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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or
sec.240.14a-12
JOINT FILING BY:
FOREST OIL CORPORATION
FORCENERGY INC
-----------------------------------------------------------------------
(NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
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Payment of Filing Fee (Check the appropriate box):
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/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rule 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, $0.01 par value per share, of Forcenergy Inc
Series A Preferred Stock, $0.01 par value per share, of
Forcenergy Inc
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
24,161,000 Shares of Forcenergy Inc Common Stock
41,571 Shares of Forcenergy Inc Preferred Stock
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
The proposed maximum aggregate value of the transaction of
$500,630,000 was calculated in accordance with
Rule 0-11(a)(4) and (c) promulgated under the Securities
Exchange Act of 1934, as amended, based on the sum of
(i) $459,059,000 (the average of the high and low sale price
per share of Forcenergy Inc Common Stock on the Nasdaq
National Market on July 26, 2000 multiplied by 24,161,000,
the outstanding number of shares of Forcenergy Inc Common
Stock) and (ii) $41,571,000 (the book value per share of
Forcenergy Inc Preferred Stock as of July 26, 2000
multiplied by 41,571, the outstanding number of shares of
Forcenergy Inc Preferred Stock).
------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$500,630,000
------------------------------------------------------------
(5) Total fee paid:
$100,126
------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
/ / Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
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SUBJECT TO COMPLETION, JULY 31, 2000
[FOREST LOGO] [FORCENERGY LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Forest Oil Corporation and Forcenergy Inc have agreed on a merger
transaction involving our two companies. Before we can complete the merger, we
must obtain the approval of our companies' stockholders. We are sending you this
joint proxy statement/prospectus to ask you to vote in favor of the merger
transaction and related matters.
In the merger, a subsidiary of Forest will merge with and into Forcenergy.
As a result, Forcenergy will become a wholly owned subsidiary of Forest, and
stockholders of Forcenergy will be entitled to receive 1.6 Forest common shares
(or 0.8 of a Forest common share if the proposed 1-for-2 reverse stock split of
the Forest common shares is approved) in return for each share of Forcenergy
common stock they currently own. Each outstanding share of Forcenergy preferred
stock will be converted in the merger into the right to receive 68.6141 Forest
common shares (or 34.30705 Forest common shares if the reverse stock split is
approved). Outstanding Forest common shares will remain unchanged in the merger,
but are subject to adjustment if the reverse stock split is approved. The Forest
common shares, including the Forest common shares issued to stockholders of
Forcenergy as a result of the merger, will continue to be listed on the New York
Stock Exchange, or NYSE, under the trading symbol "FST."
Forcenergy will hold a special meeting of its stockholders to consider and
vote on the merger proposal. Forest will hold a special meeting of its
shareholders to consider and vote on the issuance of Forest common shares in the
merger. Forest shareholders will also be asked to approve a 1-for-2 reverse
stock split. Completion of the merger requires Forcenergy stockholder approval
of the merger proposal and Forest shareholder approval of the share issuance.
Approval of the reverse stock split is not a condition to the merger.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your special
meeting, please take the time to vote by completing the enclosed proxy card and
mailing it to Forcenergy or Forest, as the case may be, or, in the case of
Forest shareholders, you may also vote by following the Internet or telephone
instructions on the proxy card. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be counted as a vote
FOR each of the proposals presented. If you neither return your card nor vote by
Internet or telephone, or if you do not instruct your broker how to vote any
shares held for you in "street name," your shares will not be voted at your
special meeting. The dates, times and places of the stockholders' meetings are
as follows:
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FOR FOREST SHAREHOLDERS: FOR FORCENERGY STOCKHOLDERS:
, 2000 , 2000
10:00 a.m., M.D.T. p.m., C.D.T.
1600 Broadway Doubletree Hotel Lakeside, Lakeshore Room
Suite 590 3838 North Causeway Blvd.
Denver, Colorado 80202 Metairie, Louisiana 70002
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This joint proxy statement/prospectus gives you detailed information about
the merger we are proposing, and it includes our merger agreement as Annex A.
You can get more information about our companies from publicly available
documents we have filed with the Securities and Exchange Commission, or SEC. We
encourage you to read carefully this entire document, including all its annexes,
and WE ESPECIALLY ENCOURAGE YOU TO READ THE SECTION ON "RISK FACTORS" BEGINNING
ON PAGE 24.
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We join with the participating members of our boards of directors in
recommending that you vote FOR the merger and the share issuance and, in the
case of Forest, the reverse stock split.
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Robert S. Boswell Stig Wennerstrom
Chairman of the Board Chairman of the Board
Forest Oil Corporation Forcenergy Inc
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE ISSUANCE OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 2000, AND IS
BEING FIRST MAILED TO STOCKHOLDERS ON OR ABOUT , 2000.
This document incorporates important business and financial information
about Forest and Forcenergy that is not included in or delivered with this
document. This information is available without charge to you upon written or
oral request at the applicable company's address and telephone number listed on
page 4. To obtain timely delivery, you must request the information no later
than , 2000.
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FORCENERGY INC
3838 NORTH CAUSEWAY BLVD.
LAKEWOOD THREE, SUITE 2300
METAIRIE, LOUISIANA 70002
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
, 2000
------------------------
To the Stockholders of
FORCENERGY INC:
A Special Meeting of Stockholders of Forcenergy Inc will be held at the
Doubletree Hotel Lakeside, Lakeshore Room, 3838 North Causeway Blvd., Metairie,
Louisiana 70002, at p.m., C.D.T., on , 2000 for the
following purposes:
(1) To consider and vote upon a proposal to approve the merger agreement
among Forest Oil Corporation, Forest Acquisition I Corporation, which is
a newly-formed subsidiary of Forest Oil Corporation, and Forcenergy Inc,
and the transactions contemplated by the merger agreement, including the
merger; and
(2) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of record of shares of Forcenergy common stock at the close of
business on , 2000 are entitled to notice of and to vote at the
meeting and any adjournment thereof. You are cordially invited to attend the
meeting. Your vote is important to ensure your representation at the meeting.
Whether or not you are planning to attend the meeting, you are urged to
complete, date and sign the enclosed proxy card and return it promptly. The
delivery of the proxy does not preclude you from voting in person if you attend
the meeting. No additional postage is necessary if mailed in the United States.
The Forcenergy board of directors has determined that the merger agreement
and the transactions contemplated by it are in the best interests of Forcenergy
and its stockholders. Accordingly, the members of the Forcenergy board of
directors participating in the board decision on the transaction unanimously
recommend that stockholders vote to approve the merger agreement and the
transactions contemplated by it, including the merger, at the special meeting.
The directors designated by The Anschutz Corporation did not participate in the
board decision on this transaction.
Please do not send any Forcenergy stock certificates at this time. If the
merger is approved by the stockholders of Forcenergy, forms to be used to
exchange your shares of Forcenergy common stock for Forest common shares will be
mailed to you.
By Order of the Board of Directors
/s/ RICHARD G. ZEPERNICK, JR.
RICHARD G. ZEPERNICK, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Metairie, Louisiana
, 2000
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FOREST OIL CORPORATION
1600 BROADWAY, SUITE 2200
DENVER, CO 80202
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 2000
------------------------
To the Shareholders of
FOREST OIL CORPORATION:
As a shareholder of Forest Oil Corporation, you are invited to be present in
person or to be represented by proxy at the Special Meeting of Shareholders, to
be held at 1600 Broadway, Suite 590, Denver, Colorado 80202, on ,
2000, at 10:00 a.m., M.D.T., for the following purposes:
(1) To consider and vote upon a proposal to approve the issuance of the
Forest common shares to be received by Forcenergy Inc stockholders in the
proposed merger between Forcenergy and Forest Acquisition I Corporation,
a newly-formed, wholly-owned subsidiary of Forest Oil Corporation;
(2) To consider and vote upon a proposal to effect a 1-for-2 reverse stock
split of the Forest Oil Corporation common stock; and
(3) To transact such other business as may be properly brought before the
meeting and any adjournments thereof.
Shareholders of Forest of record at the close of business on ,
2000 are entitled to vote at the meeting and any adjournment thereof.
The Forest board of directors has determined that the terms of the merger
agreement and the transactions contemplated by it are in the best interests of
Forest and its shareholders. The members of the Forest board of directors
participating in the board decision on the transaction unanimously recommend
that shareholders vote at the special meeting to approve the share issuance and
the reverse stock split. The directors designated by The Anschutz Corporation
did not participate in the board decision on the transaction.
A majority of the outstanding common shares of the company must be
represented at the meeting to constitute a quorum. Therefore, all shareholders
are urged either to attend the meeting or to be represented by proxy. If a
quorum is not present at the meeting, a vote for adjournment will be taken among
the shareholders present or represented by proxy. If a majority of the
shareholders present or represented by proxy vote for adjournment, it is the
company's intention to adjourn the meeting until a later date and to vote
proxies received at the adjourned meeting(s).
Shareholders of record can vote their shares using the Internet or the
telephone. Instructions for using these convenient services are set forth on the
enclosed proxy card. You also may vote your shares by completing and returning
the accompanying proxy card in the enclosed business reply envelope.
If you later find that you can be present or for any other reason desire to
revoke your proxy, you may do so at any time before the vote as discussed on
page 36 of this document.
By Order of the Board of Directors
/s/ JOAN C. SONNEN
JOAN C. SONNEN
VICE PRESIDENT AND CORPORATE SECRETARY
Denver, Colorado
, 2000
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE
MERGER............................... 1
SUMMARY................................ 4
The Companies........................ 4
The Special Meetings................. 4
Forcenergy Stockholders............ 4
Forest Shareholders................ 5
Record Date; Vote Required........... 5
Forcenergy Stockholders............ 5
Forest Shareholders................ 5
The Merger........................... 5
General............................ 6
Exchange of Common Shares.......... 6
Forcenergy Stock Options........... 6
Management and Operations after the
Merger........................... 6
Our Recommendations to
Shareholders..................... 7
Opinion of Forcenergy's Financial
Advisor.......................... 7
Opinions of Forest's Financial
Advisors......................... 7
Conditions to Completion of the
Merger........................... 7
Termination of the Agreement....... 8
Termination by Forest.............. 8
Termination by Forcenergy.......... 9
Termination Fees................... 9
Accounting Treatment............... 10
Registration Rights Agreement........ 10
Demand Registrations............... 10
Piggyback Registrations............ 10
Shelf Registrations................ 10
Expenses........................... 10
Indemnification.................... 10
Forcenergy Stockholders Agreement.... 11
Forest Shareholders Agreement........ 11
Interests Of Certain People In The
Merger That Are Different From Your
Interests.......................... 11
Appraisal Rights..................... 12
Certain Federal Income Tax
Consequences....................... 12
Forcenergy Stockholders............ 12
Forest Shareholders................ 13
Certain Differences In The Rights Of
Shareholders....................... 13
Regulatory Approvals................. 13
Comparative Per Share Market Price
Information........................ 13
Selected Financial and Operating Data
of Forest.......................... 14
Selected Financial and Operating Data
of Forcenergy...................... 16
Selected Unaudited Pro Forma Combined
Financial Data..................... 18
Comparative Per Share Data........... 20
Pro Forma and As If Combined
Production Data.................... 22
Pro Forma Oil and Gas Reserves....... 23
RISK FACTORS........................... 24
The market value of Forest common
shares that Forcenergy stockholders
receive in the merger will vary as
a result of the fixed exchange
ratio and possible stock price
fluctuation........................ 24
There are uncertainties in
integrating our business
operations......................... 24
Significant charges and expenses will
be incurred as a result of the
merger............................. 24
A substantial or extended decline in
oil or gas prices could have a
material adverse effect on the
combined company................... 24
Estimates of oil and gas reserves are
uncertain and inherently
imprecise.......................... 25
Leverage will materially affect our
operations......................... 26
Lower oil and gas prices may cause us
to record ceiling limitation
writedowns......................... 27
We may not be able to replace
production with new reserves....... 27
Our operations are subject to
numerous risks of oil and gas
drilling and production
activities......................... 27
Our industry experiences numerous
operating risks.................... 28
Currency fluctuations and economic
and political developments may
adversely affect our international
operations......................... 28
Our future acquisitions may not
contain economically recoverable
reserves........................... 29
The marketability of our production
depends in most part upon the
availability, proximity and
capacity of gas gathering systems,
pipelines and processing
facilities......................... 29
Our oil and gas operations are
subject to various governmental
regulations that materially affect
our operations..................... 29
The significant ownership position of
The Anschutz Corporation could
limit Forest's ability to enter
into certain transactions.......... 30
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We do not pay dividends.............. 30
Our restated certificate of
incorporation and by-laws have
provisions that discourage
corporate takeovers and could
prevent shareholders from realizing
a premium on their investment...... 30
CAUTIONARY STATEMENT ABOUT
FORWARD-LOOKING STATEMENTS........... 31
THE SPECIAL MEETINGS................... 32
Information About the Special
Meetings and Voting................ 32
Time and Place of the Special
Meetings........................... 32
Purpose of the Meetings is to Vote on
the Following Items................ 32
Record Date for the Special
Meetings........................... 32
Outstanding Shares Held on Record
Date............................... 32
Shares Entitled to Vote at the
Special Meetings................... 33
Quorum Requirement for the Special
Meetings........................... 33
Shares Beneficially Owned by Forest
and Forcenergy Directors and
Executive Officers as of the Record
Date............................... 34
Vote Necessary at the Special
Meetings to Approve Forest and
Forcenergy Proposals............... 35
Voting by Proxy...................... 35
How to Vote by Proxy................. 35
In Writing......................... 35
By Internet or Telephone........... 36
Revoking Your Proxy.................. 36
Other Voting Matters................. 36
Other Business; Adjournments and
Postponements...................... 37
THE MERGER............................. 38
Background of the Merger............. 38
Reasons for the Merger;
Recommendations of the Board of
Directors.......................... 41
Opinion of Forcenergy's Financial
Advisor............................ 44
Opinions of Forest's Financial
Advisors........................... 56
Salomon Smith Barney............... 56
Chase Securities................... 63
Interests of Certain Persons in the
Merger............................. 71
Accounting Treatment................. 73
Regulatory Approvals................. 73
Legal Proceedings.................... 74
Appraisal Rights..................... 74
Federal Securities Law
Consequences....................... 76
U.S. Federal Income Tax Consequences
Of The Merger...................... 76
THE MERGER AGREEMENT................... 78
The Merger........................... 78
Merger Consideration................. 78
Exchange Ratio..................... 78
Fractional Shares.................. 79
Exchange Procedures.................. 79
Representations And Warranties....... 79
Covenants............................ 80
No Solicitation.................... 81
Stockholders and Shareholders
Meetings......................... 82
Board of Directors Covenant to
Recommend........................ 82
Operations of the Companies Pending
Closing.......................... 82
Employee Matters................... 85
Treatment of Forcenergy Stock
Options, Incentive and Benefit
Plans............................ 85
Board of Directors of Forest
Following Effective Time......... 86
Other Covenants.................... 86
Conditions........................... 88
Mutual Conditions.................. 88
Conditions to Obligations of
Forcenergy to Complete the
Merger........................... 89
Conditions to Obligations of Forest
and Forest Acquisition I
Corporation to Complete the
Merger........................... 89
Termination.......................... 89
Termination by Forest or
Forcenergy....................... 89
Termination by Forest.............. 90
Termination by Forcenergy.......... 90
Effect Of Termination................ 91
Termination Fees..................... 91
Fees Payable by Forcenergy Relating
to Termination................... 91
Fees Payable by Forest Relating to
Termination...................... 92
Costs and Expenses................. 93
Amendment and Waiver................. 93
Costs and Expenses................... 93
REGISTRATION RIGHTS AGREEMENT.......... 94
Demand Registrations................. 94
Piggyback Registrations.............. 94
Shelf Registrations.................. 94
Expenses............................. 95
Indemnification...................... 95
FORCENERGY STOCKHOLDERS AGREEMENT...... 96
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FOREST SHAREHOLDERS AGREEMENT.......... 96
THE COMPANIES.......................... 97
Business of Forcenergy Inc........... 97
Business of Forest Oil Corporation... 97
Forest Acquisition I Corporation..... 98
CONDENSED PRO FORMA COMBINED FINANCIAL
STATEMENTS........................... 99
COMPARISON OF SHAREHOLDERS' AND
STOCKHOLDERS' RIGHTS................. 104
Authorized Capital................... 104
Directors............................ 104
Amendment of By-laws................. 104
Amendment of Certificate............. 105
Class Voting......................... 105
Cumulative Voting.................... 105
Removal of Directors................. 105
Filling Vacancies on the Board of
Directors.......................... 106
Shareholder and Stockholder Meetings
and Provisions for Notices;
Proxies............................ 106
Quorum............................... 106
Preemptive Rights.................... 107
Voting by Shareholders and
Stockholders....................... 107
Merger Without Stockholder
Approval........................... 107
Stockholder Action Without a
Meeting............................ 108
Rights Plan.......................... 108
Business Combinations................ 109
Indemnification and Limitation of
Liability.......................... 110
Dissenters' Rights................... 112
Dissolution.......................... 113
Dividends............................ 113
Right to Examine Shareholder and
Stockholder Lists.................. 114
Interested Director Transactions..... 114
PROPOSED AMENDMENT TO FOREST'S RESTATED
CERTIFICATE OF INCORPORATION......... 115
General.............................. 115
Principal Effects of Reverse Stock
Split.............................. 115
Reasons for the Reverse Stock
Split.............................. 116
Exchange of Stock Certificates and
Elimination of Fractional Share
Interests.......................... 116
Certain Federal Income Tax
Consequences....................... 116
LEGAL AND TAX MATTERS.................. 117
EXPERTS................................ 118
INDEPENDENT PUBLIC ACCOUNTANTS......... 118
OTHER MATTERS.......................... 118
SHAREHOLDER AND STOCKHOLDER
PROPOSALS............................ 118
WHERE YOU CAN FIND MORE INFORMATION.... 119
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ANNEXES
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Annex A Agreement and Plan of Merger,
dated as of July 10, 2000, by
and among Forest Oil
Corporation, Forest Acquisition
I Corporation and Forcenergy Inc
Exhibit A Form of Stockholders Agreement
by and among Forest Oil
Corporation, Forcenergy Inc and
the Forcenergy Stockholders
Listed on the Signature Page
Thereto
Exhibit B Form of Shareholders Agreement
by and between Forcenergy Inc
and The Anschutz Corporation
Exhibit C Form of Registration Rights
Agreement by and among Forest
Oil Corporation and the
Forcenergy Inc Stockholders
Listed on the Signature Page
Thereto
Annex B Opinion of Petrie Parkman & Co.,
Inc., dated July 7, 2000
Annex C Opinion of Salomon Smith Barney
Inc., dated July 10, 2000
Annex D Opinion of Chase Securities
Inc., dated July 10, 2000
Annex E Proposed Forest Reverse Stock
Split Charter Amendment
Annex F Section 262 of the Delaware
General Corporation Law
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: In the merger, Forcenergy will become a wholly-owned subsidiary of Forest.
