subsidiaries by such other Person during such period;
(5) for the purposes of "--Certain Covenants--Limitation on Restricted
Payments" only, the net income of any Person acquired by such Person or any of
its Restricted Subsidiaries in a pooling-of-interests transaction for any period
prior to the date of such acquisition;
(6) any gain or loss, net of taxes, realized on the termination of any
employee pension benefit plan;
(7) any adjustments of a deferred tax liability or asset pursuant to
Statement of Financial Accounting Standards No. 109 which result from changes in
enacted tax laws or rates;
(8) the cumulative effect of a change in accounting principles;
(9) any write-downs of non-current assets, PROVIDED that any ceiling
limitation write-downs under Commission guidelines shall be treated as
capitalized costs, as if such write-downs had not occurred; and
(10) any non-cash compensation expense realized for grants of performance
shares, stock options or stock awards to officers, directors and employees of
such Person or any of its Restricted Subsidiaries.
"CONSOLIDATED NET WORTH" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less (to the
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extent included in stockholders' equity) amounts attributable to Redeemable
Stock of such Person or its Restricted Subsidiaries.
"DEFAULT" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means:
(1) Bank Credit Facilities of the Company; and
(2) any other Senior Indebtedness of the Company which has, at the time of
determination, an aggregate principal amount outstanding of at least $10.0
million that is specifically designated in the instrument evidencing such
Indebtedness and is designated in a notice delivered by the Company to the
holders or a Representative of the holders of such Senior Indebtedness of the
Company and the Trustee as "Designated Senior Indebtedness."
"DOLLAR-DENOMINATED PRODUCTION PAYMENTS" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"DOMESTIC RESTRICTED SUBSIDIARY" means a Restricted Subsidiary organized
under the laws of the United States of America, any State thereof or the
District of Columbia.
"EBITDA" means, with respect to any Person for any period, an amount equal
to the Consolidated Net Income of such Person for such period, plus:
(1) the sum of, to the extent reflected in the consolidated income statement
of such Person and its Restricted Subsidiaries for such period from which
Consolidated Net Income is determined and deducted in the determination of such
Consolidated Net Income, without duplication:
- income tax expense (but excluding income tax expense relating to sales or
other dispositions of Property, including the Capital Stock of any other
Person, the gains from which are excluded in the determination of such
Consolidated Net Income);
- Consolidated Interest Expense;
- depreciation and depletion expense;
- amortization expense;
- exploration expense (if applicable); and
- any other noncash charges including unrealized foreign exchange losses
(excluding, however, any such other noncash charge which requires an
accrual of or reserve for cash charges for any future period); less
(2) the sum of, to the extent reflected in the consolidated income statement
of such Person and its Restricted Subsidiaries for such period from which
Consolidated Net Income is determined and added in the determination of such
Consolidated Net Income, without duplication:
- income tax recovery (excluding, however, income tax recovery relating to
sales or other dispositions of Property, including the Capital Stock of
any other Person, the losses from which are excluded in the determination
of such Consolidated Net Income); and
- unrealized foreign exchange gains.
"EQUITY OFFERING" means (a) a bona fide underwritten sale to the public of
common stock of the Company pursuant to a registration statement (other than a
Form S-8 or any other form relating to securities issuable under any employee
benefit plan of the Company) that is declared effective by the
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Commission or (b) a bona fide sale of common stock for cash to The Anschutz
Corporation, in either case following the Issue Date.
"EXCHANGED PROPERTIES" means properties used or useful in the Oil and Gas
Business received by the Company or a Restricted Subsidiary in trade or as a
portion of the total consideration for other such properties or assets.
"EXCHANGE RATE CONTRACT" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or any combination thereof, entered into by such
Person in the ordinary course of its business for the purpose of limiting or
managing exchange rate risks to which such Person is subject.
"FAIR MARKET VALUE" means, with respect to any assets to be transferred
pursuant to any Asset Sale or Sale and Leaseback Transaction or any noncash
consideration or property transferred or received by any Person, the fair market
value of such consideration or other property as determined by
(1) any officer of the Company if such fair market value is less than $7.5
million; and
(2) the Board of Directors of the Company as evidenced by a certified
resolution delivered to the Trustee if such fair market value is equal to or in
excess of $7.5 million.
"GAAP" means United States generally accepted accounting principles as in
effect on the date of the Indenture, unless stated otherwise.
"GOVERNMENT OBLIGATIONS" means securities that are:
(1) direct obligations of the United States of America or Canada for the
timely payment of which the full faith and credit of the United States of
America or Canada is pledged; or
(2) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or Canada, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or Canada which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian, with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; PROVIDED, HOWEVER, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
principal of or interest on the Government Obligation evidenced by such
depository receipt.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, and including any Lien on the assets of such Person
securing obligations to pay Indebtedness of the primary obligor and any
obligation of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or to purchase (or to advance or supply funds for
the purchase or payment of) any security for the payment of such Indebtedness
(2) to purchase Property, securities or services for the purpose of assuring
the holder of such Indebtedness of the payment of such Indebtedness; or
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(3) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing).
Notwithstanding the preceding, a Guarantee by any Person shall not include:
(1) endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business; or
(2) a contractual commitment by one Person to invest in another Person for
so long as such Investment is reasonably expected to constitute a Permitted
Investment under clause (2) of the definition of Permitted Investments.
"HOLDER" means the Person in whose name a Note is registered on the
Securities Register.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or become liable in respect of such Indebtedness or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such
Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness. For purposes of this definition,
Indebtedness of the Company held by a Restricted Subsidiary or Indebtedness of a
Restricted Subsidiary held by another Restricted Subsidiary shall be deemed to
be Incurred by the issuer of such Indebtedness in the event the Restricted
Subsidiary holding such Indebtedness ceases to be a Restricted Subsidiary or in
the event such Indebtedness is transferred to a Person other than the Company or
a Restricted Subsidiary. For purposes of this definition, any non-interest
bearing or other Indebtedness shall be deemed to have been Incurred (in an
amount equal to its aggregate principal amount at its Stated Maturity) only on
the date of original issue thereof.
"INDEBTEDNESS" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent:
(1) any obligation of such Person for borrowed money;
(2) any obligation of such Person evidenced by bonds, debentures, notes,
Guarantees or other similar instruments, including any such obligations Incurred
in connection with the acquisition of Property, assets or businesses;
(3) any reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person;
(4) any obligation of such Person issued or assumed as the deferred purchase
price of Property or services (other than Trade Accounts Payable);
(5) any Capital Lease Obligation of such Person;
(6) the maximum fixed redemption or repurchase price of Redeemable Stock of
such Person at the time of determination;
(7) any payment obligation of such Person under Exchange Rate Contracts,
Interest Rate Protection Agreements, Oil and Gas Hedging Contracts or under any
similar agreements or instruments;
(8) any obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Leaseback Transaction to which such Person is a party;
and
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(9) any obligation of the type referred to in clauses (1) through (8) of
this paragraph of another Person and all dividends of another Person the payment
of which, in either case, such Person has Guaranteed or is responsible or
liable, directly or indirectly, as obligor, Guarantor or otherwise.
Notwithstanding the preceding, Indebtedness shall not include Production
Payments and Reserve Sales. For purposes of this definition, the maximum fixed
repurchase price of any Redeemable Stock that does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable Stock
as if such Redeemable Stock were repurchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture; PROVIDED, HOWEVER,
that if such Redeemable Stock is not then permitted to be repurchased, the
repurchase price shall be the book value of such Redeemable Stock. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability at such date in respect of any contingent obligations described above.
"INTEREST RATE PROTECTION AGREEMENT" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement entered into by
such Person in the ordinary course of its business for the purpose of limiting
or managing interest rate risks to which such Person is subject.
"INVESTMENT" means, with respect to any Person:
(1) any amount paid by such Person, directly or indirectly, to any other
Person for Capital Stock or other Property of, or as a capital contribution to,
any other Person; or
(2) any direct or indirect loan or advance to any other Person (other than
accounts receivable of such Person arising in the ordinary course of business).
Notwithstanding the preceding, Investments shall not include:
(a) in the case of clause (1) as used in the definition of "Restricted
Payments" only, any such amount paid through the issuance of Capital Stock
of the Company; and
(b) in the case of clause (1) or (2), extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices and
any increase in the equity ownership in any Person resulting from retained
earnings of such Person.
"ISSUE DATE" means the date on which the Offered Notes first were issued
under the Indenture.