Forcenergy stockholders will become Forest shareholders and will own
approximately 44% of the Forest common shares that are outstanding after the
merger. Current Forest shareholders will own the remaining approximately 56%.
Q: WHY ARE FOREST AND FORCENERGY PROPOSING THE MERGER?
A: Our companies are proposing the merger because we expect as a combined
company to grow reserves, production, cash flow and earnings faster and beyond
the levels that either company could achieve individually. We believe that the
companies have complementary skills, and that the combined portfolio of
exploration and development projects will be more robust and well balanced than
either company's individual portfolio. In addition, we expect the combined
company to have the cash flow and the financial strength to pursue a wider range
of projects. Finally, we believe that our larger size and greater diversity will
reduce our cost of indebtedness as well as create other cost savings
opportunities through administrative and operational synergies. Please read the
more detailed description of our reasons for the merger on pages 41 through 44.
Q: WHAT WILL THE NEW COMPANY BE CALLED AND WHERE WILL IT BE HEADQUARTERED?
A: The combined company will be called "Forest Oil Corporation" and will be
headquartered in Denver, Colorado.
Q: WHAT WILL HAPPEN TO FORCENERGY SHARES AND WARRANTS IN THE MERGER?
A: Forcenergy common stockholders will receive 1.6 Forest common shares for each
share of Forcenergy common stock they own. If the Forest shareholders approve
the proposal to effect a 1-for-2 reverse stock split of Forest common shares,
Forcenergy common stockholders will receive 0.8 of a Forest common share for
each share of Forcenergy common stock they own. Forcenergy preferred
stockholders will receive 68.6141 Forest common shares for each share with a
stated value of $1,000 of Forcenergy preferred stock they own. If the Forest
shareholders approve the proposal to effect a 1-for-2 reverse stock split of
Forest common shares, Forcenergy preferred stockholders will receive 34.30705
Forest common shares for each share of Forcenergy preferred stock they own.
Forcenergy stockholders also will receive cash for any fractional Forest shares
they would be otherwise entitled to in the merger. The Forest common shares
received in the merger will be listed on the NYSE under the ticker symbol "FST."
Warrants to purchase Forcenergy common stock will be converted into warrants to
purchase Forest common shares based on the same exchange ratio as applies to the
conversion of Forcenergy common stock.
Q: WHAT WILL HAPPEN TO FOREST COMMON SHARES IN THE MERGER?
A: Nothing. Each Forest common share outstanding will remain outstanding as a
Forest common share. The Forest shares will be adjusted if the 1-for-2 reverse
stock split is approved.
Q: WHEN ARE THE SPECIAL STOCKHOLDERS' MEETINGS?
A: Each company's special meeting of stockholders will take place on
, 2000. The location of each special meeting is specified on the
cover page of this document.
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Q: WHAT WILL HAPPEN AT THE SPECIAL STOCKHOLDERS' MEETINGS?
A: At the Forcenergy special meeting, Forcenergy common stockholders will vote
on the merger agreement and the transactions contemplated by the merger
agreement, including the merger. The holders of Forcenergy preferred stock are
not entitled to vote on the merger proposal. At the Forest special meeting,
Forest shareholders will vote on the issuance of Forest common shares in the
merger. Forest shareholders also will vote on whether to approve the 1-for-2
reverse stock split. We cannot complete the merger unless, among other things,
Forcenergy common stockholders vote to approve the merger agreement and Forest
shareholders vote to approve the share issuance. The completion of the merger is
not contingent on Forest shareholder approval of the reverse stock split.
Q: WHAT DO I NEED TO DO TO VOTE?
A: Mail your signed proxy card in the enclosed return envelope or, in the case
of Forest shareholders, you also may vote by Internet or by telephone, in each
case as soon as possible so that your shares may be represented at your special
meeting. In order to assure that we obtain your vote, please vote as instructed
on your proxy card even if you currently plan to attend your special meeting in
person. THE MEMBERS OF THE FORCENERGY BOARD OF DIRECTORS PARTICIPATING IN THE
BOARD DECISION ON THE TRANSACTION UNANIMOUSLY RECOMMEND THAT FORCENERGY
STOCKHOLDERS VOTE FOR THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY
THE MERGER AGREEMENT, INCLUDING THE MERGER. THE MEMBERS OF THE FOREST BOARD OF
DIRECTORS PARTICIPATING IN THE BOARD DECISION ON THE TRANSACTION UNANIMOUSLY
RECOMMEND THAT FOREST SHAREHOLDERS VOTE FOR THE ISSUANCE OF FOREST COMMON SHARES
IN THE MERGER AND FOR THE PROPOSAL TO EFFECT A REVERSE STOCK SPLIT. THE
FORCENERGY AND FOREST DIRECTORS DESIGNATED BY THE ANSCHUTZ CORPORATION DID NOT
PARTICIPATE IN THE BOARD DECISION OF EITHER FORCENERGY OR FOREST ON THE
TRANSACTION.
Q: ARE THERE RISKS ASSOCIATED WITH THE MERGER THAT I SHOULD CONSIDER IN
DECIDING HOW TO VOTE?
A: Yes. There are risks associated with all business combinations, including the
merger. In particular, you should be aware that the number of Forest common
shares that Forcenergy stockholders will receive is fixed and will not change as
the market prices of shares of Forcenergy common stock and Forest common shares
fluctuate in the period before the merger. Accordingly, the value of the Forest
common shares that Forcenergy stockholders will receive in return for their
shares of Forcenergy stock may be either less than or more than the current
market price of the Forest common shares. There also are a number of other risks
that are discussed in this document and in other documents incorporated by
reference in this document. PLEASE READ WITH PARTICULAR CARE THE MORE DETAILED
DESCRIPTION OF THE RISKS ASSOCIATED WITH THE MERGER ON PAGES 24 THROUGH 30.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We expect to complete the merger as quickly as possible once all the
conditions to the merger, including obtaining the approvals of our stockholders
and shareholders at the special meetings, are fulfilled. Fulfilling some of
these conditions, such as receiving certain governmental clearances or
approvals, is not entirely within our control. We currently expect to complete
the merger in the fourth quarter of this year.
Q: SHOULD I SEND IN MY FORCENERGY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send written instructions to
Forcenergy stockholders that explain how to exchange Forcenergy stock
certificates for Forest stock certificates. We will also send a letter of
transmittal that must be executed by Forcenergy stockholders. Please do not send
in any Forcenergy stock certificates until you receive these written
instructions and the letter of transmittal.
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Q: HOW DO I VOTE MY SHARES IF MY SHARES ARE HELD IN "STREET NAME"?
A: You should vote this proxy in accordance with the instructions provided to
you by your broker. Your broker will not vote your shares unless the broker
receives appropriate instructions from you.
Q: MAY I CHANGE MY VOTE EVEN AFTER RETURNING A PROXY CARD?
A: Yes. If you are a Forcenergy stockholder and want to change your vote, you
may do so at any time before the Forcenergy special meeting by sending to the
Secretary of Forcenergy a proxy with a later date. Alternatively, you may revoke
your proxy by delivering to the Secretary of Forcenergy a written revocation
prior to the Forcenergy special meeting or by voting in person at the Forcenergy
special meeting. Similarly, if you are a Forest shareholder and want to change
your vote, you may do so at any time before the Forest special meeting by
sending to the Corporate Secretary of Forest a proxy with a later date or by
voting again by Internet or telephone. Alternatively, you may revoke your proxy
by delivering to the Corporate Secretary of Forest a written revocation prior to
the Forest special meeting or by voting in person at the Forest special meeting.
Forcenergy stockholders that require assistance in changing or revoking a proxy
should contact American Stock & Transfer Trust Company, Forcenergy's transfer
agent for the merger, at (800) 937-5449. Forest shareholders that require
assistance in changing or revoking a proxy should contact ChaseMellon
Shareholder Services, Forest's solicitation agent for the merger, at
(800) 635-9270. ChaseMellon's website can be found at www.chasemellon.com.
Q: IF I HAVE MORE QUESTIONS ABOUT THE MERGER OR THE TWO COMPANIES, WHERE CAN I
FIND ANSWERS?
A: In addition to reading this document, its annexes and the documents we have
incorporated in this document by reference, you can find more information about
the merger or about the two companies in our companies' filings with the SEC
and, in the case of Forest, with the NYSE, and, in the case of Forcenergy, with
the Nasdaq National Market.
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SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire document and the other
documents to which this document refers to fully understand the merger and the
other matters being submitted to shareholders. See "Where You Can Find More
Information" on page 119. Each item in this summary includes a page reference
directing you to a more complete description of that item.
THE COMPANIES (PAGE 97)
FORCENERGY INC
3838 North Causeway Blvd.
Lakeway Three, Suite 2300
Metairie, Louisiana 70002
(504) 838-7022
Forcenergy is an independent oil and gas exploration and production company
with principal reserves and producing properties located in the Gulf of Mexico
and the Cook Inlet area in Alaska. Forcenergy's estimated proved reserves were
approximately 690 billion cubic feet of natural gas equivalents as of December
31, 1999. Approximately 56% of these estimated proved reserves on such date were
oil and approximately 71% of total estimated proved reserves were proved
developed reserves.
FOREST OIL CORPORATION
1600 Broadway, Suite 2200
Denver, Colorado 80202
(303) 812-1400
Forest is an independent oil and gas exploration and production company with
principal reserves and producing properties located in the United States in the
Gulf of Mexico, Louisiana, Texas, Oklahoma and Wyoming and in Canada in Alberta
and the Northwest Territories. Forest's estimated proved reserves were
approximately 718 billion cubic feet of natural gas equivalents as of December
31, 1999. Approximately 73% of estimated proved reserves on such date were
located in the United States and approximately 81% of total estimated proved
reserves were proved developed reserves. Natural gas accounted for approximately
73% of Forest's total estimated proved reserves at December 31, 1999.
FOREST ACQUISITION I CORPORATION
1600 Broadway, Suite 2200
Denver, Colorado 80202
(303) 812-1400
Forest Acquisition I Corporation is a wholly-owned subsidiary of Forest
recently formed for the purpose of effecting the merger.
THE SPECIAL MEETINGS (PAGE 32)
FORCENERGY STOCKHOLDERS
The Forcenergy special meeting of stockholders will be held on ,
2000, at p.m., local time, at the Doubletree Hotel Lakeside, Lakeshore
Room, 3838 North Causeway Blvd., Metairie, Louisiana 70002. At the Forcenergy
special meeting, Forcenergy stockholders will be asked to approve the merger
agreement and the transactions contemplated by the merger agreement, including
the merger.
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FOREST SHAREHOLDERS
The Forest special meeting of shareholders will be held on ,
2000, at a.m., local time, at 1600 Broadway, Suite 590, Denver, Colorado
80202. At the Forest special meeting, Forest shareholders will be asked to
approve the issuance of Forest common shares to Forcenergy stockholders in
connection with the merger, and a proposal to effect a 1-for-2 reverse stock
split of Forest common shares.
RECORD DATE; VOTE REQUIRED (PAGES 32-33)
FORCENERGY STOCKHOLDERS
You can vote at the Forcenergy special meeting if you owned shares of
Forcenergy common stock at the close of business on , 2000. On that
date, there were shares of Forcenergy common stock outstanding and
entitled to vote. You can cast one vote for each share of Forcenergy common
stock you then owned. Holders of Forcenergy preferred stock are not entitled to
vote on the merger proposal. Approval of the merger agreement and the
transactions contemplated by the merger agreement, including the merger,
requires the approval of the holders of a majority of the outstanding shares of
Forcenergy common stock. As of , 2000, Forcenergy directors and
executive officers beneficially owned approximately % of the outstanding
shares of Forcenergy common stock, including outstanding options. These
individuals have indicated that they intend to vote their shares of Forcenergy
common stock in favor of the merger proposal. Lehman Brothers Inc., The Anschutz
Corporation and certain funds and accounts managed by Oaktree Capital
Management, LLC collectively own shares of Forcenergy common stock,
representing approximately % of the shares of Forcenergy common stock
outstanding as of the record date. These persons are parties to the Forcenergy
stockholders agreement pursuant to which they have agreed to vote their shares
of Forcenergy common stock in favor of the merger. Therefore, unless the merger
agreement is terminated, the merger will be approved by the Forcenergy
stockholders.
FOREST SHAREHOLDERS
You can vote at the Forest special meeting if you owned Forest common shares
at the close of business on , 2000. On that date, there were
Forest common shares outstanding and entitled to vote. You can cast one vote for
each Forest common share you then owned. Approval of the share issuance requires
the approval of the holders of a majority of the votes cast on the proposal,
provided that the total votes cast on the proposal represent over 50% in
interest of all securities entitled to vote on the proposal. Approval of the
proposal to effect the 1-for-2 reverse stock split requires the approval of the
holders of a majority of the outstanding Forest common shares entitled to vote
on the proposal. APPROVAL OF THE REVERSE STOCK SPLIT IS NOT A CONDITION TO THE
MERGER. As of , 2000, Forest directors and executive officers
beneficially owned approximately % of the outstanding Forest common shares,
including outstanding options. These individuals have indicated that they intend
to vote their Forest common shares in favor of the Forest proposals. The
Anschutz Corporation owns Forest common shares, representing approximately
% of the Forest common shares outstanding as of the record date. The
Anschutz Corporation is a party to the Forest shareholders agreement pursuant to
which it has agreed to vote its Forest common shares in favor of the share
issuance.
THE MERGER (PAGE 78)
The merger agreement is attached as Annex A to this document. Please
carefully read the merger agreement. The merger agreement, not this joint proxy
statement/prospectus, is the legal document that governs the merger.
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GENERAL
We propose a merger transaction in which Forcenergy Inc will merge with
Forest Acquisition I Corporation, a wholly-owned subsidiary of Forest created
for the purpose of effecting the merger. After the merger, Forcenergy will be a
wholly-owned subsidiary of Forest and Forcenergy stockholders will become Forest
shareholders.
EXCHANGE OF COMMON SHARES (PAGE 79)
When we complete the merger, shares of Forcenergy common stock will be
converted into Forest common shares.
FORCENERGY STOCKHOLDERS. Each share of Forcenergy common stock held prior
to the effective time of the merger will be converted into the right to receive
1.6 Forest common shares (or 0.8 shares if the proposed 1-for-2 reverse stock
split of Forest common shares is approved).
Each issued and outstanding share of Forcenergy preferred stock with a
stated value of $1,000 will be converted into the right to receive 68.6141
Forest common shares (or 34.30705 shares if the reverse stock split is
approved), and all accrued and unpaid dividends on each such outstanding share
of Forcenergy preferred stock, whether or not declared, will be converted into
the right to receive the number of Forest common shares equal to the product of
68.6141 (or 34.30705 if the reverse stock split is approved) and a fraction, the
numerator of which is the amount of the accrued and unpaid dividends on the
share of Forcenergy preferred stock and the denominator of which is $1,000.
Each outstanding warrant to purchase or acquire a share of Forcenergy common
stock will be converted into a warrant to purchase the number of Forest common
shares equal to 1.6 (or 0.8 if the reverse stock split is approved) times the
number of shares of Forcenergy common stock that could have been obtained
immediately prior to the effective time of the merger upon the exercise of the
warrant, at an exercise price per share equal to the aggregate exercise price
for shares of Forcenergy common stock subject to the warrant divided by the
aggregate number of Forest common shares deemed purchasable pursuant to the
warrant.
Former Forcenergy stockholders will own approximately 44% of the Forest
common shares outstanding after the merger.
FOREST SHAREHOLDERS. Each Forest common share will remain issued and
outstanding as one Forest common share. Current Forest shareholders will own
approximately 56% of the Forest common shares outstanding after the merger.
Assuming the reverse stock split is approved and implemented, each two
outstanding Forest common shares would be reclassified into one new Forest
common share. The reverse split would not affect any shareholder's proportionate
equity interest in Forest, subject to the provisions for the elimination of
fractional shares.
FORCENERGY STOCK OPTIONS (PAGE 85)
When we complete the merger, options to purchase shares of Forcenergy common
stock under Forcenergy stock plans will be converted into options to purchase
Forest common shares. The number of shares of common stock subject to such stock
options and the exercise price of such stock options will be adjusted according
to the exchange ratio.