"LIEN" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any conditional
sale or other title retention agreement having substantially the same economic
effect as any of the foregoing). For purposes of the provisions of the Indenture
described under "--Certain Covenants--Limitation on Liens," a Capital Lease
Obligation shall be deemed to be secured by a Lien on the property being leased.
"LIQUID SECURITIES" means securities:
(1) of an issuer that is not an Affiliate of the Company:
(2) that are publicly traded on the New York Stock Exchange, the American
Stock Exchange, the Toronto Stock Exchange or the Nasdaq National Market; and
(3) as to which the Company or the Restricted Subsidiary holding such
securities is not subject to any restrictions on sale or transfer (including any
volume restrictions under Rule 144 under the Securities Act or any other
restrictions imposed by the Securities Act) or as to which a registration
statement under the Securities Act covering the resale thereof is in effect for
as long as the securities are held.
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Notwithstanding the preceding, securities meeting the requirements of clauses
(1), (2) and (3) above shall be treated as Liquid Securities from the date of
receipt thereof until and only until the earlier of:
- the date on which such securities are sold or exchanged for cash or
Permitted Short-Term Investments; and
- 180 days following the date of receipt of such securities.
If such securities are not sold or exchanged for cash or Permitted
Short-Term Investments within 180 days of receipt thereof, for purposes of
determining whether the transaction pursuant to which the Company or a
Restricted Subsidiary received the securities was in compliance with the
provisions of the Indenture described under "--Certain Covenants--Limitation on
Asset Sales," such securities shall be deemed not to have been Liquid Securities
at any time.
"MATERIAL CHANGE" means an increase or decrease (except to the extent
resulting from changes in prices) of more than 30% during a fiscal quarter in
the estimated discounted future net revenues from proved oil and gas reserves of
the Company and its Restricted Subsidiaries, calculated in accordance with
clause (1)(a) of the definition of Adjusted Consolidated Net Tangible Assets;
PROVIDED, HOWEVER, that the following will be excluded from the calculation of
Material Change:
(1) any acquisitions during the quarter of oil and gas reserves with respect
to which the Company's estimate of the discounted future net revenues from
proved oil and gas reserves has been confirmed by independent petroleum
engineers; and
(2) any dispositions of Properties during such quarter that were disposed of
in compliance with the provisions of the Indenture described under "--Certain
Covenants--Limitation on Asset Sales."
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET AVAILABLE CASH" from an Asset Sale means cash proceeds received
therefrom (including:
(1) any cash proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received; and
(2) the Fair Market Value of Liquid Securities and Permitted Short-Term
Investments,
and excluding:
(a) any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to the
Property that is the subject of such Asset Sale; and
(b) except to the extent subsequently converted to cash, Liquid
Securities or Permitted Short-Term Investments within 240 days after such
Asset Sale, consideration constituting Exchanged Properties or consideration
other than as identified in the immediately preceding clauses (1) and (2)),
in each case net of:
(1) all legal, title and recording expenses, commissions and other fees and
expenses incurred, and all federal, state, foreign and local taxes required to
be paid or accrued as a liability under GAAP as a consequence of such Asset
Sale;
(2) all payments made on any Indebtedness (but specifically excluding
Indebtedness of the Company and its Restricted Subsidiaries assumed in
connection with or in anticipation of such Asset Sale) which is secured by any
assets subject to such Asset Sale, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale or by applicable law, be repaid out of the proceeds
from such Asset Sale, PROVIDED that such payments are made in a manner that
results in the permanent reduction in the balance of such Indebtedness and, if
applicable, a permanent reduction in any outstanding commitment for future
incurrences of Indebtedness thereunder;
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(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Sale; and
(4) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
Notwithstanding the preceding, if any consideration for an Asset Sale (which
would otherwise constitute Net Available Cash) is required to be held in escrow
pending determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Available Cash only at
such time as it is released to the Company or any Restricted Subsidiary from
escrow.
"NET WORKING CAPITAL" means:
(1) all current assets of the Company and its Restricted Subsidiaries; less
(2) all current liabilities of the Company and its Restricted Subsidiaries,
except current liabilities included in Indebtedness,
in each case as set forth in consolidated financial statements of the
Company prepared in accordance with GAAP.
"NON-RECOURSE PURCHASE MONEY INDEBTEDNESS" means Indebtedness (other than
Capital Lease Obligations) of the Company or any Restricted Subsidiary Incurred
in connection with the acquisition by the Company or such Restricted Subsidiary
in the ordinary course of business of fixed assets used in the Oil and Gas
Business (including office buildings and other real property used by the Company
or such Restricted Subsidiary in conducting its operations) with respect to
which:
(1) the holders of such Indebtedness agree that they will look solely to the
fixed assets so acquired which secure such Indebtedness, and neither the Company
nor any Restricted Subsidiary:
- is directly or indirectly liable for such Indebtedness; or
- provides credit support, including any undertaking, Guarantee, agreement
or instrument that would constitute Indebtedness (other than the grant of
a Lien on such acquired fixed assets); and
(2) no default or event of default with respect to such Indebtedness would
cause, or permit (after notice or passage of time or otherwise), any holder of
any other Indebtedness of the Company or a Restricted Subsidiary to declare a
default or event of default on such other Indebtedness or cause the payment,
repurchase, redemption, defeasance or other acquisition or retirement for value
thereof to be accelerated or payable prior to any scheduled principal payment,
scheduled sinking fund payment or maturity.
"OFFICERS' CERTIFICATE" means a certificate signed by:
(1) the President or the Chief Executive Officer; and
(2) the Chief Financial Officer, the Chief Accounting Officer or the
Treasurer, of the Company and delivered to the Trustee, which shall comply with
the Indenture.
"OIL AND GAS BUSINESS" means the business of exploiting, exploring for,
developing, acquiring, operating, producing, processing, gathering, marketing,
storing, selling, hedging, treating, swapping, refining and transporting
hydrocarbons and other related energy businesses.
"OIL AND GAS HEDGING CONTRACT" means, with respect to any Person, any
agreement or arrangement, or any combination thereof, relating to oil and gas or
other hydrocarbon prices, transportation or basic costs or differentials or
other similar financial factors, that is customary in the Oil and Gas Business
and is
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entered into by such Person in the ordinary course of its business for the
purpose of limiting or managing risks associated with fluctuations in such
prices, costs, differentials or similar factors.
"OIL AND GAS LIENS" means:
(1) Liens on any specific property or any interest therein, construction
thereon or improvement thereto to secure all or any part of the costs incurred
for surveying, exploration, drilling, extraction, development, operation,
production, construction, alteration, repair or improvement of, in, under or on
such property and the plugging and abandonment of wells located thereon (it
being understood that, in the case of oil and gas producing properties, or any
interest therein, costs incurred for "development" shall include costs incurred
for all facilities relating to such properties or to projects, ventures or other
arrangements of which such properties form a part or which relate to such
properties or interests);
(2) Liens on an oil or gas producing property to secure obligations Incurred
or guarantees of obligations Incurred in connection with or necessarily
incidental to commitments for the purchase or sale of, or the transportation or
distribution of, the products derived from such property;
(3) Liens arising under partnership agreements, oil and gas leases,
overriding royalty agreements, net profits agreements, production payment
agreements, royalty trust agreements, incentive compensation programs on terms
that are reasonably customary in the Oil and Gas Business for geologists,
geophysicists and other providers of technical services to the Company or a
Restricted Subsidiary, master limited partnership agreements, farm-out
agreements, farm-in agreements, division orders, contracts for the sale,
purchase, exchange, transportation, gathering or processing of oil, gas or other
hydrocarbons, unitizations and pooling designations, declarations, orders and
agreements, development agreements, operating agreements, production sales
contracts, area of mutual interest agreements, gas balancing or deferred
production agreements, injection, repressuring and recycling agreements, salt
water or other disposal agreements, seismic or geophysical permits or
agreements, and other agreements which are customary in the Oil and Gas
Business; PROVIDED, HOWEVER, in all instances that such Liens are limited to the
assets that are the subject of the relevant agreement, program, order or
contract;
(4) Liens arising in connection with Production Payments and Reserve Sales;
and
(5) Liens on pipelines or pipeline facilities that arise by operation of
law.
"PARI PASSU INDEBTEDNESS" means any Indebtedness of the Company or a
Subsidiary Guarantor that is PARI PASSU in right of payment to the Notes or a
Subsidiary Guarantee, as applicable.
"PARI PASSU OFFER" means an offer by the Company or a Subsidiary Guarantor
to purchase all or a portion of Pari Passu Indebtedness to the extent required
by the indenture or other agreement or instrument pursuant to which such Pari
Passu Indebtedness was issued.