MANAGEMENT AND OPERATIONS AFTER THE MERGER (PAGE 86)
After the merger, the Forest board of directors will continue to manage the
business of Forest, which will include the business of Forcenergy as a
wholly-owned subsidiary. The combined company will be called "Forest Oil
Corporation" and will be headquartered in Denver, Colorado.
Forest has agreed to fix the number of directors constituting the board of
directors at 12 members and to appoint two designated members of Forcenergy's
board of directors as Forest directors.
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Richard G. Zepernick, Jr., Forcenergy's President and Chief Executive
Officer, has agreed to become President and Chief Operating Officer of the
combined company.
OUR RECOMMENDATIONS TO SHAREHOLDERS (PAGES 41-44)
FORCENERGY STOCKHOLDERS. The members of the Forcenergy board of directors
participating in the board decision on the transaction unanimously approved the
merger and unanimously recommend that you vote FOR the proposal to approve the
merger agreement and the transactions contemplated by the merger agreement,
including the merger. The directors designated by The Anschutz Corporation did
not participate in the board decision on the transaction.
FOREST SHAREHOLDERS. The members of the Forest board of directors
participating in the board decision on the transaction believe that the merger
is fair to you and in your best interests, and unanimously recommend that you
vote FOR the proposals to issue Forest common shares in the merger and to effect
a 1-for-2 reverse stock split. APPROVAL OF THE REVERSE STOCK SPLIT IS NOT A
CONDITION TO THE MERGER. The directors designated by The Anschutz Corporation
did not participate in the board decision on the transaction.
OPINION OF FORCENERGY'S FINANCIAL ADVISOR (PAGE 44)
On July 7, 2000, Petrie Parkman & Co., Inc., Forcenergy's financial advisor,
delivered an oral opinion (which was subsequently confirmed in writing) to the
Forcenergy board of directors as to the fairness, from a financial point of
view, as of that date, of the exchange ratio of 1.6 Forest common shares for
each share of Forcenergy common stock to the holders of Forcenergy common stock.
We have attached this opinion as Annex B to this document. You should read this
opinion in its entirety to understand the procedures followed, assumptions made,
matters considered and limits of the scope of the review undertaken.
Petrie Parkman & Company's opinion is addressed to the Forcenergy board of
directors and does not constitute a recommendation to any Forcenergy stockholder
as to how that stockholder should vote at the special meeting.
OPINIONS OF FOREST'S FINANCIAL ADVISORS (PAGE 56)
Salomon Smith Barney and Chase Securities, Forest's financial advisors, have
each delivered a written opinion to the Forest board of directors (confirming
their oral opinions previously delivered) as to the fairness, from a financial
point of view, to Forest of the merger consideration. We have attached these
opinions, dated July 10, 2000, as Annexes C and D to this document. You should
read these opinions completely to understand the procedures followed,
assumptions made, matters considered and limitations of the reviews undertaken.
The opinions of Salomon Smith Barney and Chase Securities are addressed to
the Forest board of directors and do not constitute a recommendation to any
Forest shareholder as to any matters relating to the merger.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 88)
The completion of the merger depends on a number of conditions being
satisfied or waived. In addition to customary conditions relating to the
accuracy of representations and warranties and our compliance with the merger
agreement, these include the following:
- the merger agreement and the merger have been approved by Forcenergy
stockholders and the Forest common share issuance has been approved by
Forest shareholders;
- all requisite governmental approvals, including antitrust approvals have
been received; in this regard, the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
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amended, the expiration or termination of which had been a condition to
the merger, terminated on , 2000;
- there is no statute, rule, regulation, executive order, decree, ruling or
injunction prohibiting the consummation of the merger;
- the SEC has declared the registration statement effective under the
Securities Act, and no stop order or similar restraining order suspending
the effectiveness of the registration statement is in effect;
- Forest common shares to be issued in the merger have been approved for
listing on the NYSE, which approval has been obtained, subject to official
notice of issuance;
- Forest and Forcenergy have each received an opinion of their tax advisor
and tax counsel, respectively, that the merger will be classified as a
"reorganization" under the Internal Revenue Code and that none of Forest,
Forest Acquisition I Corporation, Forcenergy, the holders of Forcenergy
common stock or the holders of Forcenergy preferred stock will recognize
gain or loss for federal income tax purposes; and
- Forcenergy's officers and directors have resigned their positions,
effective as of the effective time of the merger.
TERMINATION OF THE AGREEMENT (PAGE 89)
We can agree at any time to terminate the merger agreement without
completing the merger, even if Forcenergy stockholders have approved the merger
and Forest shareholders have approved the share issuance. Also, either of us can
decide, without the consent of the other, to terminate the merger agreement in
various circumstances, including the following:
- if the merger has not been completed by December 31, 2000, except that the
right to terminate the merger agreement under this provision is not
available to any party whose failure to perform or observe in any material
respect any of its obligations under the merger agreement contributed to
the failure of the merger to occur on or before December 31, 2000;
- if (1) any governmental entity has issued a statute, rule, regulation, or
executive order prohibiting the merger substantially on the terms
contemplated in the merger agreement, or if (2) an order, decree, ruling
or injunction has been entered that would permanently prohibit the merger
substantially on the terms contemplated by the merger agreement and this
order, decree, ruling or injunction has become final and non-appealable,
except that the party seeking to terminate the merger agreement under this
provision is required to use its reasonable best efforts to remove the
injunction, order or decree; or
- if the Forest shareholders meeting to approve the issuance of Forest
common shares in the merger is held and the required vote of Forest
shareholders is not obtained for the approval, or the Forcenergy
stockholders meeting to approve the merger agreement and the merger is
held and the required vote of Forcenergy stockholders is not obtained for
the approval.
TERMINATION BY FOREST
Forest may terminate the merger agreement and abandon the merger at any time
before the effective date of the merger if:
- there (1) has been a material breach by Forcenergy of any representation,
warranty, covenant or agreement in the merger agreement that could prevent
closing of the merger and (2) the breach is not cured within 30 days after
written notice of the breach is given to Forcenergy by Forest, except that
Forest cannot terminate the merger if, at that time, it is in material
breach of any representation, warranty, covenant, or agreement in the
merger agreement;
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- the Forcenergy board of directors has withdrawn, modified or failed to
give its approval or recommendation of the merger agreement or the merger,
or fails to call the Forcenergy stockholders meeting to approve the merger
agreement and the merger; or
- the board of directors of Forest authorizes Forest to enter into a written
agreement relating to a transaction that the Forest board of directors has
determined is a superior proposal compared to the merger, except that the
right to terminate under this provision is not available to Forest until
the expiration of five business days after Forcenergy's receipt of written
notice advising Forcenergy that Forest has received a superior proposal
and specifying the material terms and conditions of the proposal and
identifying the person or entity making the superior proposal. Forest is
required to provide Forcenergy with a reasonable opportunity during this
five-day period to make adjustments in the terms and conditions of the
merger agreement that would enable Forest to proceed with the merger on
the adjusted terms.
TERMINATION BY FORCENERGY
Forcenergy may terminate the merger agreement and abandon the merger at any
time before the effective time of the merger if:
- there (1) has been a material breach by Forest of any representation,
warranty, covenant or agreement in the merger agreement that could cause
any closing condition not to be satisfied and (2) the breach is not cured
within 30 days after written notice of the breach is given to Forest by
Forcenergy, except that Forcenergy cannot terminate the merger if it, at
that time, is in material breach of any representation, warranty,
covenant, or agreement in the merger agreement;
- the Forest board of directors has withdrawn, modified or failed to give
its approval or recommendation of the issuance of Forest common shares in
connection with the merger, or fails to call the Forest shareholders
meeting to approve the issuance of the Forest common shares in the merger;
or
- the board of directors of Forcenergy authorizes Forcenergy to enter into a
written agreement relating to a transaction that the Forcenergy board of
directors has determined is a superior proposal compared to the merger,
except that the right to terminate under this provision is not available
to Forcenergy until the expiration of five business days after Forest's
receipt of written notice advising Forest that Forcenergy has received a
superior proposal and specifying the material terms and conditions of the
proposal and identifying the person or entity making the superior
proposal. Forcenergy is required to provide Forest with a reasonable
opportunity during this five-day period to make adjustments in the terms
and conditions of the merger agreement that would enable Forcenergy to
proceed with the merger on the adjusted terms.
TERMINATION FEES (PAGE 91)
Forest must pay Forcenergy a fee of $18 million in cash if the merger
agreement is terminated in a number of circumstances described elsewhere in this
document. Please see page 92. Forest, however, is not required to pay the
termination fee if, at the time of such termination, Forcenergy is in breach of
any of its obligations or representations in the merger agreement and as a
result Forest would be entitled to terminate the merger based on this uncured
material breach.
Similarly, Forcenergy must pay Forest a fee of $18 million in cash if the
merger agreement is terminated in a number of circumstances described elsewhere
in this document. Please see page 91. Forcenergy, however, is not required to
pay the termination fee if, at the time of such termination, Forest is in breach
of any of its obligations or representations in the merger agreement and as a
result Forcenergy would be entitled to terminate the merger based on this
uncured material breach.
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ACCOUNTING TREATMENT (PAGE 73)
The merger will be accounted for as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Forest and Forcenergy will be carried forward to the
combined company at their recorded amounts, and income of the combined company
will include income of Forest and Forcenergy for the entire fiscal year in which
the merger occurs. The results of operations of Forcenergy prior to December 31,
1999, the effective date of its reorganization and fresh start reporting, will
not be included in the financial statements of the combined company.
REGISTRATION RIGHTS AGREEMENT (PAGE 94)
Simultaneously with the execution and delivery of the merger agreement,
Forest and certain principal stockholders of Forcenergy, or holders, entered
into a registration rights agreement. This agreement provides that these holders
will have the right to require Forest to register all or any portion of the
Forest common shares issued to these holders upon the closing of the merger.
These Forest common shares are referred to as "registrable securities." A copy
of the registration rights agreement is attached as an exhibit to Annex A to
this document and is incorporated in this document by reference.
DEMAND REGISTRATIONS
Each shareholder may make, until the fifth anniversary of the date of the
registration rights agreement, one or more written requests for a "demand"
registration of all or any part of its registrable securities except that Forest
is not required to effect more than two demand registrations for the holders in
total in any 12 month period. These demand rights are subject to other
limitations discussed on page 94.
PIGGYBACK REGISTRATIONS
If Forest seeks to register any Forest common shares while this registration
rights agreement is in effect, the holders have the right to request that Forest
include any or all of their registrable securities in the proposed offering,
except that the holders' rights to notice and participation do not extend to
more than ten piggyback registrations for any holder and its affiliates in
total. These piggyback rights do not apply to registration statements on
Form S-4 or Form S-8 and are subject to other limitations discussed on page 94.
SHELF REGISTRATIONS
The holders also may, after specific amount of time, make a written request
that Forest effect a shelf registration pursuant to Rule 415 of the Securities
Act. Upon receipt of such request, Forest must give written notice to all other
holders, and all such holders have the right to include registrable securities
in the shelf registration subject to the limitations on pages 94 through 95.
EXPENSES
In connection with any registration effected under the registration rights
agreement, Forest will pay certain fees and expenses as discussed on page 95.
INDEMNIFICATION
Forest and the selling holders have agreed to customary indemnification
obligations. These are discussed in more detail on page 95. Contribution will
also be available to either Forest or the selling holders, to the extent that
indemnification is unavailable.
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FORCENERGY STOCKHOLDERS AGREEMENT (PAGE 96)
In connection with the execution and delivery of the merger agreement,
Forest entered into an agreement with the Oaktree funds, Lehman Brothers and The
Anschutz Corporation, the principal stockholders of Forcenergy, under which
these stockholders agreed to vote their shares of Forcenergy common stock in
favor of the adoption of the merger agreement and not to solicit alternative
takeover proposals for Forcenergy. The Forcenergy stockholders agreement
prohibits, subject to limited exceptions, any stockholder from selling or
otherwise disposing of any shares of Forcenergy common stock. The Forcenergy
stockholders agreement terminates upon the earlier to occur of the completion of
the merger and the termination of the merger agreement in accordance with its
terms. The Forcenergy stockholders agreement is attached as an exhibit to
Annex A to this joint proxy statement/ prospectus and is incorporated in this
document by reference. We urge you to read the full text of the Forcenergy
stockholders agreement.
FOREST SHAREHOLDERS AGREEMENT (PAGE 96)
In connection with the execution and delivery of the merger agreement,
Forcenergy entered into an agreement with The Anschutz Corporation, the
principal shareholder of Forest, under which The Anschutz Corporation agreed to
vote its Forest common shares in favor of the share issuance and not to solicit
alternative takeover proposals for Forest. The Forest shareholders agreement
prohibits, subject to limited exceptions, The Anschutz Corporation from selling,
transferring, pledging, encumbering, assigning or otherwise disposing of any
Forest common shares. The Forest shareholders agreement terminates upon the
earlier to occur of the completion of the merger and the termination of the
merger agreement in accordance with its terms. The Forest shareholders agreement
is attached as an exhibit to Annex A to this joint proxy statement/prospectus
and is incorporated in this document by reference. We urge you to read the full
text of the Forest shareholders agreement.
INTERESTS OF CERTAIN PEOPLE IN THE MERGER THAT ARE DIFFERENT FROM YOUR INTERESTS
(PAGE 71)
FORCENERGY
Some of Forcenergy's directors and executive officers have interests in the
merger that are different from Forcenergy's stockholders' interests:
CERTAIN EXECUTIVE OFFICERS. Pursuant to their respective employment
agreements, the following Forcenergy officers are entitled to receive various
benefits, such as bonuses, indemnities, health benefits and vesting of stock
options, because the merger will constitute a "change of control" for purposes
of these employment agreements:
- Richard G. Zepernick, Jr., President and Chief Executive Officer;
- E. Joseph Grady, Vice President, Treasurer and Chief Financial Officer;
- Thomas F. Getten, Vice President--General Counsel and Secretary;
- Robert G. Gerdes, Vice President--Geoscience; and
- Gary E. Carlson, Vice President--Alaska Division.
CERTAIN DIRECTORS. Pursuant to the merger agreement, Stephen A. Kaplan and
Forrest E. Hoglund, each a director of Forcenergy, will be appointed directors
of Forest.
The Oaktree funds own approximately 28% of the outstanding Forcenergy
preferred stock. In addition to their positions as directors of Forcenergy,
Stephen A. Kaplan and B. James Ford serve as principal and vice president,
respectively, of Oaktree. Lehman Brothers owns approximately 28% of the
outstanding Forcenergy preferred stock. In addition to his position as a
director of Forcenergy, Gregory P. Pipkin is a managing director of Lehman.
Pursuant to the merger agreement, each share of Forcenergy preferred stock will
be converted into the right to receive 68.6141 Forest common shares.
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The Oaktree funds and Lehman own warrants for the purchase of shares of
Forcenergy common stock. Pursuant to the terms of the merger agreement, warrants
to purchase Forcenergy common stock will be converted into warrants to purchase
Forest common shares.
Lehman has been retained by Forcenergy as a financial advisor in connection
with the merger, for which Lehman will be paid a fee of $3 million upon
consummation of the merger.
Two of Forcenergy's directors, Michael Bennett and Clifford Hickey, are
designated by The Anschutz Corporation, which also has designated directors of
Forest. Mr. Bennett and Mr. Hickey did not participate in the Forcenergy board's
decision on this transaction.
FOREST
Some of Forest's directors have interests in the merger that are different
from Forest shareholders' interests.
Three of Forest's directors, Philip Anschutz, Craig Slater and Cannon
Harvey, are designated by The Anschutz Corporation. The Anschutz Corporation
owns both common stock and preferred stock of Forcenergy that will be converted
into Forest common shares in the merger. However, Mr. Anschutz, Mr. Slater and
Mr. Harvey did not participate in the Forest board's decision on this
transaction due to this interest of The Anschutz Corporation.
Additional information on the interests of Forcenergy and Forest directors
and executive officers is described elsewhere in this document. Please see
pages 71 through 73.
Our boards of directors knew about these interests, and considered them, in
approving the merger and recommending that our shareholders and stockholders
approve the merger transaction.
APPRAISAL RIGHTS (PAGE 74)
Under Delaware law, Forcenergy common stockholders are not entitled to
appraisal rights in connection with the merger. However, holders of Forcenergy
preferred stock are entitled to appraisal rights under Delaware law. See
pages 74 through 75.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE 76)
FORCENERGY STOCKHOLDERS
We expect that, for U.S. federal income tax purposes, the merger will be
classified as a reorganization within the meaning of Section 368(a) of the
Internal Revenue code. Assuming that the merger does meet this classification,
your exchange of Forcenergy common stock for Forest common shares generally will
not cause you to recognize any gain or loss. You will, however, recognize gain
or loss in connection with any cash received instead of fractional shares.
FORCENERGY STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE AND LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES. Forcenergy has received an
opinion from its counsel, Weil, Gotshal & Manges LLP, to the effect that the
merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. The opinion is based on customary assumptions and
customary representations made by, among others, Forcenergy, Forest and Forest
Acquisition I Corporation. An opinion of counsel represents counsel's best legal
judgment and is not binding on the Internal Revenue Service or any court. No
ruling has been, or will be, sought from the Internal Revenue Service as to the
U.S. federal income tax consequences of the merger.
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FOREST SHAREHOLDERS
Because Forest common shares will remain unchanged, the merger should not
cause you to recognize any gain or loss for U.S. federal income tax purposes. If
the reverse stock split is approved, you will not recognize gain or loss as a
result of this reverse stock split, but your tax basis in your Forest shares
will increase appropriately.
THIS TAX TREATMENT MAY NOT APPLY TO CERTAIN SHAREHOLDERS. DETERMINING THE
ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE COMPLICATED. THESE
CONSEQUENCES WILL DEPEND ON YOUR SPECIFIC SITUATION AND ON VARIABLES NOT WITHIN
OUR CONTROL. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF
THE MERGER'S TAX CONSEQUENCES FOR YOU.