"PERMITTED BUSINESS INVESTMENTS" means Investments and expenditures made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively engaging therein through
agreements, transactions, interests or arrangements which permit one to share
risks or costs, comply with regulatory requirements regarding local ownership or
satisfy other objectives customarily achieved through the conduct of Oil and Gas
Business jointly with third parties, including:
(1) ownership interests in oil and gas properties or gathering,
transportation, processing, storage or related systems; and
(2) Investments and expenditures in the form of or pursuant to operating
agreements, processing agreements, farmin agreements, farmout agreements,
development agreements, area of mutual interest agreements, unitization
agreements, pooling arrangements, joint bidding agreements, service contracts,
joint venture agreements, partnership agreements (whether general or limited),
and other similar agreements (including for limited liability companies) with
third parties, excluding however, Investments in corporations other than
Restricted Subsidiaries.
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"PERMITTED HEDGING AGREEMENTS" means:
(1) Exchange Rate Contracts and Oil and Gas Hedging Contracts; and
(2) Interest Rate Protection Agreements but only to the extent that the
stated aggregate notional amount thereunder does not exceed 100% of the
aggregate principal amount of Indebtedness of the Company or a Restricted
Subsidiary covered by such Interest Rate Protection Agreements at the time such
agreements were entered into.
"PERMITTED INVESTMENTS" means any and all of the following:
(1) Permitted Short-Term Investments;
(2) Investments in property, plant and equipment used in the ordinary course
of business and Permitted Business Investments;
(3) Investments by any Restricted Subsidiary in the Company;
(4) Investments by the Company or any Restricted Subsidiary in any
Restricted Subsidiary;
(5) Investments by the Company or any Restricted Subsidiary in (a) any
Person that will, upon the making of such Investment, become a Restricted
Subsidiary or (b) any Person if as a result of such Investment such Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its Property to, the Company or a Restricted Subsidiary;
(6) Investments in the form of securities received from Asset Sales,
PROVIDED that such Asset Sales are made in compliance with the provisions of the
Indenture described under "--Certain Covenants-- Limitation on Asset Sales;"
(7) Investments in negotiable instruments held for collection; lease,
utility and other similar deposits; and stock, obligations or other securities
received in settlement of debts (including under any bankruptcy or other similar
proceeding) owing to the Company or any of its Restricted Subsidiaries as a
result of foreclosure, perfection or enforcement of any Liens or Indebtedness,
in each of the foregoing cases in the ordinary course of business of the Company
or such Restricted Subsidiary;
(8) relocation allowances for, and advances and loans to, officers,
directors, and employees of the Company or any of its Restricted Subsidiaries;
PROVIDED such items do not exceed in the aggregate $5.0 million at any one time
outstanding;
(9) Investments intended to promote the Company's strategic objectives in
the Oil and Gas Business in an aggregate amount not to exceed 7.5% of the
Adjusted Consolidated Net Tangible Assets (determined as of the date of the
making of any such Investment) at any one time outstanding (which Investments
shall be deemed to be no longer outstanding only upon the return of capital
thereof);
(10) Investments made for the purpose of acquiring gas marketing contracts
in an aggregate amount not to exceed $10.0 million at any one time outstanding;
(11) Investments made pursuant to Permitted Hedging Agreements of the
Company and the Restricted Subsidiaries; and
(12) Investments pursuant to any agreement or obligation of the Company or
any of its Restricted Subsidiaries as in effect on the Issue Date (other than
Investments described in clauses (1) through (11) above).
"PERMITTED LIENS" means any and all of the following:
(1) Liens existing as of the Issue Date;
(2) Liens securing the Notes, any Subsidiary Guarantees and other
obligations arising under the Indenture;
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(3) any Lien existing on any Property of a Person at the time such Person is
merged or consolidated with or into the Company or a Restricted Subsidiary or
becomes a Restricted Subsidiary (and not incurred in anticipation of or in
connection with such transaction), PROVIDED that such Liens are not extended to
other Property of the Company or its Restricted Subsidiaries;
(4) any Lien existing on any Property at the time of the acquisition thereof
(and not incurred in anticipation of or in connection with such transaction),
PROVIDED that such Liens are not extended to other Property of the Company or
its Restricted Subsidiaries;
(5) any Lien incurred in the ordinary course of business incidental to the
conduct of the business of the Company or the Restricted Subsidiaries or the
ownership of their Property (including:
(a) easements, rights of way and similar encumbrances;
(b) rights or title of lessors under leases (other than Capital Lease
Obligations);
(c) rights of collecting banks having rights of setoff, revocation,
refund or chargeback with respect to money or instruments of the Company or
the Restricted Subsidiaries on deposit with or in the possession of such
banks;
(d) Liens imposed by law, including Liens under workers' compensation or
similar legislation and mechanics', carriers', warehousemen's,
materialmen's, suppliers' and vendors' Liens;
(e) Liens incurred to secure performance of obligations with respect to
statutory or regulatory requirements, performance or return-of-money bonds,
surety bonds or other obligations of a like nature and incurred in a manner
consistent with industry practice; and
(f) Oil and Gas Liens, in each case which are not incurred in connection
with the borrowing of money, the obtaining of advances or credit or the
payment of the deferred purchase price of Property (other than Trade
Accounts Payable));
(6) Liens for taxes, assessments and governmental charges not yet due or the
validity of which are being contested in good faith by appropriate proceedings,
promptly instituted and diligently conducted, and for which adequate reserves
have been established to the extent required by GAAP as in effect at such time;
(7) Liens incurred to secure appeal bonds and judgment and attachment Liens,
in each case in connection with litigation or legal proceedings that are being
contested in good faith by appropriate proceedings so long as reserves have been
established to the extent required by GAAP as in effect at such time and so long
as such Liens do not encumber assets by an aggregate amount (together with the
amount of any unstayed judgments against the Company or any Restricted
Subsidiary but excluding any such Liens to the extent securing insured or
indemnified judgments or orders) in excess of $15.0 million;
(8) Liens securing Permitted Hedging Agreements of the Company and its
Restricted Subsidiaries;
(9) Liens securing purchase money Indebtedness or Capital Lease Obligations,
PROVIDED that such Liens attach only to the Property acquired with the proceeds
of such purchase money Indebtedness or the Property which is the subject of such
Capital Lease Obligations;
(10) Liens securing Non-recourse Purchase Money Indebtedness granted in
connection with the acquisition by the Company or any Restricted Subsidiary in
the ordinary course of business of fixed assets used in the Oil and Gas Business
(including office buildings and other real property used by the Company or such
Restricted Subsidiary in conducting its operations), PROVIDED that (a) such
Liens attach only to the fixed assets acquired with the proceeds of such
Non-recourse Purchase Money Indebtedness and (b) such Non-recourse Purchase
Money Indebtedness is not in excess of the purchase price of such fixed assets;
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(11) Liens resulting from the deposit of funds or evidences of Indebtedness
in trust for the purpose of decreasing or legally defeasing Indebtedness of the
Company or any Restricted Subsidiary so long as such deposit of funds is
permitted by the provisions of the Indenture described under "--Limitation on
Restricted Payments;"
(12) Liens resulting from a pledge of Capital Stock of a Person that is not
a Restricted Subsidiary to secure obligations of such Person and any
refinancings thereof;
(13) Liens to secure any permitted extension, renewal, refinancing,
refunding or exchange (or successive extensions, renewals, refinancings,
refundings or exchanges), in whole or in part, of or for any Indebtedness
secured by Liens referred to in clauses (1), (2), (3), (4), (9) and (10) above;
PROVIDED, HOWEVER, that (a) such new Lien shall be limited to all or part of the
same Property (including future improvements thereon and accessions thereto)
subject to the original Lien and (b) the Indebtedness secured by such Lien at
such time is not increased to any amount greater than the sum of (i) the
outstanding principal amount, or, if greater, the committed amount of the
Indebtedness secured by such original Lien immediately prior to such extension,
renewal, refinancing, refunding or exchange and (ii) an amount necessary to pay
any fees and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement;
(14) Liens in favor of the Company or a Restricted Subsidiary; and
(15) Liens not otherwise permitted by clauses (1) through (14) above
incurred in the ordinary course of business of the Company and its Restricted
Subsidiaries and encumbering Property having an aggregate Fair Market Value not
in excess of $5.0 million at any one time.
Notwithstanding anything in this definition to the contrary, the term "Permitted
Liens" shall not include Liens resulting from the creation, incurrence,
issuance, assumption or Guarantee of any Production Payments and Reserve Sales
other than:
(1) any such Liens existing as of the Issue Date;
(2) Production Payments and Reserves Sales in connection with the
acquisition of any Property after the Issue Date, PROVIDED that any such Lien
created in connection therewith is created, incurred, issued, assumed or
Guaranteed in connection with the financing of, and within 60 days after the
acquisition of, such Property;
(3) Production Payments and Reserve Sales, other than those described in
clauses (1) and (2) of this sentence, to the extent such Production Payments and
Reserve Sales constitute Asset Sales made pursuant to and in compliance with the
provisions of the Indenture described under "--Limitation on Asset Sales;" and
(4) incentive compensation programs for geologists, geophysicists and other
providers of technical services to the Company and any Restricted Subsidiary.
Notwithstanding the preceding, in the case of the immediately foregoing clauses
(1), (2), (3) and (4), any Lien created in connection with any such Production
Payments and Reserve Sales shall be limited to the Property that is the subject
of such Production Payments and Reserve Sales.
"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness ("new Indebtedness")
Incurred in exchange for, or proceeds of which are used to refinance, other
Indebtedness ("old Indebtedness"); PROVIDED, HOWEVER, that:
(1) such new Indebtedness is in an aggregate principal amount not in excess
of the sum of:
- the aggregate principal amount then outstanding of the old Indebtedness
(or, if such old Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination);
and
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- an amount necessary to pay any fees and expenses, including premiums,
related to such exchange or refinancing;
(2) such new Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the old Indebtedness;
(3) such new Indebtedness has an Average Life at the time such new
Indebtedness is Incurred that is equal to or greater than the Average Life of
the old Indebtedness at such time;
(4) such new Indebtedness is subordinated in right of payment to the Notes
(or, if applicable, the relevant Subsidiary Guarantee) to at least the same
extent, if any, as the old Indebtedness;
(5) if such old Indebtedness is Non-recourse Purchase Money Indebtedness or
Indebtedness that refinanced Non-recourse Purchase Money Indebtedness, such new
Indebtedness satisfies clauses (1) and (2) of the definition of "Non-recourse
Purchase Money Indebtedness;" and
(6) such new Indebtedness is not incurred by a Restricted Subsidiary which
thereafter will not be a Subsidiary Guarantor to refinance old Indebtedness of
the Company or a Subsidiary Guarantor.
"PERMITTED SHORT-TERM INVESTMENTS" means:
(1) Investments in Government Obligations maturing within one year of the
date of acquisition thereof;
(2) Investments in demand accounts, time deposit accounts, certificates of
deposit, bankers' acceptances and money market deposits maturing within one year
of the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America or any State thereof or
the District of Columbia, or Canada or any Province thereof, that is a member of
the Federal Reserve System or comparable Canadian system and has capital,
surplus and undivided profits aggregating in excess of $500.0 million and whose
long-term Indebtedness is rated "A" (or such similar equivalent rating), or
higher, according to Moody's or Dominion Bond Rating Service Limited or Canadian
Bond Rating Service, Inc.;
(3) Investments in deposits available for withdrawal on demand with any
commercial bank that is organized under the laws of any country in which the
Company or any Restricted Subsidiary maintains an office or is engaged in the
Oil and Gas Business, PROVIDED that (a) all such deposits have been made in such
accounts in the ordinary course of business and (b) such deposits do not at any
one time exceed $20.0 million in the aggregate;
(4) repurchase and reserve repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (1)
entered into with a bank meeting the qualifications described in clause (2);
(5) Investments in commercial paper or notes, maturing not more than one
year after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any State thereof or the District of Columbia, or
Canada or any Province thereof, with a short-term rating at the time as of which
any Investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P or "R-1" (or higher) by Dominion Bond Rating
Service Limited or Canadian Bond Rating Service, Inc. (in the case of a Canadian
issuer) or a long-term rating at the time as of which any Investment therein is
made of "A3" (or higher) according to Moody's or "A-" (or higher) according to
S&P or such similar equivalent rating (or higher) by Dominion Bond Rating
Service Limited or Canadian Bond Rating Service, Inc. (in the case of a Canadian
issuer);
(6) Investments in any money market mutual funds having assets in excess of
$250.0 million all of which consist of other obligations of the types described
in clauses (1), (2), (4) and (5) hereof; and
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(7) Investments in asset-backed securities maturing within one year of the
date of acquisition thereof with a long-term rating at the time as of which any
Investment therein is made of "A3" (or higher) according to Moody's or "A-1" (or
higher) according to S&P or such similar equivalent rating (or higher) by
Dominion Bond Rating Service Limited or Canadian Bond Rating Service, Inc. (in
the case of a Canadian issuer).
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, unlimited liability company, trust, estate,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person; PROVIDED, HOWEVER that "Preferred
Stock" shall not include Redeemable Stock.
"PRINCIPAL" of any Indebtedness (including the Notes) means the principal
amount of such Indebtedness plus any premium on such Indebtedness.
"PRODUCTION PAYMENTS AND RESERVE SALES" means the grant or transfer by the
Company or a Restricted Subsidiary to any Person of a royalty, overriding
royalty, net profits interest, production payment (whether volumetric or dollar
denominated), partnership or other interest in oil and gas properties, reserves
or the right to receive all or a portion of the production or the proceeds from
the sale of production attributable to such properties where the holder of such
interest has recourse solely to such production or proceeds of production,
subject to the obligation of the grantor or transferor to operate and maintain,
or cause the subject interests to be operated and maintained, in a reasonably
prudent manner or other customary standard or subject to the obligation of the
grantor or transferor to indemnify for environmental, title or other matters
customary in the Oil and Gas Business, including any such grants or transfers
pursuant to incentive compensation programs on terms that are reasonably
customary in the Oil and Gas Business for geologists, geophysicists or other
providers of technical services to the Company or a Restricted Subsidiary.
"PROPERTY" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including Capital Stock and other securities issued by any other
Person (but excluding Capital Stock or other securities issued by such first
mentioned Person).
"REDEEMABLE STOCK" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including on the happening of an
event), is or could become required to be redeemed for cash or other Property or
is or could become redeemable for cash or other Property at the option of the
holder thereof, in whole or in part, on or prior to the first anniversary of the
Stated Maturity of the Notes; or is or could become exchangeable at the option
of the holder thereof for Indebtedness at any time in whole or in part, on or
prior to the first anniversary of the Stated Maturity of the Notes; PROVIDED,
HOWEVER, that Redeemable Stock shall not include any security by virtue of the
fact that it may be exchanged or converted at the option of the holder for
Capital Stock of the Company having no preference as to dividends or liquidation
over any other Capital Stock of the Company.
"REPRESENTATIVE" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Indebtedness
of the Company.
"RESTRICTED PAYMENT" means:
(1) a dividend or other distribution declared or paid on the Capital Stock
or Redeemable Stock of the Company or to the Company's shareholders (other than
dividends, distributions or payments made solely in Capital Stock of the Company
or in options, warrants or other rights to purchase or acquire
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Capital Stock), or declared and paid to any Person other than the Company or any
of its Restricted Subsidiaries (and, if such Restricted Subsidiary is not a
Wholly Owned Subsidiary, to the other shareholders of such Restricted Subsidiary
on a pro rata basis) on the Capital Stock or Redeemable Stock of any Restricted
Subsidiary;
(2) a payment made by the Company or any of its Restricted Subsidiaries
(other than to the Company or any Restricted Subsidiary) to purchase, redeem,
acquire or retire any Capital Stock or Redeemable Stock, or any options,
warrants or other rights to acquire Capital Stock or Redeemable Stock, of the
Company or of a Restricted Subsidiary;
(3) a payment made by the Company or any of its Restricted Subsidiaries to
redeem, repurchase, legally defease or otherwise acquire or retire for value
(including pursuant to mandatory repurchase covenants), prior to any scheduled
maturity, scheduled sinking fund or scheduled mandatory redemption, any
Subordinated Indebtedness, PROVIDED that this clause (3) shall not include any
such payment with respect to (a) any such Subordinated Indebtedness to the
extent of Excess Proceeds remaining after compliance with the provisions of the
Indenture described under "--Certain Covenants--Limitation on Asset Sales" and
to the extent required by the indenture or other agreement or instrument
pursuant to which such Subordinated Indebtedness was issued or (b) the purchase,
repurchase or other acquisition of any such Subordinated Indebtedness purchased
in anticipation of satisfying a scheduled maturity, scheduled sinking fund or
scheduled mandatory redemption, in each case due within one year of the date of
acquisition; or
(4) an Investment (other than a Permitted Investment) by the Company or a
Restricted Subsidiary in any Person.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated an Unrestricted Subsidiary pursuant to the provision of the
Indenture described under "--Certain Covenants--Restricted and Unrestricted
Subsidiaries."