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE 104)
As a result of the merger, the stockholders of Forcenergy will become
shareholders of Forest. As shareholders of Forest, their rights will be governed
by the New York Business Corporation Law and Forest's restated certificate of
incorporation and by-laws. Forest is organized under the laws of the State of
New York and Forcenergy is organized under the laws of the State of Delaware.
See pages 104 through 114 for summaries of certain material differences between
the rights of Forest shareholders and Forcenergy stockholders.
REGULATORY APPROVALS (PAGE 73)
Under the Hart-Scott-Rodino Act, we may not complete the merger unless we
make various filings with the Antitrust Division of the U.S. Department of
Justice and the U.S. Federal Trade Commission and certain waiting periods expire
or are terminated. On , 2000, Forest and Forcenergy submitted the
required filings to the Federal Trade Commission and the Antitrust Division. The
waiting period under the Hart-Scott-Rodino Act terminated on , 2000.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Forest common shares are listed on the New York Stock Exchange and
Forcenergy common stock is quoted on the Nasdaq National Market. On July 7,
2000, the last trading day before we announced the merger, Forest common shares
closed at $16 per share and shares of Forcenergy common stock closed at $21 3/16
per share. On , 2000, the most recent practicable date before the
mailing of this document, Forest common shares closed at $ per share
and shares of Forcenergy common stock closed at $ per share.
Based on the exchange ratio in the merger, which is 1.6 Forest common shares
(or 0.8 if the proposed 1-for-2 reverse stock split of the Forest common shares
is approved) per share of Forcenergy common stock, the market value of the
consideration that Forcenergy common stockholders will receive in the merger for
shares of Forcenergy common stock would be $ per share based on the
closing price of Forest common shares on , 2000, and $ per
share based on the closing price of Forest common shares on , 2000.
Of course, the market price of Forest common shares will fluctuate prior to and
after the merger, whereas the exchange ratio is fixed. You should obtain current
stock price quotations for Forest common stock and shares of Forcenergy common
stock.
13
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF FOREST
The following table sets forth selected financial and operating data of
Forest on a historical basis as of and for the three months ended March 31, 2000
and 1999 and for each of the years in the five-year period ended December 31,
1999. This data should be read in conjunction with the historical financial
statements and related notes of Forest incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue:
Marketing and processing................... $ 44,002 40,332 166,283 151,079 184,399 187,374 --
Oil and gas sales.......................... 54,509 42,846 190,975 170,740 155,242 128,713 82,275
-------- ------- ------- -------- ------- ------- -------
Total revenue.............................. $ 98,511 83,178 357,258 321,819 339,641 316,087 82,275
Earnings (loss) from continuing
operations(1)(2)........................... $ 9,889 450 19,641 (197,786) 3,089 1,139 (17,996)
Net earnings (loss).......................... $ 9,889 450 19,043 (191,590) (9,270) 3,305 (17,996)
Weighted average number of common shares
outstanding................................ 53,697 44,648 47,943 40,910 33,669 25,062 7,360
Net earnings (loss) attributable to common
stock...................................... $ 9,889 450 19,043 (191,590) (9,459) 1,147 (20,156)
Historical earnings (loss) per share:
Basic earnings (loss) per share:
Earnings (loss) from continuing
operations attributable to common
stock.................................. $ .18 .01 .41 (4.83) .09 (.04) (2.74)
Extraordinary items...................... -- -- (.01) .15 (.37) .09 --
-------- ------- ------- -------- ------- ------- -------
Earnings (loss) attributable to common
stock.................................. $ .18 .01 .40 (4.68) (.28) .05 (2.74)
Diluted earnings (loss) per share:
Earnings (loss) from continuing
operations attributable to common
stock.................................. $ .18 .01 .41 (4.83) .08 (.04) (2.74)
Extraordinary items...................... -- -- (.01) .15 (.35) .09 --
-------- ------- ------- -------- ------- ------- -------
Earnings (loss) attributable to common
stock.................................. $ .18 .01 .40 (4.68) (.27) .05 (2.74)
Earnings (loss) per share adjusted for
proposed reverse stock split(3):
Basic earnings (loss) per share:
Earnings (loss) from continuing
operations attributable to common
stock.................................. $ .36 .02 .82 (9.66) .18 (.08) (5.48)
Extraordinary items...................... -- -- (.02) .30 (.74) .18 --
-------- ------- ------- -------- ------- ------- -------
Earnings (loss) attributable to common
stock.................................. $ .36 .02 .80 (9.36) (.56) .10 (5.48)
Diluted earnings (loss) per share:
Earnings (loss) from continuing
operations attributable to common
stock.................................. $ .36 .02 .82 (9.66) .16 (.08) (5.48)
Extraordinary items...................... -- -- (.02) .30 (.70) .18 --
-------- ------- ------- -------- ------- ------- -------
Earnings (loss) attributable to common
stock.................................. $ .36 .02 .80 (9.36) (.54) .10 (5.48)
BALANCE SHEET DATA
Total assets............................... $808,493 747,226 800,052 759,736 647,782 563,458 321,043
Long-term debt............................. $391,802 501,889 371,680 505,450 254,760 168,859 193,879
Other long-term liabilities................ $ 23,286 24,830 23,213 24,267 51,787 53,560 27,139
Deferred revenue........................... $ -- -- -- -- -- 7,591 15,137
Shareholders' equity....................... $326,856 169,064 318,984 168,991 261,827 242,443 44,297
</TABLE>
14
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF FOREST (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT VOLUMES AND PRICES)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Annual production:(4):
Gas (MMCF)................................ 13,896 16,994 61,702 62,310 49,035 42,496 33,342
Liquids (MBBLS)........................... 1,026 1,056 4,397 4,269 3,207 2,749 1,173
Average price received:
Gas (per MCF)(5).......................... $ 2.53 1.94 2.16 1.95 2.06 1.89 1.77
Liquids (per Barrel)...................... $ 18.86 9.36 13.16 11.51 16.92 17.59 15.86
Capital expenditures, net of asset sales.... $28,096 7,666 104,612 461,452 147,130 234,556 44,913
Proved Reserves(6)
Gas (MMCF)................................ 525,007 564,264 378,315 334,180 231,890
Liquids (MBBLS)........................... 32,127 35,069 24,636 24,014 10,467
Standardized measure of discounted future
net cash flows relating to proved oil and
gas reserves(6)........................... $650,093 522,831 439,570 559,869 256,917
</TABLE>
--------------------------
(1) In 1999, Forest recorded a loss on extinguishment of debt of $598,000 as a
result of the redemption of the remaining principal amount of its 11 1/4%
Notes. In 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 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.
(2) Earnings (loss) from continuing operations includes a provision for
impairment of oil and gas properties of $199,500,000 ($175,000,000 after
tax) in 1998.
(3) Reflects proposed 1-for-2 reverse stock split.
(4) Amounts shown for 1997, 1996 and 1995 include amounts attributable to
required deliveries under volumetric production payments.
(5) Amounts shown for 1995 exclude the effects of a gas contract settlement.
Including such amount, the average sales price for 1995 was $1.90 per MCF.
(6) The 1998, 1997, 1996 and 1995 amounts include 100% of the reserves owned by
Saxon, a consolidated subsidiary in which the Company held a majority
interest in 1997, 1996 and 1995, but which was a wholly owned subsidiary as
of December 31, 1998. In June 1999, Saxon was liquidated into Canadian
Forest.
15
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF FORCENERGY
The following table sets forth selected financial and operating data of
Forcenergy on a historical basis as of and for the three months ended March 31,
2000 and for each of the years in the five-year period ended December 31, 1999.
From March 21, 1999 through February 15, 2000, Forcenergy operated under Chapter
11 of the U.S. Bankruptcy Code, which afforded it protection from the claims of
its creditors. During that period Forcenergy incurred significant
bankruptcy-related expenses, including legal fees, financial advisory fees and
independent auditor fees. In connection with its emergence from bankruptcy,
Forcenergy adopted fresh start accounting at December 31, 1999. As a result,
financial information for Forcenergy as of and subsequent to that date reflects
a different basis of accounting and is therefore not comparable to prior years
in certain material respects. This data should be read in conjunction with the
historical financial statements and related notes of Forcenergy incorporated
herein by reference.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
SUCCESSOR COMPANY ----------------------------------------------------
------------------ YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED ----------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
------------------ -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue:
Oil and gas sales.................. $76,770 265,824 272,410 281,690 138,698 72,147
Other.............................. 196 906 1,139 2,495 683 494
------- ------- -------- -------- ------- ------
Total revenue.................... $76,966 266,730 273,549 284,185 139,381 72,641
Earnings (loss) from continuing
operations(1)(2)................. $12,562 19,797 (314,494) (134,818) 11,278 (1,853)
Net earnings (loss)................ $12,562 109,852 (314,494) (134,818) 11,278 (1,853)
Weighted average number of common
shares outstanding............... 24,000 24,754 24,856 23,142 18,934 12,910
Net earnings (loss) attributable to
common stock..................... $12,391 109,852 (314,494) (134,818) 11,278 (1,853)
Earnings (loss) per share:
Earnings (loss) from continuing
operations attributable to
common stock................... $ .52 .80 (12.65) (5.83) .60 (.14)
Reorganization and extraordinary
items.......................... -- 3.64 -- -- -- --
------- ------- -------- -------- ------- ------
Earnings (loss) attributable to
common stock(3)................ $ .52 4.44 (12.65) (5.83) .60 (.14)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
SUCCESSOR COMPANY -----------------------------------------
-------------------------- DECEMBER 31,
MARCH 31, DECEMBER 31, -----------------------------------------
2000 1999 1998 1997 1996 1995
---------- ------------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets......................... $606,613 675,401 678,468 824,230 585,925 335,090
Liabilities subject to compromise.... $ -- -- 778,720 -- -- --
Long-term debt....................... $238,149 314,473 -- 506,564 272,932 130,729
Redeemable preferred stock........... $ 29,201 -- -- -- -- --
Stockholders' equity (deficit)....... $271,038 240,000 (100,252) 214,991 248,936 154,961
</TABLE>
16
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF FORCENERGY (CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
SUCCESSOR COMPANY ----------------------------------------------------
------------------ YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED ----------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
------------------ -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT VOLUMES AND PRICES)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Annual production:
Gas (MMCF)...................... 12,861 61,048 76,799 57,737 32,738 21,112
Liquids (MBBLS)................. 1,950 7,877 8,513 8,210 4,006 2,343
Average price received:
Gas (per MCF)................... $ 2.69 2.27 2.16 2.41 2.16 1.59
Liquids (per Barrel)............ $ 21.65 15.48 12.54 17.34 16.93 16.46
Capital expenditures, net of asset
sales........................... $42,905 67,260 323,444 406,732 281,675 77,572
Proved Reserves:
Gas (MMCF)...................... 300,616 369,943 380,761 256,913 218,502
Liquids (MBBLS)................. 64,959 49,389 58,043 54,659 24,458
Standardized measure of discounted
future net cash flows relating
to proved oil and gas
reserves........................ $768,929 436,689 595,198 802,145 406,956
</TABLE>
------------------------
(1) In 1999, Forcenergy recorded a gain on extinguishment of debt of
$159,972,000 as a result of the discharge in bankruptcy of its indebtedness
for its 8 1/2% Senior Subordinated Notes and 9 1/2% Senior Subordinated
Notes and unsecured trade accounts payable and also recorded reorganization
expenses of $69,917,000 related to Forcenergy's bankruptcy.
(2) Earnings (loss) from continuing operations includes provisions for
impairments of oil and gas properties of $275,000,000 in 1998 and
$200,000,000 ($162,800,000 after tax) in 1997.
(3) Diluted earnings (loss) per share was the same as basic earnings (loss) per
share in all periods except 1996. In 1996, diluted earnings per share was
$.57.
17
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth selected unaudited pro forma combined
financial data based on the pooling of interests method of accounting for the
merger. The pro forma amounts included in the tables below are presented as if
the merger was effective as of December 31, 1999, the effective date of
Forcenergy's reorganization and fresh start reporting. You should read this
information in conjunction with the consolidated financial statements and
accompanying notes of Forest and Forcenergy incorporated in this document by
reference and the condensed pro forma combined financial statements and notes
thereto beginning on page 99. The pro forma amounts in the tables below are
presented for informational purposes. You should not rely on the pro forma
amounts as being indicative of the financial position or the results of
operations of the combined company that would have actually occurred had the
merger been effective during the periods presented or of the future financial
position or future results of operations of the combined company.
Forcenergy's plan of reorganization was approved by the bankruptcy court on
January 19, 2000, and became effective on February 15, 2000. In connection with
Forcenergy's emergence from bankruptcy, Forcenergy adopted fresh start reporting
and its assets and liabilities were adjusted to their estimated fair values
effective December 31, 1999. Under the pooling of interests method of
accounting, the results of operations of Forcenergy prior to the reorganization
and fresh start reporting are not included in the financial statements of the
combined company. Accordingly, the pro forma income statement data for the years
ended December 31, 1999, 1998 and 1997 reflects only the historical results of
operations of Forest.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED -------------------------------
MARCH 31, 2000 1999 1998 1997
------------------ --------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenue.............................. $ 175,477 357,258 321,819 339,641
Earnings (loss) from continuing
operations............................... $ 22,451 19,641 (197,786) 3,089
Earnings (loss) from continuing operations
per common share(1)...................... $ .23 .41 (4.83) .09
Weighted average number of common shares
outstanding.............................. 94,853
BALANCE SHEET DATA
Total assets............................... $1,415,106 1,475,453
Long-term debt............................. $ 629,951 686,153
Shareholders' equity....................... $ 597,095 558,984
Common shares outstanding.................. 94,695
OTHER FINANCIAL DATA
Cash used by operating activities.......... $ 5,801
Cash used by investing activities.......... $ 70,434
Cash used by financing activities.......... $ 20,880
Total capital expenditures................. $ 73,044
EBITDA(2).................................. $ 94,268
</TABLE>
------------------------
(1) Diluted earnings (loss) from continuing operations per share was the same as
basic earnings (loss) from continuing operations per share in all periods
except 1997. In 1997, diluted earnings per share was $.08.
(2) EBITDA represents earnings before income taxes, interest, depreciation and
depletion and translation of subordinated debt. EBITDA is included as
supplemental disclosure because it is commonly accepted as providing useful
information regarding a company's ability to incur and
18
<PAGE>
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 alernative 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.
19
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth, for the periods indicated, selected pro
forma combined per share amounts for Forest common shares after giving effect to
the merger accounted for under the pooling of interests method of accounting,
pro forma per share equivalent amounts for Forcenergy common stock and the
corresponding historical per share data for Forcenergy and Forest. The pro forma
combined per share data has been calculated based on the exchange ratio of 1.6
Forest common shares for each share of Forcenergy common stock and 68.6141
Forest common shares for each share of Forcenergy preferred stock with a stated
value of $1,000. Such comparative per share data has also been presented
assuming the proposed 1-for-2 reverse stock split is approved. The information
presented is based upon the historical consolidated financial statements and the
related notes of Forest and Forcenergy incorporated in this document by
reference and the condensed pro forma combined financial statements giving
effect to the merger included elsewhere in this document. You should not rely on
the pro forma per share data as being indicative of the results of operations or
the financial condition that would have been reported by the combined company
had the merger been in effect during these periods or that may be reported in
the future. For a more complete discussion, please refer to the condensed pro
forma combined financial statements and notes thereto beginning on page 99.
Forcenergy's plan of reorganization was approved by the bankruptcy court on
January 19, 2000, and became effective on February 15, 2000. In connection with
Forcenergy's emergence from bankruptcy, Forcenergy adopted fresh start reporting
and its assets and liabilities were adjusted to their estimated fair values
effective December 31, 1999. Under the pooling of interests method of
accounting, the results of operations of Forcenergy prior to the reorganization
and fresh start reporting are not included in the financial statements of the
combined company. Accordingly, the pro forma combined earnings per share data
for the years ended December 31, 1999, 1998 and 1997 reflects only the
historical results of operations of Forest.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------------
MARCH 31, 2000 1999 1998 1997
------------------ -------- -------- --------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED:
Earnings (loss) from continuing operations per
share............................................ $ .23 .41 (4.83) .09
Book value per share............................... $ 6.31 6.06
FORCENERGY PER SHARE EQUIVALENT:
Earnings (loss) from continuing operations per
share............................................ $ .30 .50 (7.91) (3.64)
Book value per share............................... $ 6.59 6.25
FORCENERGY HISTORICAL:
Earnings (loss) from continuing operations per
share............................................ $ .52 .80 (12.65) (5.83)
Book value per share............................... $11.29 10.00
FOREST HISTORICAL:
Earnings (loss) from continuing operations per
share............................................ $ .18 .41 (4.83) .09
Book value per share............................... $ 6.10 5.93
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AS ADJUSTED FOR REVERSE STOCK SPLIT(1)
------------------------------------------------------------
YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------------------
MARCH 31, 2000 1999 1998 1997
------------------ -------- -------- --------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED:
Earnings (loss) from continuing operations per
share........................................ $ .47 .82 (9.67) .17
Book value per share........................... $12.61 12.13
FORCENERGY PER SHARE EQUIVALENT:
Earnings (loss) from continuing operations per
share........................................ $ .60 1.00 (15.82) (7.28)
Book value per share........................... $13.17 12.50
FORCENERGY HISTORICAL:
Earnings (loss) from continuing operations per
share........................................ $ .52 .80 (12.65) 5.83
Book value per share........................... $11.29 10.00
FOREST HISTORICAL:
Earnings (loss) from continuing operations per
share........................................ $ .37 .82 (9.67) .17
Book value per share........................... $12.21 11.86
</TABLE>
------------------------
(1) The "as adjusted for reverse stock split" columns reflect the pro forma per
share data adjusted for a proposed 1-for-2 reverse stock split.