"S&P" means Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc., and its successors.
"SALE AND LEASEBACK TRANSACTION" means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement between
such Person and a Wholly Owned Subsidiary of such Person or between one or more
Wholly Owned Subsidiaries of such Person) pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"SAXON" means Saxon Petroleum Inc., an Alberta corporation.
"SENIOR INDEBTEDNESS OF THE COMPANY" means the obligations of the Company
with respect to Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, Incurred or assumed, and any renewal,
refunding, refinancing, replacement or extension thereof, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the preceding, Senior Indebtedness of the Company shall not
include:
(1) Indebtedness of the Company to a Subsidiary of the Company;
(2) amounts owed for goods, materials or services purchased in the ordinary
course of business;
(3) Indebtedness Incurred in violation of the Indenture;
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(4) amounts payable or any other Indebtedness to employees of the Company or
any Subsidiary of the Company;
(5) any liability for federal, state, local or other taxes owed or owing by
the Company;
(6) any Indebtedness of the Company that, when Incurred and without regard
to any election under Section 1111(b) of the United States Bankruptcy Code, was
without recourse to the Company;
(7) Pari Passu or Subordinated Indebtedness of the Company;
(8) Indebtedness of the Company that is represented by Redeemable Stock;
(9) Indebtedness evidenced by the Notes; and
(10) in-kind obligations relating to net oil and gas balancing positions.
"SENIOR INDEBTEDNESS OF ANY SUBSIDIARY GUARANTOR" has a correlative meaning.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any Restricted
Subsidiary that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulation S-X promulgated by the Commission.
"STATED MATURITY," when used with respect to any security or any installment
of principal thereof or interest thereon, means the date specified in such
security as the fixed date on which the principal of such security or such
installment of principal or interest is due and payable, including pursuant to
any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated or junior in right of payment to the
Notes or the relevant Subsidiary Guarantee, as applicable, pursuant to a written
agreement to that effect.
"SUBSIDIARY" of a Person means:
(1) another Person which is a corporation a majority of whose Voting Stock
is at the time, directly or indirectly, owned or controlled by:
(a) the first Person;
(b) the first Person and one or more of its Subsidiaries; or
(c) one or more of the first Person's Subsidiaries; or
(2) another Person which is not a corporation (x) at least 50% of the
ownership interest of which and (y) the power to elect or direct the election of
a majority of the directors or other governing body of which are controlled by
Persons referred to in clause (a), (b) or (c) above.
"SUBSIDIARY GUARANTOR" means, unless released from its Subsidiary Guarantee
as permitted by the Indenture, any Restricted Subsidiary that becomes a
Guarantor of the Notes in compliance with the provisions of the Indenture and
executes a supplemental indenture agreeing to be bound by the terms of the
Indenture.
"SUBSIDIARY GUARANTEE" means an unconditional, unsecured senior subordinated
Guarantee of the Notes given by any Restricted Subsidiary pursuant to the terms
of the Indenture.
"TRADE ACCOUNTS PAYABLE" means accounts payable or other obligations of the
Company or any Restricted Subsidiary to trade creditors created or assumed by
the Company or such Restricted Subsidiary in the ordinary course of business in
connection with the obtaining of goods or services.
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"UNRESTRICTED SUBSIDIARY" means:
(1) Saxon and each other Subsidiary of the Company that the Company has
designated pursuant to the provision of the Indenture described under "--Certain
Covenants--Restricted and Unrestricted Subsidiaries" as an Unrestricted
Subsidiary; and
(2) any Subsidiary of an Unrestricted Subsidiary.
"VOLUMETRIC PRODUCTION PAYMENTS" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"VOTING STOCK" of any Person means Capital Stock of any Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"WHOLLY OWNED SUBSIDIARY" means, at any time, a Restricted Subsidiary of the
Company all the Voting Stock of which (other than directors' qualifying shares)
is at such time owned, directly or indirectly, by the Company and its other
Wholly Owned Subsidiaries.
DEFEASANCE AND COVENANT DEFEASANCE
The Company and the Subsidiary Guarantors will, at the election of the
Company at any time, be discharged from all their obligations with respect to
the Notes ("Legal Defeasance") except for obligations:
(1) to exchange or register the transfer of Notes;
(2) to replace stolen, lost or mutilated Notes;
(3) to maintain paying agencies; and
(4) to hold moneys for payment in trust.
In addition, the Company may omit to comply with certain covenants,
including those described under "--Repurchase at the Option of Holders Upon a
Change of Control," "--Certain Covenants" and in clauses (6) and (7) under the
first paragraph of "--Merger, Consolidation and Sale of Substantially All
Assets"("Covenant Defeasance") and the occurrence of the Events of Default
described below in clauses (3) and (4) (with respect to such covenants) and
clauses (5), (6), (7) (with respect to Significant Subsidiaries) and (8)), under
"--Events of Default and Notice" will be deemed not to be or result in an Event
of Default.
Such Legal Defeasance or Covenant Defeasance may occur only if, among other
thing, the Company:
(1) deposits in trust for the benefit of the Holders of the Notes money or
U.S. Government Obligations, or a combination thereof, which, through the
payment of principal, interest and any premium in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay the
principal of and any premium and interest on the Notes at Stated Maturity
thereof or on earlier redemption in accordance with the terms of the Indenture
and the Notes;
(2) in the case of Legal Defeasance, delivers to the Trustee an Opinion of
United States Counsel to the effect that:
(a) the Company has received from, or there has been published by, the
United States Internal Revenue Service a ruling or since the date of
Indenture there has been a change in the applicable federal income tax law,
in either case to the effect that Holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax
on the same amount, in the same manner and at
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the same times as would have been the case if such deposit, defeasance and
discharge were not to occur; and
(b) the resulting trust will not be an "Investment Company" within the
meaning of the Investment Company Act of 1940 or that such trust is
qualified thereunder or exempt from regulation thereunder;
(3) in the case of Covenant Defeasance, delivers to the Trustee an Opinion
of United States Counsel to the effect that:
(a) Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case
if such deposit and defeasance were not to occur; and
(b) that the resulting trust will not be an "Investment Company" within
the meaning of the Investment Company Act of 1940 or that such trust is
qualified thereunder or exempt from regulation thereunder.
If the Company were to exercise this option and the Notes were declared due
and payable because of the occurrence of any Event of Default, the amount of
money and U.S. Government Obligations so deposited in trust would be sufficient
to pay amounts due on the Notes at the time of their Stated Maturity but might
not be sufficient to pay amounts due on the Notes upon any acceleration
resulting from such Event of Default. In such case, the Company would remain
liable for such payments.
If the Company exercises either of the options described above, each
Subsidiary Guarantor will be released from all its obligations under its
Subsidiary Guarantee.
EVENTS OF DEFAULT AND NOTICE
The following are summaries of Events of Default under the Indenture with
respect to the Notes:
(1) failure to pay any interest on the Notes when due, continued for 30
days;
(2) failure to pay principal or any premium on the Notes when due;
(3) failure to comply with the provisions of the Indenture described under
"Merger, Consolidation and Sale of Substantially All Assets;"
(4) failure to perform any other covenant of the Company or any Subsidiary
Guarantor in the Indenture, continued for 60 days after written notice to the
Company from the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Notes;
(5) a default by the Company or any Restricted Subsidiary under any
Indebtedness for borrowed money (other than Non-recourse Purchase Money
Indebtedness) which results in acceleration of the maturity of such
Indebtedness, or failure to pay any such Indebtedness at maturity, in an amount
greater than $5.0 million if such Indebtedness is not discharged or such
acceleration is not rescinded or annulled within 10 days after written notice as
provided in the Indenture;
(6) one or more final judgments or orders by a court of competent
jurisdiction are entered against the Company or any Restricted Subsidiary in an
uninsured or unindemnified aggregate amount outstanding at any time in excess of
$5.0 million and such judgment or orders are not discharged, waived, stayed,
satisfied or bonded for a period of 60 consecutive days;
(7) certain events of bankruptcy, insolvency or reorganization with respect
to the Company or any Significant Subsidiary; or
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(8) a Subsidiary Guarantee ceases to be in full force and effect (other than
in accordance with the terms of the Indenture and such Subsidiary Guarantee) or
a Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary
Guarantee.