21
<PAGE>
PRO FORMA AND AS IF COMBINED PRODUCTION DATA
The following table sets forth selected pro forma production volumes,
weighted average sales prices and production expenses for Forest and Forcenergy,
and for Forest on a combined basis for the three months ended March 31, 2000
after giving effect to the merger under the pooling of interests method of
accounting. The table also reflects production volumes, weighted average sales
prices and production expenses for Forest and the predecessor to Forcenergy on
an "as if" combined basis for the years ended December 31, 1999, 1998 and 1997,
periods prior to Forcenergy's reorganization and fresh start reporting.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------ ------------------------------
2000 1999 1998 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
FOREST
Production:
Natural gas (MMCF)................................. 13,896 61,702 62,310 49,035
Liquids (MBBLS).................................... 1,026 4,397 4,269 3,207
Average sales price:
Natural gas (per MCF).............................. $ 2.53 2.16 1.95 2.06
Liquids (per BBL).................................. $18.86 13.16 11.51 16.92
Total production:
Production volumes (MMCFE)......................... 20,052 88,084 87,924 68,277
Average sales price (per MCFE)..................... $ 2.72 2.16 1.94 2.27
Operating expense (per MCFE)....................... 0.48 0.53 0.48 0.53
------ ------- ------- -------
Netback (per MCFE)................................. $ 2.24 1.63 1.46 1.74
FORCENERGY
Production:
Natural gas (MMCF)................................. 12,861 61,048 76,799 57,737
Liquids (MBBLS).................................... 1,950 7,877 8,513 8,210
Average sales price:
Natural gas (per MCF).............................. $ 2.69 2.27 2.16 2.41
Liquids (per BBL).................................. $21.65 15.48 12.54 17.34
Total production:
Production volumes (MMCFE)......................... 24,561 108,310 127,877 106,997
Average sales price (per MCFE)..................... $ 3.13 2.46 2.14 2.66
Operating expense (per MCFE)....................... 0.89 0.84 0.81 0.77
------ ------- ------- -------
Netback (per MCFE)................................. $ 2.24 1.62 1.33 1.89
PRO FORMA AND AS IF COMBINED
Production:
Natural gas (MMCF)................................. 26,757 122,750 139,109 106,772
Liquids (MBBLS).................................... 2,976 12,274 12,782 11,417
Average sales price:
Natural gas (per MCF).............................. $ 2.61 2.21 2.07 2.25
Liquids (per BBL).................................. $20.69 14.65 12.20 17.22
Total production:
Production volumes (MMCFE)......................... 44,613 196,394 215,801 175,274
Average sales price (per MCFE)..................... $ 2.95 2.33 2.06 2.51
Operating expense (per MCFE)....................... 0.71 0.70 0.67 0.67
------ ------- ------- -------
Netback (per MCFE)................................. $ 2.24 1.63 1.39 1.84
</TABLE>
22
<PAGE>
PRO FORMA OIL AND GAS RESERVES
The following table sets forth summary information with respect to estimates
of proved oil and gas reserves and the discounted future net cash flows for
these reserves as of December 31, 1999 for Forest and Forcenergy and for Forest
on a pro forma combined basis. For additional information relating to reserves,
see "Risk Factors--Lower oil and gas prices may cause us to record ceiling
limitation writedowns" and "--Estimates of oil and gas reserves are uncertain
and inherently imprecise" in this document. See also Note 14 to the consolidated
financial statements of Forest and Note 17 to the consolidated financial
statements of Forcenergy, both of which are incorporated by reference into this
document.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
FOREST FORCENERGY FOREST
-------- ---------- ---------
<S> <C> <C> <C>
Proved Developed
Natural Gas (MMCF)........................................ 420,884 243,119 664,003
Liquids (MBBLS)(1)........................................ 26,811 41,650 68,461
-------- ------- ---------
Total Proved Developed (MMCFE)............................ 581,750 493,019 1,074,769
Proved Undeveloped
Natural Gas (MMCF)........................................ 104,123 57,497 161,620
Liquids (MBBLS)(1)........................................ 5,316 23,309 28,625
-------- ------- ---------
Total Proved Undeveloped (MMCFE).......................... 136,019 197,351 333,370
-------- ------- ---------
Total Proved Reserves (MMCFE)............................... 717,769 690,370 1,408,139
-------- ------- ---------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves (in thousands)
(after tax)............................................... $650,093 768,929 1,419,022
======== ======= =========
</TABLE>
------------------------
(1) Includes crude oil, condensate and natural gas liquids.
23
<PAGE>
RISK FACTORS
In considering whether to vote in favor of the merger transaction involving
our companies, you should consider all of the information we have included in
this document and its annexes and all of the information included in the
documents we have incorporated by reference. In addition, you should pay
particular attention to the following risks related to the merger and the
combined company.
THE MARKET VALUE OF FOREST COMMON SHARES THAT FORCENERGY STOCKHOLDERS RECEIVE IN
THE MERGER WILL VARY AS A RESULT OF THE FIXED EXCHANGE RATIO AND POSSIBLE STOCK
PRICE FLUCTUATION.
The exchange ratio is a fixed ratio that will not be adjusted as a result of
any increase or decrease in the price of either Forest common shares or shares
of Forcenergy common stock. The price of Forest common shares at the time the
merger is completed may be higher or lower than their price on the date of this
document or on the date of the special meetings of shareholders and
stockholders. Changes in the business, operations or prospects of Forest or
Forcenergy, market assessments of the benefits of the merger and of the
likelihood that the merger will be completed, regulatory considerations, oil and
gas prices, general market and economic conditions, or other factors may affect
the prices of Forest common shares or shares of Forcenergy common stock. Most of
these factors are beyond our control.
Because the merger will be completed only after the special meetings of our
shareholders and stockholders are held, there is no way to be sure that the
price of the Forest common shares now, or on the date of the special meetings,
will be indicative of its price at the time the merger is completed. We urge you
to obtain current market quotations for both Forest common shares and shares of
Forcenergy common stock.
THERE ARE UNCERTAINTIES IN INTEGRATING OUR BUSINESS OPERATIONS.
In deciding that the merger is in the best interests of our respective
stockholders, the Forest board of directors and the Forcenergy board of
directors considered the potential complementary effects of combining our
companies' assets, personnel and operational expertise. Integrating businesses,
however, involves a number of special risks, including the possibility that
management may be distracted from regular business concerns by the need to
integrate operations, unforeseen difficulties in integrating operations and
systems and problems concerning retaining and assimilating the employees of the
combined company, any of which could lead to potential adverse short-term or
long-term effects on operating results. As a result, we may not realize any of
the anticipated benefits of the merger, including the estimated cost savings of
$10 million per year.
SIGNIFICANT CHARGES AND EXPENSES WILL BE INCURRED AS A RESULT OF THE MERGER.
Forest and Forcenergy expect to incur approximately $30 million of costs
related to the merger. These expenses will include investment banking expenses,
legal and accounting fees, printing expenses, transition and integration costs
and other related charges. The companies may also incur additional unanticipated
expenses in connection with the merger. These expenses and charges are expected
to initially more than offset the estimated cost savings of $10 million per
year.
A SUBSTANTIAL OR EXTENDED DECLINE IN OIL OR GAS PRICES COULD HAVE A MATERIAL
ADVERSE EFFECT ON THE COMBINED COMPANY.
Prices for oil and natural gas in the markets in which the combined company
will operate fluctuate widely. Factors that can cause this fluctuation include:
- changes in the supply of and demand for oil and natural gas;
- market uncertainty;
24
<PAGE>
- weather conditions;
- governmental regulations;
- the price and availability of alternative fuels;
- political and economic conditions in other oil producing countries,
particularly those in the Middle East;
- the availability of transportation options for the movement of oil and
natural gas products;
- the price of competing supplies of oil and gas; and
- overall economic conditions.
Natural gas prices will affect the combined company more than oil prices,
because most of our production and reserves will be natural gas. At
December 31, 1999, on a pro forma basis, 59% of our estimated proved reserves
consisted of natural gas on an MCFE basis and, during the first quarter of 2000,
approximately 60% of our total production consisted of natural gas on a pro
forma basis.
Our 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 as well as impact our ability to
borrow money or raise additional capital.
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 completely
eliminate or substantially reduce price risk or minimize the effect of any
decline in oil or natural gas prices. Any substantial or extended decline in the
prices of or demand for oil or natural gas could have a material adverse effect
on our financial condition and results of operations. Energy swap arrangements
may limit the risk of declines in prices, but any such arrangements would also
reduce revenue attributable to price increases.
ESTIMATES OF OIL AND GAS RESERVES ARE UNCERTAIN AND INHERENTLY IMPRECISE.
Estimates of proved oil and gas reserves and estimated future net revenues
from such reserves are based upon various assumptions, including assumptions
required by the Securities and Exchange Commission 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. Our properties may also be
susceptible to hydrocarbon drainage from production by operators on adjacent
properties. Any significant variance could materially affect the estimated
quantities and present value of reserves. 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. Actual production, revenue, taxes, development expenditures
and operating expenses with respect to our reserves will likely vary from the
estimates used. Such variances may be material.
As of December 31, 1999, approximately 24% of the combined company's pro
forma estimated proved reserves were undeveloped. Undeveloped reserves, by their
nature, are less certain to be recovered. Recovery of undeveloped reserves
requires significant capital expenditures and successful drilling operations.
The estimates of our future reserves include the assumption 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
25
<PAGE>
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 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. Any changes in
consumption by oil and natural 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 estimated
proved reserves and their 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 the combined company or the oil and gas industry in general will affect the
accuracy of the 10% discount factor.
LEVERAGE WILL MATERIALLY AFFECT OUR OPERATIONS.
Immediately prior to the consummation of the merger, Forest will enter into
a new global bank credit facility with a syndicate of banks led by The Chase
Manhattan Bank. This new credit facility will replace the credit facilities of
both Forest and Forcenergy that are currently in place. As of March 31, 2000,
the pro forma long-term debt of the combined company was approximately
$630 million. This amount includes $331 million which would be outstanding under
the new global bank credit facility. Our pro forma long-term debt represented
51% of our total pro forma capitalization as of March 31, 2000.
Our level of debt affects our operations in several important ways,
including the following:
- a significant 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, or to pay
dividends;
- 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 could 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 of default or a change of control that
may occur in the future.
In addition, we may alter our capitalization significantly in order to make
future acquisitions or develop our properties. These changes in capitalization
may increase our level of debt significantly. A high level of debt increases the
risk that we may default on our 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, future performance and ability to raise additional capital. Many of
these factors are beyond our control.
If we are unable to repay our debt at maturity out of cash on hand, we could
attempt to refinance such debt, or repay such debt with the proceeds of any
equity offering. We cannot assure you that we will be able to generate
sufficient cash flow to pay the interest on our debt or that future debt or
equity financing will be available to pay or refinance such debt. In addition,
our bank borrowing base is currently subject to semi-annual redeterminations. We
could be forced to repay a portion of our facility due to redeterminations of
the borrowing base, and we cannot assure you that we will have sufficient funds
to make such repayments. If we are not able to negotiate renewals of our
borrowings or to
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<PAGE>
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 our
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.
LOWER OIL AND GAS PRICES MAY CAUSE US TO RECORD CEILING LIMITATION WRITEDOWNS.
We use the full cost method of accounting to report our oil and gas
operations. Accordingly, we capitalize 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 reduce our shareholders' equity.
The risk that we will be required to write down the carrying value of our oil
and gas properties increases when oil and gas prices are low or volatile. In
addition, writedowns may occur if we experience substantial downward adjustments
to our estimated proved reserves. In 1998, Forest and Forcenergy recorded
after-tax writedowns of $175 million ($199.5 million pre-tax) and $275 million
($275 million pre-tax), respectively. In 1997, Forcenergy recorded an after-tax
writedown of $162.8 million ($200 million pre-tax). We cannot assure you that we
will not experience ceiling limitation writedowns in the future.
WE MAY NOT BE ABLE TO REPLACE PRODUCTION WITH NEW 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
the production of the combined company on a pro forma basis is from Gulf of
Mexico reservoirs. Our reserves will decline as they are produced unless we
conduct successful exploration and development activities or acquire properties
with proved reserves. Our future natural gas and oil production is highly
dependent upon our 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. In addition, competition for producing oil and gas properties is
intense and many of our competitors have financial and other resources that are
substantially greater than those available to us. We cannot assure you that our
future exploration, development and acquisition activities will result in
additional proved reserves or that we will be able to drill productive wells at
acceptable costs.
OUR OPERATIONS ARE SUBJECT TO NUMEROUS RISKS OF OIL AND GAS DRILLING AND
PRODUCTION ACTIVITIES.
Oil and gas drilling and production activities are subject to numerous
risks, including the risk that no commercially productive oil or natural gas
reservoirs will be found. The cost of drilling and completing wells is often
uncertain. Oil and gas drilling and production activities may be shortened,
delayed or canceled as a result of a variety of factors, many of which are
beyond our control. These factors include:
- unexpected drilling conditions;
- pressure or irregularities in formations;
- equipment failures or accidents;
- weather conditions; and
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<PAGE>
- shortages in experienced labor or shortages or delays in the delivery of
equipment.
The prevailing prices of oil and natural gas also affect the cost of and the
demand for drilling rigs, production equipment and related services.
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. Drilling activities can result in dry holes or
in wells that are productive but do not produce sufficient net revenues after
operating and other costs to produce an acceptable return on investment.
OUR INDUSTRY EXPERIENCES NUMEROUS OPERATING RISKS.
The oil and gas industry 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, pipeline 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 offshore 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 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.
CURRENCY FLUCTUATIONS AND ECONOMIC AND POLITICAL DEVELOPMENTS MAY ADVERSELY
AFFECT OUR INTERNATIONAL OPERATIONS.
Forest has 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. dollars. 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 have also acquired additional oil and gas assets in other countries. Our
foreign operations, particularly those outside of North America, are subject to
political and economic risks, including:
- cancellation or renegotiation of contracts;
- disadvantages of competing against companies from countries that are not
subject to U.S. laws and regulations, including the Foreign Corrupt
Practices Act;
- changes in foreign laws or regulations;
- changes in tax laws;
- royalty and tax increases or claims;
- retroactive tax or royalty claims;
- expropriation or nationalization of property;
- currency fluctuations;
- foreign exchange controls;
- import and export regulations;
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<PAGE>
- environmental controls;
- risks of loss due to civil strife, acts of war, guerrilla activities and
insurrection; and
- other risks arising out of foreign sovereignty over the areas in which our
operations are conducted.
Consequently, our non-U.S. exploration, exploitation, development and
production activities may be substantially affected by factors beyond our
control, any of which could materially adversely affect our financial position
or results of operations. Furthermore, in the event of a dispute arising from
non-U.S. operations, we may be subject to the exclusive jurisdiction of courts
outside the U.S. or may not be successful in subjecting non-U.S. persons to the
jurisdiction of the courts in the U.S., which could adversely affect the outcome
of a dispute.
OUR FUTURE ACQUISITIONS MAY NOT CONTAIN ECONOMICALLY RECOVERABLE RESERVES.
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 and potential environmental
and other liabilities. In connection with such assessments, we perform a review
of the subject properties that we believe is generally consistent with industry
practices. Such a review may not reveal all existing or potential problems. In
addition, the review may 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.
THE MARKETABILITY OF OUR PRODUCTION DEPENDS IN MOST PART UPON THE AVAILABILITY,
PROXIMITY AND CAPACITY OF GAS GATHERING SYSTEMS, PIPELINES AND PROCESSING
FACILITIES.
The marketability of our production depends in part upon the availability,
proximity and capacity of oil and natural gas gathering systems, pipelines and
processing facilities. U.S. federal and state and non-U.S. 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 change dramatically, the financial impact
on the combined company could be substantial. The availability of markets is
beyond our control.
OUR OIL AND GAS OPERATIONS ARE SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS THAT
MATERIALLY AFFECT OUR OPERATIONS.
Our oil and gas operations are subject to various U.S. federal, state and
local, Canadian federal and provincial and other foreign governmental
regulations. These regulations may be changed in response to economic or
political conditions. Matters regulated include permits for discharges of
wastewaters and other substances generated in connection with drilling
operations, bonds or other financial responsibility requirements to cover
drilling contingencies and well plugging and abandonment costs, 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 oil and gas 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 capability to respond to costs that may be incurred in connection
with 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 of oil and other regulated substances, subject
to certain limitations. A substantial spill from
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<PAGE>
one of our facilities could have a material adverse effect on our results of
operations, competitive position or financial condition. U.S. and non-U.S. 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. While we carry insurance to
mitigate the cost of environmental cleanup and third-party liability, we cannot
predict the ultimate cost of compliance with these requirements or their effect
on our operations.
THE SIGNIFICANT OWNERSHIP POSITION OF THE ANSCHUTZ CORPORATION COULD LIMIT
FOREST'S ABILITY TO ENTER INTO CERTAIN TRANSACTIONS.
After the merger, The Anschutz Corporation will own approximately 32% of the
outstanding shares of our common stock based on its ownership of Forest common
shares and Forcenergy common and preferred stock as of June 30, 2000. Pursuant
to a shareholder agreement between The Anschutz Corporation and Forest, The
Anschutz Corporation has designated three of Forest's directors. Therefore, The
Anschutz Corporation can substantially influence matters considered by Forest's
board of directors. The shareholder agreement, which also prohibited The
Anschutz Corporation from acquiring in excess of 49.9% of the outstanding Forest
common shares, expired on July 27, 2000. Therefore, The Anschutz Corporation is
permitted to acquire more shares without restriction.