If an Event of Default (other than an Event of Default described in clause
(7) above) occurs and is continuing, either the Trustee or the Holders of at
least 25% in aggregate principal amount of the outstanding Notes by notice as
provided in the Indenture may declare the principal amount of the Notes to be
due and payable immediately. If an Event of Default described in clause (7)
above occurs, the principal amount of all the Notes will automatically, and
without any action by the Trustee or any Holder, become immediately due and
payable. After any such acceleration, but before a judgment or decree based on
acceleration, the Holders of at least a majority in aggregate principal amount
of the outstanding Notes may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the nonpayment of
accelerated principal (or other specified amount), have been cured or waived as
provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of at least
a majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Notes.
No Holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless:
(1) such Holder has previously given to the Trustee written notice of a
continuing Event of Default with respect to the Notes;
(2) the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and such Holder or Holders have
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee; and
(3) the Trustee has failed to institute such proceeding and has not received
from the Holders of at least a majority in aggregate principal amount of the
outstanding Notes a direction inconsistent with such request, within 60 days
after such notice, request and offer.
However, such limitations do not apply to a suit instituted by a Holder of Notes
for the enforcement of payment of the principal of or any premium or interest on
such Notes on or after the applicable due date specified in such Notes.
MODIFICATION OF THE INDENTURE; WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Subsidiary Guarantors and the Trustee without the consent of any Holders of
Notes in certain limited circumstances, including:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption of the obligations of the Company under
the Indenture upon the merger, consolidation or sale or other disposition of all
or substantially all the assets of the Company and the Restricted Subsidiaries
taken as a whole and certain other events specified in the provisions of the
Indenture described under "--Merger, Consolidation and Sale of Substantially All
Assets;"
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
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(4) to comply with any requirement of the Commission in order to effect or
maintain the qualification of the Indenture under the 1939 Act;
(5) to make any change that does not adversely affect the rights of any
Holder of Notes in any material respect;
(6) to add or remove Subsidiary Guarantors pursuant to the procedure set
forth in the Indenture; and
(7) to make certain other modifications and amendments as set forth in the
Indenture.
The Company, the Subsidiary Guarantors and the Trustee may, with the written
consent of the Holders of not less than a majority in aggregate principal amount
of the outstanding Notes, execute supplemental indentures or amendments adding
any provisions to or changing or eliminating any of the provisions of the
Indenture or modifying the rights of the Holders of the Notes, except that no
such supplemental indenture, amendment or waiver may, without the consent of all
the Holders of outstanding Notes, among other things:
(1) reduce the principal amount of Notes whose Holders must consent to an
amendment or waiver;
(2) reduce the rate of or change the time for payment of interest on any
Notes;
(3) change the currency in which any amount due in respect of the Notes is
payable;
(4) reduce the principal of or any premium on or change the Stated Maturity
of any Notes or alter the redemption or repurchase provisions with respect
thereto;
(5) reduce the relative ranking of any Notes;
(6) release any security that may have been granted to the Trustee in
respect of the Notes;
(7) at any time after a Change of Control or an Asset Sale has occurred,
change the time at which the Change of Control Offer or Prepayment Offer
relating thereto must be made or at which the Notes must be repurchased pursuant
to such Change of Control Offer or Prepayment Offer;
(8) cause the Company or any Subsidiary Guarantor to be required to make any
deduction or withholding from payments made under or with respect to the Notes;
or
(9) make certain other significant amendments or modifications as specified
in the Indenture.
The Holders of at least a majority in principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. The Holders of at least a majority in principal amount of the
outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal, premium or interest and certain covenants
and provisions of the Indenture which cannot be amended without the consent of
the Holders of each outstanding Note.
NOTICES
Notices to Holders of the Notes will be given by mail to the addresses of
such Holders as they may appear in the Security Register.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the internal laws of the State of New York without reference to principles of
conflicts of law.
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TRUSTEE
State Street Bank & Trust Company is the Trustee under the Indenture. The
Trustee maintains normal banking relationships with the Company and its
Subsidiaries and may perform certain services for and transact other business
with the Company and its Subsidiaries from time to time in the ordinary course
of business.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") by and among Forest and each of the underwriters
named below (the "Underwriters"), we have agreed to sell to each of the
Underwriters, and each of the Underwriters has severally agreed to purchase from
us, the aggregate principal amount of the Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Salomon Smith Barney Inc. .................................................
Morgan Stanley & Co. Incorporated..........................................
Warburg Dillon Read LLC....................................................
-----------------
Total.................................................................. $
-----------------
-----------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the Notes
offered hereby if any Notes are purchased. In the event of default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the non-defaulting Underwriters may be increased or
the Underwriting Agreement may be terminated.
We have been advised by the Underwriters that they propose initially to
offer the Notes to the public at the public offering prices set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such prices
less a concession of not more than % of the principal amount of the Notes. The
Underwriters may allow and such dealers may reallow a concession of not more
than % of the principal amount of the Notes to certain other dealers. After
the initial public offering, the public offering price and such concessions may
be changed.
There is currently no market for the Notes. We have been advised by the
Underwriters that the Underwriters intend to make a market in the Notes, but
that they are not obligated to do so and may discontinue making a market at any
time without notice. We do not intend to list the Notes on any securities
exchange. There can be no assurance given as to whether an active trading market
for the Notes will develop or as to the liquidity of any trading market for the
Notes.
The Underwriting Agreement provides that we will indemnify the several
Underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments which the
Underwriters may be required to make in respect thereof.
Certain of the Underwriters and their affiliates have from time to time
provided, and may in the future provide, investment banking and general
financing and banking services to Forest and its affiliates. The Underwriters
have been retained to perform certain investment banking and advisory services
for us from time to time for which they have received customary fees and
expenses.
In connection with this offering and in compliance with applicable law, the
Underwriters may engage in transactions which stabilize or maintain the market
price of the Notes at levels above those which might
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otherwise prevail in the open market. Specifically, the Underwriters may
over-allot in connection with this offering creating a short position in the
Notes for their own accounts. For the purposes of covering a syndicate short
position or stabilizing the price of the Notes, the Underwriters may place bids
for the Notes or effect purchases of the Notes in the open market. Finally, the
Underwriters may impose a penalty bid whereby selling concessions allowed to
syndicate members or other broker-dealers for distributing the Notes in this
offering may be reclaimed by the syndicate if the syndicate repurchases
previously distributed Notes in transactions to cover short positions, in
stabilization transactions or otherwise. These activities may stabilize,
maintain or otherwise affect the market price of the Notes, which may be higher
than the price that might otherwise prevail in the open market, and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Notes being offered hereby and certain other legal
matters in connection with this offering are being passed upon for Forest by
Vinson & Elkins L.L.P., New York, New York. Certain legal matters related to the
Notes will be passed upon for the Underwriters by Cravath, Swaine & Moore, New
York, New York.
EXPERTS
KPMG Peat Marwick LLP, independent certified accountants, have audited our
financial statements incorporated by reference in the base Prospectus. These
financial statements are incorporated by reference in the base Prospectus in
reliance upon their report and upon their authority as experts in accounting and
auditing.
The audited statement of oil and gas revenue and direct operating and
production expenses of Forest Oil Corporation's interest in certain oil and gas
producing properties for the year ended December 31, 1997, which appears in Form
8-K/A of Forest Oil Corporation dated February 3, 1998, incorporated by
reference in the base Prospectus, has been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference in the base Prospectus in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
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PROSPECTUS
FOREST OIL CORPORATION
$250,000,000
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest.
THE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This prospectus is dated November 9, 1998
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may
sell any combination of the securities described in this prospectus in one or
more offerings up to a total dollar amount of $250,000,000. This prospectus
provides you with a general description of the securities we may offer. Each
time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. You should read both this prospectus and any prospectus supplement
together with additional information described under the heading --WHERE YOU CAN
FIND MORE INFORMATION.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http:// www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities.
- Annual Report on Form 10-K for the year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998;
- Current Reports on Form 8-K dated January 7, 1998, January 12, 1998,
January 28, 1998, February 3, 1998, April 8, 1998, June 25, 1998; and on
Form 8-KA dated February 3, 1998; and
- The description of the Company's common stock contained in Form 8-A dated
October 20, 1997.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Daniel L. McNamara
Corporate Counsel and Secretary
Forest Oil Corporation
1600 Broadway
Suite 2200
Denver, Colorado 80202
(303) 812-1400
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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<PAGE>
THE COMPANY
Forest Oil Corporation and its subsidiaries are engaged in the acquisition,
exploration, development, production and marketing of natural gas and crude oil
in North America. Forest was incorporated in New York in 1924, the successor to
a company formed in 1916, and has been a publicly held company since 1969. We
are 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 United States in the Gulf of Mexico,
Louisiana, Texas and Oklahoma, and in Canada in Alberta and the Northwest
Territories. We operate from production offices located in Lafayette, Louisiana,
Denver, Colorado, and Calgary, Alberta, Canada. Our corporate headquarters are
located in Denver, Colorado, where our address is 1600 Broadway, Suite 2200,
Denver, Colorado 80202 (telephone: (303) 812-1400).
USE OF PROCEEDS
The net proceeds from the sale of the offered 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.
RATIO OF EARNINGS TO FIXED CHARGES
A description of Forest's ratio of earnings to fixed charges or earnings to
combined fixed charges and preferred stock dividends, as applicable, on a
consolidated basis, will appear in an applicable Prospectus Supplement.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be our direct unsecured general obligations. The
Debt Securities will be either Senior Debt Securities or Subordinated Debt
Securities.
The Debt Securities will be issued under one or more separate indentures
between us and a Trustee. The Trustee for each series of Debt Securities will be
identified in the applicable Prospectus Supplement. Senior Debt Securities will
be issued under a "Senior Indenture" and Subordinated Debt Securities will be
issued under a "Subordinated Indenture". Together the Senior Indentures and the
Subordinated Indentures are called "Indentures."
We have summarized selected provisions of the Indentures below. The summary
is not complete. The forms of the Indentures have been filed as exhibits to the
registration statement and you should read the Indentures for provisions that
may be important to you. In the summary below, we have included references to
section numbers of the applicable Indentures so that you can easily locate these
provisions. Capitalized terms used in the summary have the meanings specified in
the Indentures.
GENERAL
The Debt Securities will be our direct, unsecured obligations. The Senior
Debt Securities will rank equally with all of our other senior and
unsubordinated debt. The Subordinated Debt Securities will have a junior
position to all of our Senior Debt.
A prospectus supplement and a supplemental indenture relating to any series
of Debt Securities being offered will include specific terms relating to the
offering. These terms will include some or all of the following:
- The title and type of the Debt Securities;
- The total principal amount of the Debt Securities;
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<PAGE>
- The percentage of the principal amount at which the Debt Securities will
be issued and any payments due if the maturity of the Debt Securities is
accelerated;
- If convertible into common stock, the terms on which such Debt Securities
are convertible.
- The dates on which the principal of the Debt Securities will be payable;
- The interest rate which the Debt Securities will bear and the interest
payment dates for the Debt Securities;
- Any optional redemption periods;
- Any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the Debt Securities;
- Any provisions granting special rights to holders when a specified event
occurs;
- Any changes to or additional Events of Defaults or covenants;
- Any special tax implications of the Debt Securities, including provisions
for Original Issue Discount Securities, if offered; and
- Any other terms of the Debt Securities.
None of the Indentures limits the amount of Debt Securities that may be
issued. Each Indenture allows Debt Securities to be issued up to the principal
amount that may be authorized by us and may be in any currency or currency unit
designated by us.
If so provided in the applicable Prospectus Supplement, we may issue the
Debt Securities at a discount below their principal amount and you would pay
less than the entire principal amount of the Debt Securities upon declaration of
acceleration of their maturity ("Original Issue Discount Securities"). The
applicable Prospectus Supplement will describe all material U.S. Federal income
tax, accounting and other considerations applicable to the Original Issue
Discount Securities.
Debt Securities of a series may be issued in registered, bearer, coupon or
global form. (Sections 2.01 & 2.02.)
DENOMINATIONS
The prospectus supplement for each issuance of Debt Securities will state
whether the securities will be issued in registered form of $1,000 each or
multiples thereof or bearer form of $1,000 each.
SENIOR DEBT SECURITIES
The Senior Debt Securities will be unsecured senior obligations and will
rank equally with all other Senior Indebtedness (as defined below). However, the
Senior Debt Securities will be subordinated in right of payment to all our
secured Indebtedness to the extent of the value of the assets securing such
Indebtedness and will be effectively subordinated to all our Subsidiaries'
indebtedness and all our Subsidiaries' mandatory redemption preferred stock.
Except as provided in the applicable Senior Indenture or specified in any
Authorizing Resolution and/or supplemental indenture relating to a Series of
Senior Debt Securities to be issued, no Senior Indenture will limit the amount
of additional Indebtedness which may rank equally with the Senior Debt
Securities or the amount of Indebtedness, secured or otherwise, which may be
incurred or preferred stock which may be issued by any of the Company's
Subsidiaries.
"Senior Indebtedness" is defined to include all notes or other unsecured
evidences of indebtedness, including guarantees of Forest for money borrowed,
that are not expressed to be subordinate or junior in right of payment to any
other indebtedness of Forest.
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SUBORDINATED DEBT SECURITIES
Under the Subordinated Indenture, payment of the principal, interest and any
premium on the Subordinated Indebtedness Securities will generally be
subordinated and junior in right of payment to the prior payment in full of all
Senior Indebtedness. The Subordinated Indenture provides that no payment of
principal, interest and any premium on the Subordinated Debt Securities may be
made in the event:
- of any insolvency, bankruptcy or similar proceeding involving Forest or
any of its significant properties, or
- we fail to pay the principal, interest, any premium or any other amounts
on any Senior Indebtedness when due.
The Subordinated Indenture will not limit the amount of Senior Indebtedness
that we may incur.
CONSOLIDATION, MERGER OR SALE
Each Indenture generally permits a consolidation or merger between us and
another corporation. They also permit the sale by us of all or substantially all
of our property and assets. If this happens, the remaining or acquiring
corporation shall assume all of our responsibilities and liabilities under the
Indentures including the payment of all amounts due on the Debt Securities and
performance of the covenants in the Indentures.
We are only permitted to consolidate or merge with or into any other
corporation or sell all or substantially all of our assets according to the
terms and conditions of the Indentures. The remaining or acquiring corporation
will be substituted for us in the Indentures with the same effect as if it had
been an original party to the Indenture. Thereafter, the successor corporation
may exercise our rights and powers under any Indenture, in our name or in its
own name. Any act or proceeding required or permitted to be done by our Board of
Directors or any of our officers may be done by the board or officers of the
successor corporation. (Sections 6.01 & 6.02.)
MODIFICATION OF INDENTURES
Under each Indenture our rights and obligations and the rights of the
holders may be modified with the consent of the holders of a majority in
aggregate principal amount of the outstanding Debt Securities of each series
affected by the modification. No modification of the principal or interest
payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent. (Sections
10.01 & 10.02.)
EVENTS OF DEFAULT
"Event of Default" when used in an Indenture, will mean any of the
following:
- failure to pay the principal or any premium on any Debt Security when due;
- failure to deposit any sinking fund payment when due;
- failure to pay interest on any Debt Security for 30 days;
- failure to perform any other covenant in the Indenture that continues for
60 days after being given written notice;
- certain events in bankruptcy, insolvency or reorganization of the Company;
or
- any other Event of Default included in any Indenture or supplemental
indenture. (Section 7.01.)
An Event of Default for a particular series of Debt Securities does not
necessarily constitute an Event of Default for any other series of Debt
Securities issued under the Indentures. (Section 8.05.)
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If an Event of Default for any series of Debt Securities occurs and
continues, the Trustee or the holders of at least 25% in aggregate principal
amount of the Debt Securities of the series may declare the entire principal of
all the Debt Securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the Debt Securities of that series can void the
declaration. (Section 7.02.)
Other than its duties in case of a default, a Trustee is not obligated to
exercise any of its rights or powers under any Indenture at the request, order
or direction of any holders, unless the holders offer the Trustee reasonable
indemnity. (Section 8.02.) If they provide this reasonable indemnification, the
holders of a majority in principal amount of any series of Debt Securities may
direct the time, method and place of conducting any proceeding or any remedy
available to the Trustee, or exercising any power conferred upon the Trustee,
for any series of Debt Securities. (Section 7.05.)
COVENANTS
Under the Indentures, we will:
- pay the principal, interest and any premium on the Debt Securities when
due;
- maintain a place of payment;
- deliver a report to the Trustee at the end of each fiscal year reviewing
the Company's obligations under the Indentures; and
- deposit sufficient funds with any paying agent on or before the due date
for any principal, interest or any premium.
Any additional covenants will be described in a Prospectus Supplement.
PAYMENT AND TRANSFER
Principal, interest and any premium on fully registered securities will be
paid at designated places. Payment will be made by check mailed to the persons
in whose names the Debt Securities are registered on days specified in the
Indentures or any Prospectus Supplement. Debt Securities payments in other forms
will be paid at a place designated by us and specified in a Prospectus
Supplement. (Sections 5.01 and 5.02)
Fully registered securities may be transferred or exchanged at the corporate
trust office of the Trustee or at any other office or agency maintained by us
for such purposes, without the payment of any service charge except for any tax
or governmental charge.