Applicable law requires that the holders of two-thirds of the outstanding
Forest common shares approve a future merger involving the combined company.
Control of Forest most likely could not be transferred to a third party without
The Anschutz Corporation's consent and agreement. A third party probably would
not offer to pay a premium to acquire Forest without the prior agreement of The
Anschutz Corporation, even if the board of directors should choose to attempt to
sell Forest in the future. In addition, shareholder approval would be required
by NYSE rules for the issuance of common stock to a third party in an amount in
excess of 20% of the outstanding common stock. The Anschutz Corporation's
opposition to such a transaction could significantly reduce the likelihood of
its approval.
WE DO NOT PAY DIVIDENDS.
Forest and Forcenergy have not declared any cash dividends on their
respective common stock in a number of years and have no intention to do so in
the near future. In addition, we will be restricted from doing so by our new
global credit agreement and the indentures pursuant to which Forest's
subordinated notes were issued.
OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS HAVE PROVISIONS THAT
DISCOURAGE CORPORATE TAKEOVERS AND COULD PREVENT SHAREHOLDERS FROM REALIZING A
PREMIUM ON THEIR INVESTMENT.
Certain provisions of Forest's restated certificate of incorporation and
by-laws and provisions of the New York Business Corporation Law may have the
effect of delaying or preventing a change in control. Forest's directors are
elected to staggered terms. Also, Forest's restated certificate of incorporation
authorizes Forest's board of directors to issue preferred stock without
shareholder approval and to set the rights, preferences and other designations,
including voting rights of those shares as the board may determine. Additional
provisions include restrictions on business combinations and the availability of
authorized but unissued common stock. These provisions, alone or in combination
with each other and with the rights plan described below, may discourage
transactions involving actual or potential changes of control, including
transactions that otherwise could involve payment of a premium over prevailing
market prices to shareholders for their common stock.
Forest's board of directors has adopted a shareholder rights plan. The
existence of the rights plan may impede a takeover of Forest not supported by
Forest's board of directors, including a proposed takeover that may be desired
by a majority of our shareholders or involving a premium over the prevailing
market price of Forest's common shares.
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This document and the documents incorporated by reference contain
forward-looking statements with respect to the merger and the financial
condition, results of operations, plans, objectives, future performance and
business of Forest and Forcenergy. These statements appear in a number of places
and include statements regarding our plans, beliefs or current expectations
including those plans, beliefs and expectations of our officers and directors
with respect to, among other things, future operating results or the ability to
generate income or cash flows.
These forward-looking statements involve certain risks and uncertainties.
When considering such forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this document and the documents
incorporated by reference. You should understand that various factors, in
addition to those discussed elsewhere in this document and in the documents
referred to or incorporated by reference in this document, could affect the
future results of the combined company following the merger and could cause
results to differ materially from those expressed in these forward-looking
statements, including:
- changes in general economic conditions or in political or competitive
forces;
- changes in the securities or currency-exchange markets;
- dependence on key personnel to manage the integration of the two
companies;
- risk that our analyses of these risks and forces could be incorrect or
that the strategies developed to address them could be unsuccessful; and
- risks described above under "Risk Factors."
Forest shareholders and Forcenergy stockholders are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this document or, in the case of documents incorporated by reference,
the dates of those documents.
All subsequent written and oral forward-looking statements attributable to
Forest or Forcenergy or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither Forest nor Forcenergy undertakes any obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events.
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THE SPECIAL MEETINGS
INFORMATION ABOUT THE SPECIAL MEETINGS AND VOTING
The Forest board of directors is using this document to solicit proxies from
Forest shareholders for use at the Forest special meeting of shareholders. The
Forcenergy board of directors is using this document to solicit proxies from
Forcenergy stockholders for use at the Forcenergy special meeting of
stockholders.
TIME AND PLACE OF THE SPECIAL MEETINGS
<TABLE>
<CAPTION>
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
<S> <C>
, 2000 , 2000
10:00 a.m., M.D.T. p.m., C.D.T.
1600 Broadway, Suite 590 Doubletree Hotel Lakeside
Denver, Colorado 80202 Lakeshore Room
3838 North Causeway Blvd.
Metairie, Louisiana 70002
</TABLE>
PURPOSE OF THE MEETINGS IS TO VOTE ON THE FOLLOWING ITEMS
<TABLE>
<CAPTION>
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
<S> <C>
A proposal to approve the issuance of Forest A proposal to approve the merger agreement
common shares in the merger, pursuant to the and the transactions contemplated by the
merger agreement and plan of merger dated merger agreement, including the merger.
July 10, 2000.
A proposal to effect a 1-for-2 reverse stock Such other matters as may properly come
split of the Forest common shares. before the Forcenergy special meeting,
including the approval of any adjournment or
postponement of the Forcenergy special
meeting.
Such other matters as may properly come
before the Forest special meeting, including
the approval of any adjournment or
postponement of the Forest special meeting.
RECORD DATE FOR THE SPECIAL MEETINGS
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
Holders of record of Forest common shares at Holders of record of shares of Forcenergy
the close of business on , 2000 common stock at the close of business on
will be entitled to vote. , 2000 will be entitled to vote.
OUTSTANDING SHARES HELD ON RECORD DATE
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
As of the record date, there were out- As of the record date, there were out-
standing Forest common shares that are standing shares of Forcenergy common stock
entitled to notice of, and to vote at the that are entitled to notice of, and to vote
special meeting. at the special meeting.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SHARES ENTITLED TO VOTE AT THE SPECIAL
MEETINGS
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
Each Forest common share that you own as of Each share of Forcenergy common stock that
the record date entitles you to one vote. you own as of the record date entitles you
to one vote.
Forest common shares deemed beneficially Shares of Forcenergy common stock deemed
held by Forest or its subsidiaries will not beneficially held by Forcenergy or its
be voted. subsidiaries will not be voted.
Holders of Forcenergy preferred stock are
not entitled to vote.
QUORUM REQUIREMENT FOR THE SPECIAL MEETINGS
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
The presence at the Forest special meeting, The presence at the Forcenergy special
in person or by proxy, of the holders of a meeting, in person or by proxy, of the
majority of the outstanding Forest common holders of a majority of the outstanding
shares is necessary to constitute a quorum. shares of Forcenergy common stock is
If a quorum is not represented at the necessary to constitute a quorum. If a
meeting, a vote for adjournment will be quorum is not represented at the meeting, a
taken among the present shareholders or vote for adjournment will be taken among the
represented by proxy vote for adjournment. present stockholders or represented by proxy
vote for adjournment.
Abstentions and broker non-votes count as Abstentions and broker non-votes count as
present for establishing a quorum. Forest present for establishing a quorum. Shares of
common shares held by Forest or its Forcenergy common stock held by Forcenergy
subsidiaries do not count toward a quorum. A or its subsidiaries do not count toward a
"broker non-vote" occurs with respect to a quorum. A "broker non-vote" occurs with
proposal when a broker is not permitted to respect to a proposal when a broker is not
vote on that proposal without instruction permitted to vote on that proposal without
from the beneficial owner of the Forest instruction from the beneficial owner of the
common shares and no instruction is given. shares of Forcenergy common stock and no
instruction is given.
</TABLE>
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<PAGE>
SHARES BENEFICIALLY OWNED BY FOREST AND FORCENERGY DIRECTORS AND EXECUTIVE
OFFICERS AS OF THE
RECORD DATE
<TABLE>
<CAPTION>
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
<S> <C>
Forest directors and executive officers, Forcenergy directors and executive officers
including Philip Anschutz, beneficially own beneficially own shares of Forcenergy
common shares, including outstanding common stock, including outstanding options.
options. These shares represent These shares represent approximately % of
approximately % of the Forest common the shares of Forcenergy common stock
shares outstanding as of the record date. outstanding as of the record date.
These individuals have indicated that they These individuals have indicated that they
intend to vote their Forest common shares in intend to vote their shares of Forcenergy
favor of the Forest proposals. common stock in favor of the merger
proposal.
The Anschutz Corporation, of which Philip Funds managed by Oaktree Capital Management,
Anschutz, Cannon Harvey and Craig Slater, LLC, of which B. James Ford, a Forcenergy
Forest's directors, are officers, is a party director, is a Vice President and Stephen A.
to a voting agreement with Forcenergy under Kaplan, a Forcenergy director, is a
which it has agreed to vote its Forest Principal, are parties to a voting agreement
common shares in favor of the share with Forest under which they have agreed to
issuance. As of the record date, The vote their shares of Forcenergy stock in
Anschutz Corporation beneficially owned favor of the merger proposal. As of the
Forest common shares, representing record date, the Oaktree funds beneficially
approximately % of the Forest common owned, collectively, shares of common
shares outstanding on that date. stock, representing approximately % of
the shares of Forcenergy common stock
outstanding on that date.
Lehman Brothers Inc., of which Gregory P.
Pipkin, a Forcenergy director, is a Managing
Director, is a party to a voting agreement
with Forest under which it has agreed to
vote its shares of Forcenergy stock in favor
of the merger proposal. As of the record
date, Lehman Brothers beneficially owned
shares of common stock, representing
approximately of the shares of
Forcenergy common stock outstanding on that
date.
The Anschutz Corporation, of which Michael
F. Bennet and Clifford P. Hickey, Forcenergy
directors, are officers, is a party to a
voting agreement with Forest under which it
has agreed to vote its shares of Forcenergy
stock in favor of the merger proposal. As of
the record date, The Anschutz Corporation
beneficially owned shares of common
stock, representing approximately % of
the shares of Forcenergy common stock
outstanding on that date.
</TABLE>
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VOTE NECESSARY AT THE SPECIAL MEETINGS TO APPROVE FOREST AND FORCENERGY
PROPOSALS
<TABLE>
<CAPTION>
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
<S> <C>
Approval of the share issuance requires the Approval of the merger agreement and the
approval of the holders of a majority of the transactions contemplated by the merger
votes cast on the share issuance, provided agreement, including the merger, requires
that the total votes cast on the proposal the approval of the holders of a majority of
represent over 50% in interest of all the outstanding shares of Forcenergy common
securities entitled to vote thereon at the stock. The holders of the Forcenergy
Forest special meeting. preferred stock are not entitled to vote on
the merger proposal.
Approval of the reverse stock split requires Abstentions and broker non-votes will have
the approval of the holders of a majority of the same effect as votes against the merger
the outstanding Forest common shares proposal.
entitled to vote thereon. APPROVAL OF THE
REVERSE STOCK SPLIT IS NOT A CONDITION TO
THE CONSUMMATION OF THE MERGER.
Abstentions will be treated as votes cast Because the Oaktree funds, Lehman and The
and will have the same effect as votes Anschutz Corporation, which together own
against each of the proposals. Broker more than a majority of the outstanding
non-votes will not be treated as votes cast shares of Forcenergy common stock, have
and will have no effect on the outcome of agreed to vote their shares of Forcenergy
the votes on the issuance of Forest common common stock in favor of the merger, the
shares, but will have the same effect as merger will be approved unless the merger
votes against the proposal to amend Forest's agreement is terminated.
restated certificate of incorporation to
effect a reverse stock split.
</TABLE>
VOTING BY PROXY
You may vote in person at your special meeting or by proxy. We recommend you
vote by proxy even if you plan to attend your special meeting. You can always
change your vote at your special meeting.
If you are a Forest shareholder, you may vote by proxy card by completing
and mailing the enclosed proxy card or by Internet or telephone by following the
Internet or telephone voting instructions on the proxy card. If you are a
Forcenergy stockholder, you may vote by completing and mailing the enclosed
proxy card. If you properly submit your proxy to us in time to vote, one of the
individuals named as your proxy will vote your common shares as you have
directed. You may vote for or against the proposal or proposals submitted at
your special meeting or abstain from voting.
HOW TO VOTE BY PROXY
<TABLE>
<CAPTION>
FOREST SPECIAL MEETING FORCENERGY SPECIAL MEETING
<S> <C>
IN WRITING
Complete, sign, date and return your proxy Complete, sign, date and return your proxy
card in the enclosed envelope. card in the enclosed envelope.
</TABLE>
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<TABLE>
<S> <C>
BY INTERNET OR TELEPHONE
Go to http://www.eproxy.com and follow the Voting by Internet or telephone is not
instructions. You will need to give the available to Forcenergy stockholders.
personal identification number contained on
your proxy card.
Or, call toll-free 1-800-840-1208 on a
touch-tone telephone 24 HOURS A DAY--7 DAYS
A WEEK. HAVE YOUR PROXY CARD IN HAND. You
will be asked to enter a Control Number or
the personal identification number contained
on your proxy card.
Option 1: to vote as the Board of Directors
recommends on ALL proposals,
press 1.
Option 2: if you choose to vote on each
proposal separately, press 0.
Follow the instructions.
</TABLE>
THE MEMBERS OF THE FOREST BOARD OF DIRECTORS PARTICIPATING IN THE BOARD
DECISION ON THE TRANSACTION UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR THE ISSUANCE
OF FOREST COMMON SHARES IN THE MERGER, AND FOR THE AMENDMENT TO FOREST'S
RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A 1-FOR-2 REVERSE STOCK SPLIT OF
FOREST'S COMMON SHARES. THE DIRECTORS DESIGNATED BY THE ANSCHUTZ CORPORATION DID
NOT PARTICIPATE IN THE BOARD DECISION ON THIS TRANSACTION.
THE MEMBERS OF THE FORCENERGY BOARD OF DIRECTORS PARTICIPATING IN THE BOARD
DECISION ON THE TRANSACTION UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR APPROVAL OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT,
INCLUDING THE MERGER. THE DIRECTORS DESIGNATED BY THE ANSCHUTZ CORPORATION DID
NOT PARTICIPATE IN THE BOARD DECISION ON THIS TRANSACTION.
APPROVAL OF THE ISSUANCE OF FOREST COMMON SHARES BY FOREST SHAREHOLDERS AND
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT, INCLUDING THE MERGER, BY FORCENERGY STOCKHOLDERS ARE CONDITIONS TO
CONSUMMATION OF THE MERGER. APPROVAL OF THE REVERSE STOCK SPLIT IS NOT A
CONDITION TO THE CONSUMMATION OF THE MERGER.
REVOKING YOUR PROXY
You may revoke your proxy before it is voted by:
- submitting a new proxy with a later date, including if you are a Forest
shareholder a proxy given by the Internet or by telephone;
- notifying your company's Secretary in writing before your special meeting
that you have revoked your proxy, or
- voting in person, or notifying the Secretary orally of your wish to
revoke, at your special meeting.
OTHER VOTING MATTERS
VOTING IN PERSON. If you plan to attend your special meeting and wish to
vote in person, we will give you a ballot at your special meeting. However, if
your common shares are held in the name of a brokerage firm or trustee, you must
obtain from the firm or trustee an account statement, letter or other evidence
of your beneficial ownership of the common shares.
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PEOPLE WITH DISABILITIES. We can provide reasonable assistance to help you
participate in your special meeting if you tell us about your disability and
your plan to attend. Please call or write the Secretary of your company at least
two weeks before your special meeting at the number or address provided on
page 4.
PROXY SOLICITATION. We will each pay our own costs of soliciting proxies.
You should submit your proxy without delay by mail or, if you are a Forest
shareholder, by Internet or telephone. We also will reimburse brokers and other
nominees for their expenses in sending these materials to you and getting your
voting instructions.
DO NOT SEND IN ANY FORCENERGY STOCK CERTIFICATES WITH YOUR PROXY CARDS. THE
EXCHANGE AGENT WILL MAIL TRANSMITTAL FORMS WITH INSTRUCTIONS FOR THE SURRENDER
OF STOCK CERTIFICATES FOR SHARES OF FORCENERGY COMMON STOCK AS SOON AS
PRACTICABLE AFTER THE COMPLETION OF THE MERGER.
OTHER BUSINESS; ADJOURNMENTS AND POSTPONEMENTS
We currently are not aware of any other business to be acted upon at either
special meeting. If, however, other matters are properly brought before either
special meeting, or any adjourned or postponed special meeting, your proxies
will have discretion to vote or act on those matters according to their best
judgment, including to adjourn the special meeting.
Adjournments or postponements of the special meetings may be made for the
purpose of, among other things, soliciting additional proxies. Any adjournment
may be made from time to time by approval of the holders of common shares
representing a majority of the votes present in person or by proxy at the
special meeting, whether or not a quorum exists, without further notice other
than by an announcement made at the special meeting.
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THE MERGER
BACKGROUND OF THE MERGER
In the ordinary course of business development activities, Forest routinely
examines various acquisition and combination opportunities. In late 1998 and
early 1999, representatives of both Forest and The Anschutz Corporation, a
significant shareholder of Forest, had informal contacts from time to time with
the management of Forcenergy. In the course of these contacts, Forest and The
Anschutz Corporation received and discussed only publicly available information
about Forcenergy. During this period, Forest decided to neither propose nor
pursue a transaction with Forcenergy because it was concerned about Forcenergy's
financial condition.
In March 1999, Forcenergy filed a voluntary petition under Chapter 11 of the
U.S. Bankruptcy Code. The Anschutz Corporation, Lehman Brothers Inc. and certain
funds managed by Oaktree Capital Management, LLC had each acquired a substantial
position in Forcenergy's senior subordinated notes prior to the bankruptcy
filing. On February 15, 2000, Forcenergy's plan of reorganization became
effective. As part of the plan, The Anschutz Corporation received 25%, Lehman
received 20% and the Oaktree funds, collectively, received 20% of the
reorganized Forcenergy common stock in exchange for their respective positions
as unsecured creditors. The Anschutz Corporation, Lehman and the Oaktree funds
also acquired a total of approximately 96% of the $40 million of Forcenergy
preferred stock and warrants issued on March 20, 2000 in a rights offering to
all unsecured creditors that was contemplated by Forcenergy's plan of
reorganization. The plan entitled The Anschutz Corporation, Lehman and the
Oaktree funds to name a total of five directors to the reorganized Forcenergy
board of directors. The Anschutz Corporation designated Michael Bennet and
Clifford Hickey as directors. Oaktree designated Stephen Kaplan and James Ford
as directors and Lehman designated Gregory Pipkin as a director.