CONVERSION RIGHTS
The Debt Securities may be convertible into common stock, according to the
terms and conditions of the Prospectus Supplement. Such terms will include the
conversion price, the conversion period, provisions as to whether conversion
will be at the option of the holders of such series of Debt Securities or at our
option, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Debt Securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
identified in a Prospectus Supplement. Unless it is exchanged in whole or in
part for Debt Securities in definitive form, a global certificate may generally
be transferred only as a whole unless it is being transferred to certain
nominees of the depositary.
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Unless otherwise stated in any prospectus supplement, The Depository Trust
Company, New York, New York ("DTC") will act as depositary. Beneficial interests
in global certificates will be shown on, and transfers of global certificates
will be effected only through, records maintained by DTC and its participants.
DEFEASANCE
We will be discharged from our obligations on the Debt Securities of any
series at any time if we deposit with the Trustee sufficient cash or government
securities to pay the principal, interest, any premium and any other sums due to
the stated maturity date or a redemption date of the Debt Securities of the
series. If this happens, the holders of the Debt Securities of the series will
not be entitled to the benefits of the Indenture except for registration of
transfer and exchange of Debt Securities and replacement of lost, stolen or
mutilated Debt Securities. (Section 9.01.)
Under Federal income tax law as of the date of this Prospectus, a discharge
may be treated as an exchange of the related Debt Securities. Each holder might
be required to recognize gain or loss equal to the difference between the
holder's cost or other tax basis for the Debt Securities and his allocable share
of amounts deposited with the Trustee pursuant to the preceding paragraph.
Holders might be required to include as income a different amount than would be
includable without the discharge. Prospective investors are urged to consult
their own tax advisers as to the consequences of a discharge, including the
applicability and effect of tax laws other than the Federal income tax law.
DESCRIPTION OF CAPITAL STOCK
As of September 30, 1998, our authorized capital stock was 210,000,000
shares. Those shares consisted of: (a) 10,000,000 shares of preferred stock,
none of which were outstanding; and (b) 200,000,000 shares of common stock, of
which 44,646,542 shares were outstanding.
COMMON STOCK
LISTING. Our outstanding shares of common stock are listed on the New York
Stock Exchange under the symbol "FST". Any additional common stock we issue will
also be listed on the NYSE.
DIVIDENDS. Common shareholders may receive dividends when declared by the
Board of Directors. Dividends may be paid in cash, stock or other form. In
certain cases, common shareholders may not receive dividends until we have
satisfied our obligations to any preferred shareholders.
FULLY PAID. All outstanding shares of common stock are fully paid and
non-assessable. Any additional common stock we issue will also be fully paid and
non-assessable.
VOTING RIGHTS. Each share of common stock is entitled to one vote in the
election of directors and other matters. Common shareholders are not entitled to
preemptive or cumulative voting rights.
OTHER RIGHTS. We will notify common shareholders of any shareholders'
meetings according to applicable law. If we liquidate, dissolve or wind-up our
business, either voluntarily or not, common shareholders will share equally in
the assets remaining after we pay our creditors and preferred shareholders.
PREFERRED STOCK
The following description of the terms of the preferred stock sets forth
certain general terms and provisions of our authorized preferred stock. If we
offer preferred stock, the specific designations and rights will be described in
the Prospectus Supplement and a description will be filed with the SEC.
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Our Board of Directors can, without approval of shareholders, issue one or
more series of preferred stock. The Board can also determine the number of
shares of each series and the rights, preferences and limitations of each series
including the dividend rights, voting rights, conversion rights, redemption
rights and any liquidation preferences of any wholly unissued series of
preferred stock, the number of shares constituting each series and the terms and
conditions of issue. In some cases, the issuance of preferred stock could delay
a change in control of the Company and make it harder to remove present
management. Under certain circumstances, preferred stock could also restrict
dividend payments to holders of our common stock.
The preferred stock will, when issued, be fully paid and non-assessable.
ANTI-TAKEOVER PROVISIONS
Certain provisions in the our Restated Certificate of Incorporation and
By-laws and our shareholders' rights plan, may have the effect of encouraging
persons considering unsolicited tender offers or other unilateral takeover
proposals to negotiate with the Board of Directors rather than pursue non-
negotiated takeover attempts.
CLASSIFIED BOARD OF DIRECTORS.
Our By-laws provide that the Board of Directors is divided into four classes
as nearly equal in number as possible, with each class having not less than
three members, whose four year terms of office expire at different times in
annual succession. A staggered board makes it more difficult for shareholders to
change the majority of the directors and instead promotes a continuity of
existing management.
BLANK CHECK PREFERRED STOCK.
Our Restated Certificate of Incorporation authorizes the issuance of blank
check preferred stock. The Board of Directors can set the voting rights,
redemption rights, conversion rights and other rights relating to such preferred
stock and could issue such stock in either private or public transactions. In
some circumstances, the blank check preferred stock could be issued and have the
effect of preventing a merger, tender offer or other takeover attempt which the
Board of Directors opposes.
SHAREHOLDERS' RIGHTS PLAN.
Our Board of Directors has adopted a shareholders' rights plan, pursuant to
which each share of common stock includes a preferred stock purchase right (the
"Rights"). After the Rights become exercisable, each holder may purchase
1/100th of a share of a newly issued series of the preferred stock at a purchase
price of $30 per 1/100th of a preferred share, subject to adjustment. The Rights
expire on October 29, 2003 unless extended or redeemed earlier. The Rights will
become exercisable (unless previously redeemed or the expiration date of the
rights has occurred) following a public announcement that a person or group (an
"Acquiring Person") has acquired 20% or more of the common stock or has
commenced (or announced an intention to make) a tender offer or exchange offer
for 20% or more of the common stock. In certain circumstances each holder of
Rights (other than an Acquiring Person) would have the right to receive, upon
exercise (i) shares of common stock having a value significantly in excess of
the exercise price of the Rights, or (ii) shares of common stock of an acquiring
company having a value significantly in excess of the exercise price of the
Rights.
PLAN OF DISTRIBUTION
We may sell the offered securities (a) through agents; (b) through
underwriters or dealers; or (c) directly to one or more purchasers, including
existing shareholders in a rights offering.
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BY AGENTS
Offered securities may be sold through agents designated by us. The agents
agree to use their reasonable best efforts to solicit purchases for the period
of their appointment.
BY UNDERWRITERS
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account. The underwriters may resell
the securities in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time of
sale. The obligations of the underwriters to purchase the securities will be
subject to certain conditions. The underwriters will be obligated to purchase
all the securities of the series offered if any of the securities are purchased.
Any initial public offering price and any discounts or concessions allowed or
re-allowed or paid to dealers may be changed from time to time.
DIRECT SALES; RIGHTS OFFERINGS
Offered securities may also be sold directly by us. In this case, no
underwriters or agents would be involved. We may sell offered securities upon
the exercise of rights which may be issued to our securityholders.
GENERAL INFORMATION
Underwriters, dealers and agents that participate in the distribution of the
offered securities may be underwriters as defined in the Securities Act of 1933
(the "Act"), and any discounts or commissions received by them from us and any
profit on the resale of the offered securities by them may be treated as
underwriting discounts and commissions under the Act. Any underwriters or agents
will be identified and their compensation described in a prospectus supplement.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Act, or to contribute with respect to payments which the underwriters,
dealers or agents may be required to make.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, us or our subsidiaries in the ordinary course of their businesses.
LEGAL MATTERS
Our legal counsel, Vinson & Elkins L.L.P., Houston, Texas, will pass upon
certain legal matters in connection with the offered securities. Any
underwriters will be advised about other issues relating to any offering by
their own legal counsel.
EXPERTS
KPMG Peat Marwick LLP, independent certified accountants, have audited our
financial statements incorporated by reference in this prospectus. These
financial statements are incorporated by reference herein in reliance upon their
report and upon their authority as experts in accounting and auditing.
The audited statement of oil and gas revenue and direct operating and
production expenses of Forest Oil Corporation's interest in certain oil and gas
producing properties for the year ended December 31, 1997, which appears in Form
8-K/A of Forest Oil Corporation dated February 3, 1998, incorporated by
reference in this Prospectus, has been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said reports.
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$100,000,000
[LOGO]
Forest Oil Corporation
% Senior Subordinated Notes Due 2006
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P R O S P E C T U S S U P P L E M E N T
JANUARY , 1999
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Salomon Smith Barney
Morgan Stanley Dean Witter
Warburg Dillon Read LLC
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