As part of its ordinary course of business development activities, Forest
monitored developments regarding Forcenergy during the pendency of the
bankruptcy case. In late 1999 Forest's management decided to study a possible
combination transaction and engaged Salomon Smith Barney Inc. as its financial
advisor. After reviewing the situation, Forest's management concluded that it
would not consider any transaction with Forcenergy until after the plan of
reorganization became effective.
Forest's management decided in early May 2000 to approach the principal
stockholders of Forcenergy to discuss a possible merger. On May 4, 2000, Robert
Boswell, Forest's Chairman and Chief Executive Officer, and David Keyte,
Forest's Executive Vice President and Chief Financial Officer, met with Kaplan
and Ford of Oaktree in Los Angeles. At this meeting, Boswell and Keyte indicated
that Forest would be interested in pursuing, subject to due diligence, a
combination with Forcenergy structured as a stock-for-stock, tax-free merger
with a target price of $18 per Forcenergy share that would be accounted for as a
"pooling of interests." This equated to an exchange ratio of approximately 1.4
Forest shares for each Forcenergy share based on relative market prices. Kaplan
agreed to discuss the proposal with other Forcenergy directors.
On May 10, 2000, Forest's board of directors met at a regularly scheduled
meeting. At this meeting, management advised the board of its preliminary
interest in Forcenergy and its discussions with Oaktree. After the presentation,
the three Forest directors designated by The Anschutz Corporation (Philip
Anschutz, Craig Slater and Cannon Harvey) recused themselves due to the interest
of The Anschutz Corporation in Forcenergy and left the meeting. After their
departure the remaining board members discussed the merits and risks associated
with a possible transaction with Forcenergy.
On May 12, 2000, Kaplan telephoned Boswell to indicate that he and other
Forcenergy board members were willing to consider a transaction. They discussed
a tentative transaction process, including the necessity for a confidentiality
agreement and a schedule for mutual due diligence.
Also on May 12, 2000, Forcenergy engaged Lehman Brothers Inc. to act as
financial advisor in connection with the possible Forest merger. On May 15, 2000
Forcenergy also engaged
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Petrie Parkman & Co., Inc. to act as financial advisor in this regard. On
May 19, 2000, Forest and Forcenergy signed a confidentiality agreement and both
parties began due diligence. Forcenergy representatives made due diligence trips
to Forest's Denver headquarters and to its offices in Houston and Calgary,
Alberta. Forest representatives made similar trips to Forcenergy's Miami office
and its Metairie and Anchorage offices. On site due diligence reviews continued
by both Forest and Forcenergy at various times and locations until the end of
June 2000.
On June 2, 2000, Boswell met with Richard Zepernick to discuss the proposed
transaction and Zepernick's interest in joining the Forest management team after
a merger. Zepernick had been recently appointed President and Chief Executive
Officer of Forcenergy. Also on June 2, 2000, Forest engaged Chase Securities
Inc. as an additional financial adviser. On June 6, 2000, Boswell and Keyte met
in Denver with Kaplan, Ford, Pipkin and Zepernick. Boswell and Keyte stated that
Forest would be prepared to offer a 1.4 exchange ratio for the Forcenergy common
stock and a cash payment for the Forcenergy preferred stock in an amount equal
to 101% of its liquidation preference plus accrued and unpaid dividends. The
Forest representatives stated that any transaction would have to include, among
other things, an agreement by The Anschutz Corporation, Lehman and Oaktree to
vote their Forcenergy shares in favor of the merger.
On June 7, 2000, the Forcenergy board met in Metairie. After the Forcenergy
directors designated by The Anschutz Corporation (Michael Bennet and Clifford
Hickey) recused themselves, the remaining directors received a presentation from
management with regard to the Forest property base and prospects, with
particular attention to Forest's international assets, and management's reaction
to Forest's analysis of the Forcenergy property base and drilling inventory.
Petrie Parkman reviewed with the directors information regarding Forcenergy,
Forest and the proposed merger. The directors then authorized Zepernick to
counter the Forest merger proposal with a proposal that would provide for an
increased exchange ratio and a collar on the exchange ratio, a "fiduciary out"
termination provision, post-merger board representation, registration rights for
affiliates and other provisions as discussed among the directors present. The
Forcenergy board considered carefully other alternative courses of action,
including identifying and approaching other merger partners or marketing
Forcenergy or its assets in a controlled auction process; rejecting the Forest
proposal and moving forward with execution of Forcenergy's business plan; or
proceeding with execution of the business plan with a view toward revisiting
merger and other growth strategies at a later date, after Forcenergy had
reestablished its presence with the financial community. Following discussion as
to the relative risks and benefits of pursuing each of these alternatives, and
the directors present by consensus approved responding promptly to Forest with
the counteroffer. The directors present also instructed management to seek
confirmation through further due diligence of the parties' respective oil and
gas reserve positions. On June 9, 2000 a counterproposal was relayed to Boswell
by Zepernick of a 1.7 common stock exchange ratio with a collar for price
protection, that Forcenergy be allowed to have a 30-day period to seek other
offers, and a $15 million termination fee.
After consulting with financial and legal advisers and certain directors of
Forest, Boswell and Keyte responded to Zepernick on June 15, 2000. They
indicated that Forest would be prepared to agree to a 1.5 exchange ratio,
without a collar, but that they were unwilling to include a "fiduciary out"
termination provision. On June 21, 2000, drafts of a merger agreement,
shareholder agreements and a registration rights agreement were distributed by
Forest's counsel to Forcenergy and to its counsel and advisers. The draft merger
agreement did not provide for any "fiduciary out" or similar termination right,
and in a meeting in New York on June 22, 2000, counsel for Forest and counsel
for Forcenergy discussed the necessity, as a matter of law, of granting
Forcenergy's board the right to terminate the merger agreement to accept a
superior proposal. On June 26, 2000, Boswell indicated to Zepernick that a
special meeting of Forest's board had been scheduled for June 29 to
preliminarily consider the proposed transaction. Boswell and Zepernick discussed
a proposal for an exchange ratio of 1.6, without a collar, and the inclusion of
a mutual "fiduciary out" termination provision, subject to satisfactory
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<PAGE>
negotiation of a merger agreement and the resolution of the certain outstanding
issues, including board representation and registration rights for Forcenergy
affiliates. Forest proposed that a mutual termination fee be set at $25 million,
while the Forcenergy position was that the termination fee payable by Forcenergy
should be $15 million.
The Forest board met on June 29, 2000. The three Forest directors designated
by The Anschutz Corporation representatives recused themselves from
deliberations regarding the proposed merger. At the meeting, Forest's management
and representatives of Salomon Smith Barney and Chase Securities reviewed with
the Forest board certain information with respect to the proposed transaction.
Management reviewed the extent of the due diligence that had been performed and
the results. The board discussed the open issues with management and agreed to
reconvene at a later date after the open issues had been resolved.
After the June 29 Forest board meeting, Boswell met with Zepernick in Denver
to further discuss the proposed combination, the operational and financial goals
of the combined company, its organizational requirements and Zepernick's role in
the combined company. At a second meeting on June 30, 2000, Zepernick agreed to
the goals and tentative organizational structure discussed and to join the
senior management of the combined company as the new President and Chief
Operating Officer. On July 3, 4 and 5, 2000, counsel for both companies
continued negotiations on the open issues, including the details of the
"fiduciary out" termination provision and the size of a termination fee, and on
a new issue, whether the cash consideration that had been proposed to be paid
for the Forcenergy preferred stock could jeopardize the intended accounting and
tax treatment of the transaction. The independent accountants for Forcenergy and
Forest, PricewaterhouseCoopers and KPMG, respectively, recommended that the
preferred stock be exchanged at a fixed rate for Forest common shares.
On July 7, 2000, the Forest and Forcenergy boards met separately.
Representatives of Salomon Smith Barney and Chase Securities participated in the
Forest meeting. Management of Forest updated the directors as to the
developments since the last meeting, including the fact that the Forcenergy
preferred stock would have to be exchanged for Forest common shares. The three
Forest directors designated by The Anschutz Corporation again recused themselves
from the deliberations. Salomon Smith Barney rendered an oral opinion that the
merger consideration was fair to Forest from a financial point of view. The
board by a unanimous vote of those directors participating approved the
transaction subject to satisfactorily resolving the remaining open issues,
including the final exchange ratio for the preferred stock, and delegated
authority for final approval to the Forest executive committee (Boswell and
James Lee, with Slater recused).
The Forcenergy board, with the exception of The Anschutz Corporation
designees (Bennet and Hickey), met in Houston at the offices of Petrie Parkman.
There they received a presentation from Forcenergy management with regard to due
diligence matters. Petrie Parkman made a presentation on the proposed merger and
rendered its oral opinion (which was subsequently confirmed in writing) that, as
of that date and on the basis of and subject to the matters reviewed with the
Forcenergy board, the exchange ratio of 1.6 Forest common shares for each share
of Forcenergy common stock was fair from a financial point of view to the
holders of Forcenergy common stock. The directors present approved the
transaction subject to reaching agreement on the exchange ratio for the
preferred stock and agreement to a termination fee of $18 million, and obtaining
agreement from Forest that should the Forest board withdraw its recommendation
in favor of the merger, then Forcenergy could terminate the merger agreement at
its option and in such case Forest would be required to pay immediately to
Forcenergy the $18 million termination fee.
On July 7, 2000, after the board meetings Boswell and Keyte conducted
telephone negotiations with Kaplan and Pipkin and arrived at an exchange ratio
of 68.6141 Forest common shares for each $1,000 of stated value of Forcenergy
preferred stock and a mutual termination fee of $18 million,
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subject to approval by Forest's executive committee. The final terms were
approved by Forest's executive committee (Boswell and Lee, with Slater recused)
on July 9, 2000. Salomon Smith Barney and Chase Securities had orally confirmed
their fairness opinions in light of the final preferred stock consideration. The
parties executed the Merger Agreement, Shareholder Agreement, Stockholders
Agreement and Registration Rights Agreement on July 10, 2000 and announced the
transaction.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS
FOREST. In reaching its decision to approve the merger, the Forest board of
directors consulted with Forest's legal and financial advisors, as well as with
Forest's management. The Forest board of directors considered a number of
material factors:
- WELL-BALANCED DRILLING PORTFOLIO. The merger would give Forest a better
balanced drilling portfolio by combining the lower risk development and
exploitation projects in Forcenergy's portfolio with the potentially high
impact exploration projects in Forest's portfolio. Combining the two
companies would also result in a favorable blend of long-term and
shorter-term projects, thereby tending to smooth the anticipated growth
curve of Forest.
- ACCRETIVE TRANSACTION. Forest believes that the proposed merger would be
accretive to cash flow, production and reserves per share.
- STRONGER CREDIT. The merger would improve Forest's credit profile by
adding critical mass and providing further asset diversity. Forest
believes that its stronger credit profile will reduce its cost of
indebtedness.
- CASH AND FINANCIAL STRENGTH TO GROW. After the merger, Forest would have
the cash flow and financial strength to pursue aggressively a broader
portfolio of drilling and business development projects, to accelerate
activity in the most prospective areas and to accelerate growth.
- INCREASED ASSET BASE IN THE GULF OF MEXICO. The combined company will be
one of the largest operators on the continental shelf in the Gulf of
Mexico. Forest has historically achieved its highest rates of return in
this area and the board believes that the merger presents a favorable
opportunity to apply Forest's existing business model to the larger asset
base. The combined company will be able to choose the best prospects to
drill and should benefit from the cost savings that can be achieved by
efficiently operating the combined asset base. Due to the short reserve
life inherent in the properties on the continental shelf, their value is
more sensitive to the near-term price environment, which is presently very
attractive.
- ADDITIONAL ASSETS IN THE FAR NORTH. The addition of Forcenergy's Alaskan
assets adds to the exploration portfolio Forest has been building north of
the 60th parallel in North America. Forest believes the largest remaining
natural gas reserves in North America lie in this region. Forest believes
such reserves will increase in value disproportionately to reserves in the
lower 48 states as infrastructure is built to add natural gas supply to
North America from this region.
- SIGNIFICANT LEASE ACREAGE POSITIONS. The combined company would hold
significant lease acreage positions and have significant opportunities in
most of the high-potential basins of North America, including Alaska,
Western Canada and the Gulf of Mexico. The combined company would also
hold significant acreage positions in select international locations,
including Africa and Western Europe.
- PRESENTATION OF FINANCIAL ADVISORS. Salomon Smith Barney and Chase
Securities, Forest's financial advisors, each gave financial presentations
and delivered opinions to the effect that, as of the date of the opinions
and based on and subject to the matters described in its opinions, the
merger consideration was fair, from a financial point of view, to Forest,
as more fully described below under "--Opinion of Forest's Financial
Advisors."
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- TERMS AND CONDITIONS OF MERGER. The terms and conditions of the merger
agreement and the merger were viewed by the Forest board of directors and
management as fair to, and in the best interests of, Forest and Forest
shareholders.
All combinations, including the merger, also include certain risks and
disadvantages. The material potential risks and disadvantages to Forest
shareholders identified by the Forest board of directors and management in
considering the merger include the following:
- the time and resources required to complete the merger, with the
completion of the merger being subject to various conditions (see "The
Merger Agreement--Conditions");
- the difficulties inherent in combining and integrating the two companies
and the potential distraction to management caused by a transaction of
this magnitude;
- as a result of the merger, the benefits of Forest's long-term exploration
projects would be shared by stockholders of Forcenergy, rather than
enjoyed solely by Forest shareholders; and
- the risk that the benefits sought from the merger might not be fully
achieved.
The Forest board of directors believed and continues to believe that these
potential risks and disadvantages are greatly outweighed by the potential
benefits anticipated to result from the merger.
This discussion of the factors considered by the Forest board of directors
is not intended to be exhaustive. Because of the wide variety of factors
considered in connection with its evaluation of the merger, the Forest board of
directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative significance to the specific factors considered in
reaching its conclusions. In addition, individual directors may have given
different significance to different factors.
FOR THE REASONS DISCUSSED ABOVE, THE MEMBERS OF THE FOREST BOARD OF
DIRECTORS PARTICIPATING IN THE BOARD DECISION ON THE TRANSACTION HAVE DETERMINED
THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, FOREST
AND THE FOREST SHAREHOLDERS. ACCORDINGLY, THE MEMBERS OF THE FOREST BOARD OF
DIRECTORS PARTICIPATING IN THE BOARD DECISION ON THE TRANSACTION UNANIMOUSLY
RECOMMEND THAT FOREST SHAREHOLDERS VOTE FOR THE ISSUANCE OF FOREST COMMON SHARES
IN THE MERGER. THE MEMBERS OF THE FOREST BOARD OF DIRECTORS PARTICIPATING IN THE
BOARD DECISION ON TRANSACTION ALSO UNANIMOUSLY RECOMMEND THAT FOREST
SHAREHOLDERS VOTE FOR THE PROPOSAL TO EFFECT THE REVERSE STOCK SPLIT. THE
DIRECTORS DESIGNATED BY THE ANSCHUTZ CORPORATION DID NOT PARTICIPATE IN THE
BOARD DECISION ON THIS TRANSACTION.
FORCENERGY. The members of the Forcenergy board of directors participating
in the board decision on the transaction considered the following material
factors in unanimously approving the transaction:
- PREMIUM TO TRADING PRICE. The consideration offered under the transaction
represented approximately a 22% premium over the average closing price of
Forcenergy's common stock for the 20 trading days preceding the
announcement of the merger.
- INTEREST IN LARGER ENTITY WITH MORE DIVERSIFIED HOLDINGS. The larger
combined property base created by the transaction will expose Forcenergy
stockholders to Forest's portfolio of potentially attractive long-term
investment opportunities in Canada and elsewhere in the world and may
mitigate the impact of Forcenergy's exposure to the financial and
operational risks associated with Forcenergy's Alaskan activities.
- COMPLEMENTARY ASSETS. Post-merger Forest will have a more favorably
balanced asset portfolio than Forcenergy on a stand-alone basis. Forest's
assets are primarily gas reserves while Forcenergy's assets are
approximately 56% oil reserves. Following the transaction, the combined
assets will consist of approximately 41% oil reserves and approximately
59% gas reserves, which the Forcenergy board considered to be advantageous
in that Forcenergy believes the North American gas market will remain
strong for the foreseeable future. Also, the combination of the companies'
assets represents a strategic fit between Forest's long-range,
high-risk/high-impact
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exploration prospects, which offer the potential for large additions to
reserves and ultimately, cash flow, but produce no meaningful cash flow in
the short term, and Forcenergy's offshore Gulf of Mexico properties, which
produce substantial near-term cash flow but generally have short reserve
lives.
- FINANCIAL FLEXIBILITY. Post-merger Forest's cash flow, balance sheet and
capital resources should provide substantial financial flexibility to
pursue exploration and development projects. The Forcenergy board believes
that this enhanced financial flexibility should allow the combined company
to exploit more aggressively Forcenergy's Gulf of Mexico drilling
inventory. In addition, this enhanced balance sheet should enable
post-merger Forest to access the capital markets for debt offerings on
more favorable terms than would have been available to Forcenergy as a
separate company.
- LARGER MARKET CAPITALIZATION. Following the transaction, the combined
company is expected to have a market capitalization in excess of
$1 billion, based on recent trading prices for Forest's stock, and is
expected to be one of the largest independent oil and gas companies. The
principal benefit for Forcenergy stockholders of this larger size in the
public equity markets is the possibility that the combined entity's common
stock would trade at higher multiples of traditional valuation measures
than was the case with Forcenergy.
- LIQUIDITY. The Forest common shares to be received by the Forcenergy
stockholders will be listed on the NYSE and are more widely traded than
shares of Forcenergy common stock. This will result in enhanced liquidity
for holders of the combined company's common stock compared to the
liquidity available for holders of Forcenergy's common stock. Listing on
the NYSE, as compared to Forcenergy's current listing on the Nasdaq
National Market, also exposes Forcenergy stockholders to a larger investor
population as certain larger institutions limit their investments to
NYSE-listed companies.
- SYNERGIES CREATED BY THE MERGER. The synergies created by the merger,
including the opportunities for costs savings and economies of scale,
should result in an improved financial condition and improved results of
operations and other financial information of the combined entity.
Forcenergy's directors also believe that the transaction will be
immediately accretive to post-merger Forest on a cash flow per share
basis.
- ABILITY TO CONSIDER COMPETING OFFERS. The merger agreement does not
preclude the initiation of competing offers by other potential bidders. If
another party delivers an unsolicited offer to Forcenergy, the Forcenergy
board may consider and accept it if the offer is superior to the merger
agreement and Forcenergy and the offeror execute a written agreement with
respect to such offer. The Forcenergy board may accept the superior offer
only if it has concluded in good faith that acceptance of the offer is
necessary for the board to act in a manner consistent with its fiduciary
duties under applicable law. Before accepting the superior offer,
Forcenergy must give Forest five days' notice. Forest has the right to
match any superior offer. If the superior offer is accepted by the
Forcenergy board, Forcenergy is required to pay Forest a cash termination
fee of $18 million. As of the date of this joint proxy
statement/prospectus, Forcenergy has not received any competing offers.
- TAXATION. The transaction is expected to be a tax free reorganization for
Forcenergy stockholders.
In reaching its determination approving the merger for submission to the
stockholders, the Forcenergy board also considered and evaluated information
presented by the management of
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Forcenergy with respect to the transaction. In this regard, the Forcenergy board
considered, among other things:
- information concerning the results of operations, financial and operating
performance, financial condition and prospects of and the opportunities
available to Forest, Forcenergy and the combined company, and the risks
associated with Forest's international exploratory activities and the
risks involved in achieving the full potential of Forcenergy;
- the reserves, asset quality and cost structure of Forest and Forcenergy;
- the strategic and financial alternatives available to Forcenergy;
- the results and scope of the due diligence review conducted by
Forcenergy's management with respect to Forest's business, properties,
operations and prospects;
- information with respect to recent and historical trading prices and
trading multiples of the common stock of Forest and Forcenergy;
- information with respect to recent and historical prices and a range of
potential future price trends of oil and gas;
- the terms of the merger agreement; and
- the presentation by and the opinion of Petrie Parkman with respect to the
fairness from a financial point of view, as of that date, of the exchange
ratio of 1.6 Forest common shares for each share of Forcenergy common
stock to the holders of Forcenergy common stock and the presentation by
and the advice of outside counsel to Forcenergy with respect to the
fiduciary duties and obligations of the disinterested members of the board
in considering the transaction.
BASED ON ALL OF THESE MATTERS, AND SUCH OTHER MATTERS AS THE MEMBERS OF THE
FORCENERGY BOARD OF DIRECTORS PARTICIPATING IN THE BOARD DECISION ON THE
TRANSACTION DEEMED RELEVANT, THESE PARTICIPATING MEMBERS OF THE FORCENERGY BOARD
UNANIMOUSLY APPROVED THE MERGER AND RECOMMEND THE MERGER AGREEMENT AND THE
MERGER FOR APPROVAL TO THE FORCENERGY STOCKHOLDERS. THE DIRECTORS DESIGNATED BY
THE ANSCHUTZ CORPORATION DID NOT PARTICIPATE IN THE BOARD DECISION ON THIS
TRANSACTION.
The foregoing discussion of the information and factors considered and given
weight by the disinterested members of the Forcenergy board is not intended to
be exhaustive but is believed to include all material factors considered by
them. In addition, in reaching the determination to approve and recommend the
merger agreement, the disinterested members of the Forcenergy board did not
assign any relative or specific weight to the foregoing factors which were
considered, and individual directors may have given differing significance to
the various factors.
The Forcenergy board realized that there are risks associated with the
transaction, including that some of the potential benefits set forth above may
not be realized or that there may be significant costs associated with realizing
such benefits. The Forcenergy board also considered factors such as Forest's
ability to retain Forcenergy's management and key employees, the volatility of
oil and gas prices, the relative volatility of both companies' stock prices, the
uncertainty in estimating oil and gas reserves, future exploration and
development risk and the risks of conducting business in foreign countries.
These factors are discussed more fully in this joint proxy statement/prospectus
on page 24 under "Risk Factors".
OPINION OF FORCENERGY'S FINANCIAL ADVISOR
Forcenergy engaged Petrie Parkman as its financial advisor on May 15, 2000
in connection with the possible Forest merger. On July 7, 2000, Petrie Parkman
rendered to the Forcenergy board of directors its oral opinion (which was
subsequently confirmed in writing) that, as of that date and based upon and
subject to the matters reviewed with the board of directors, the merger exchange
ratio of 1.6 Forest
44
<PAGE>
common shares for each share of Forcenergy common stock was fair from a
financial point of view to the holders of Forcenergy common stock.
Pursuant to an engagement letter between Petrie Parkman and Forcenergy dated
as of May 15, 2000, Forcenergy agreed to pay to Petrie Parkman (1) a financial
advisory fee of $250,000, (2) an opinion fee of $400,000 and (3) an additional
fee of $3,000,000 conditioned upon closing of the merger. In addition,
Forcenergy also agreed to reimburse Petrie Parkman for its reasonably incurred
out-of-pocket expenses related to its rendering of financial advisory and
investment banking services to Forcenergy, including the fees and expenses of
its legal counsel. Forcenergy also agreed to indemnify Petrie Parkman and its
affiliates, directors, officers, partners, agents, employees and controlling
persons for certain losses, claims, damages, liabilities and expenses related to
or arising out of its engagement as financial advisor.
THE FULL TEXT OF PETRIE PARKMAN'S OPINION DATED JULY 7, 2000, WHICH CONTAINS
A DESCRIPTION OF THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITS OF THE SCOPE OF REVIEW UNDERTAKEN BY PETRIE PARKMAN IN RENDERING ITS
OPINION, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED IN THIS DOCUMENT BY REFERENCE. THE SUMMARY OF THE PETRIE PARKMAN
OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. FORCENERGY STOCKHOLDERS ARE ENCOURAGED TO, AND SHOULD, READ
THE PETRIE PARKMAN OPINION CAREFULLY IN ITS ENTIRETY.
Petrie Parkman's opinion was provided to the Forcenergy board for its use
and benefit and addresses only the fairness from a financial point of view of
the exchange ratio to the holders of Forcenergy common stock. Petrie Parkman's
opinion does not address the merits of the underlying decision by Forcenergy to
engage in the merger and does not constitute a recommendation to any stockholder
as to how that stockholder should vote at the special meeting. Petrie Parkman's
opinion and its presentation to the Forcenergy board on July 7, 2000 were among
many factors taken into consideration by the Forcenergy board in making its
determination to approve and recommend the transaction described in the merger
agreement.
In arriving at its opinion, Petrie Parkman, among other things:
1. reviewed certain publicly available business and financial information
relating to Forest and Forcenergy, including (a) Annual Reports on
Form 10-K and related audited financial statements for the fiscal years
ended December 31, 1998 and December 31, 1999 and (b) the Quarterly Report
on Form 10-Q and related unaudited financial statements for the fiscal
quarter ended March 31, 2000;
2. reviewed certain estimates of Forcenergy's reserves, including
(a) estimates of proved oil and gas reserves prepared by Netherland,
Sewell & Associates, Inc. (as to on-shore United States reserves only) as
of January 1, 2000, (b) estimates of proved oil and gas reserves prepared
by the management and staff of Forcenergy and audited by Netherland,
Sewell & Associates, Inc. (as to Alaskan reserves only) as of January 1,
2000, (c) estimates of proved oil and gas reserves prepared by the
management and staff of Forcenergy and audited by Collarini
Engineering, Inc. (as to offshore reserves only) as of January 1, 2000,
(d) updated unaudited estimates of proved oil and gas reserves prepared by
the management and staff of Forcenergy as of April 1, 2000 and
(e) unaudited estimates of probable, possible and additional oil and gas
reserves prepared by the management and staff of Forcenergy as of April 1,
2000;
3. reviewed certain estimates of Forest's reserves, including (a) estimates of
proved oil and gas reserves prepared by the management and staff of Forest
and audited by Ryder Scott Company as of January 1, 2000, (b) updated
unaudited estimates of proved oil and gas reserves prepared by the
management and staff of Forest as of April 1, 2000, (c) unaudited estimates
of probable, possible and additional oil and gas reserves prepared by the
management and staff of Forest as of
45
<PAGE>
January 1, 2000 and (d) updated unaudited estimates of probable, possible
and additional oil and gas reserves (as to United States reserves only) as
of April 1, 2000;
4. analyzed certain historical and projected financial and operating data of
Forest and Forcenergy prepared by the management and staff of Forest and
Forcenergy, respectively;
5. discussed the current and projected operations and prospects of Forest and
Forcenergy with the management and staff of Forest and Forcenergy,
respectively;
6. reviewed the trading history of Forest common shares and shares of
Forcenergy common stock;
7. compared recent stock market capitalization indicators for Forest and
Forcenergy with recent stock market capitalization indicators for certain
other publicly-traded independent energy companies;
8. compared the financial terms of the merger with the financial terms of
certain other transactions that Petrie Parkman deemed to be relevant;
9. participated in certain discussions and negotiations among the
representatives of Forcenergy, Forest and their financial and legal
advisors;
10. reviewed a draft dated June 30, 2000 of the merger agreement, a draft dated
June 27, 2000 of the Forcenergy stockholders agreement among Forest and the
Forcenergy stockholders listed therein and a draft dated June 27, 2000 of
the Forest shareholders agreement between The Anschutz Corporation and
Forcenergy; and
11. reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as Petrie Parkman
had deemed necessary or appropriate.
In preparing its opinion, Petrie Parkman assumed and relied upon, without
assuming any responsibility for or independently verifying, the accuracy and
completeness of any information supplied or otherwise made available to,
discussed with or reviewed by or for it. Petrie Parkman further relied upon the
assurances of the management of Forcenergy and Forest that they were unaware of
any facts that would make the information provided to Petrie Parkman incomplete
or misleading in any material respect.
With respect to projected financial and operating data, Petrie Parkman
assumed that the data had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements and staff of
Forcenergy and Forest, respectively, relating to the future financial and
operational performance of each company.
With respect to the estimates of oil and gas reserves, Petrie Parkman
assumed that they had been reasonably prepared on bases reflecting the best
available estimates and judgments of the managements and staff of Forcenergy or
Forest or their respective engineering consultants relating to the oil and gas
properties of Forcenergy and Forest, respectively.
Petrie Parkman did not make an independent evaluation or appraisal of the
assets or liabilities of Forcenergy or Forest nor, except for the estimates of
oil and gas reserves referred to above, was Petrie Parkman furnished with such
an evaluation or appraisal. In addition, Petrie Parkman did not assume any
obligation to conduct, and did not conduct, any physical inspection of the
properties or facilities of Forcenergy or Forest.
In developing its opinion, Petrie Parkman relied upon Forcenergy as to
certain legal, tax and accounting aspects of the transaction described in the
merger agreement. Petrie Parkman assumed that the final forms of the merger
agreement, Forcenergy stockholders agreement and Forest shareholders agreement
would be substantially similar to the last drafts of each of these agreements
reviewed by it.
46
<PAGE>
Petrie Parkman was not asked to consider, and its opinion does not address,
the after-tax consequences of the merger to any particular stockholder of
Forcenergy or the price at which Forest common stock will actually trade
following the announcement or consummation of the merger. Furthermore, Petrie
Parkman was not authorized or directed to solicit, nor did Petrie Parkman
solicit, offers from other parties to acquire all or any part of Forcenergy.
Petrie Parkman's opinion was rendered on the basis of conditions in the
securities markets and the oil and gas markets prevailing as of the date of its
opinion and the condition and prospects, financial and otherwise, of Forest and
Forcenergy as they had been represented to Petrie Parkman as of the date of its
opinion or as they were reflected in the materials and discussions described
above.
The following is a summary of the analyses performed by Petrie Parkman in
connection with the preparation of its opinion dated July 7, 2000 and presented
to the Forcenergy board of directors on that date.
This summary includes information presented in tabular format. In order to
fully understand these financial analyses, the tables must be read together with
the text accompanying each summary. The tables alone do not constitute a
complete description of these financial analyses. Considering the data set forth
in the tables without considering the full narrative description of these
analyses, including the methodologies and assumptions underlying these analyses,
could create a misleading or incomplete view of these financial analyses
performed by Petrie Parkman.
HISTORICAL STOCK TRADING RATIO ANALYSIS. Petrie Parkman analyzed the
historical ratios of the closing prices of Forcenergy common stock divided by
corresponding closing prices of Forest common shares for the period from
March 13, 2000 to June 30, 2000. The average stock trading ratio for the period
from March 13, 2000 to June 30, 2000 was 1.38, compared to the merger exchange
ratio of 1.60.
DISCOUNTED CASH FLOW ANALYSIS--FORCENERGY. Petrie Parkman conducted a
discounted cash flow analysis for the purpose of determining the equity
reference value range per share of Forcenergy common stock. Petrie Parkman
calculated the net present value of after-tax cash flows of Forcenergy's oil and
gas reserve assets based on the proved, probable, possible and additional
reserve estimates referred to above and for its non-reserve assets utilizing
information provided by Forcenergy.
Petrie Parkman evaluated five scenarios in which the principal variables
were oil and gas prices. The five pricing scenarios, which were referred to by
Petrie Parkman as "Pricing Case I", "Pricing Case II", "Pricing Case III", the
"Strip Pricing Escalated Case", and the "Strip Pricing Flat Case" were based on
benchmarks for spot sales of West Texas Intermediate crude oil and for spot
sales of Henry Hub gas. The Strip Pricing Escalated Case and the Strip Pricing
Flat Case were based upon the average of oil and gas futures contract prices
quoted on the New York Mercantile Exchange. Petrie Parkman applied appropriate
quality and transportation adjustments to these benchmarks. Benchmark oil prices
for Pricing Cases I, II and III were projected to be $19.00, $21.00 and $23.00
per barrel, respectively, for year 2000 and were escalated annually following
the year 2000 at the rate of 3%. Year 2000 oil prices utilized in the analysis
for Pricing Cases I, II, and III were based on the blended average of actual oil
prices through June 30, 2000 and the benchmark scenarios for the remainder of
2000. The Strip Pricing Escalated Case assumed benchmark oil prices of $29.94,
$26.18, $22.93, $20.65, and $19.63 for the years 2000, 2001, 2002, 2003, and
2004, respectively, and were escalated annually following the year 2004 at the
rate of 3%. Benchmark oil prices for the Strip Pricing Flat Case were projected
to be the same as the Strip Pricing Escalated Case through 2004, with prices
held constant thereafter.
Pricing Cases I, II and III assumed benchmark gas prices of $2.50, $3.00 and
$3.50 per million British thermal units, respectively, for year 2000 and were
escalated annually following the year 2000 at the rate of 3.0%. Year 2000 gas
prices utilized in the analysis for Pricing Cases I, II, and III were based on
the blended average of actual gas prices through June 30, 2000 and the benchmark
scenarios for the
47
<PAGE>
remainder of 2000. The Strip Pricing Escalated Case assumed benchmark gas prices
of $4.20, $3.67, $3.08, and $2.82 for the years 2000, 2001, 2002, and 2003,
respectively, and were escalated annually following the year 2003 at the rate of
3%. Benchmark gas prices for the Strip Pricing Flat Case were projected to be
the same as the Strip Pricing Escalated Case through 2003, with prices held
constant thereafter. Operating and capital costs were escalated at 3% per year
starting in year 2001.
Applying various after-tax discount rates ranging from 10.0% to 25.0%
depending on reserve category to the after-tax cash flows, assuming a carry-over
of Forcenergy's existing tax position as of March 31, 2000 and deducting long
term debt of $238 million and the liquidation value of preferred stock of
$40 million and adding net working capital of $5 million, the discounted cash
flow analysis indicated the following equity reference value ranges per
fully-diluted share of Forcenergy common stock.
<TABLE>
<CAPTION>
PRICING CASE I PRICING CASE II PRICING CASE III STRIP PRICING ESC. STRIP PRICING FLAT
--------------- --------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Equity Reference Value
Range per Common
Share............... $11.74 - $13.36 $16.38 - $19.32 $21.47 - $25.13 $16.23 - $17.90 $15.56 - $17.06
</TABLE>
Based upon the foregoing, Petrie Parkman selected a composite equity reference
value range per fully-diluted share of Forcenergy common stock of $16.00 to
$20.00.
PROPERTY TRANSACTIONS ANALYSIS--FORCENERGY. Petrie Parkman reviewed
selected publicly available information for 85 announced oil and gas property
transactions and proprietary information for six oil and gas property
acquisition transactions between January 1995 and June 2000 in the Gulf of
Mexico, the onshore U.S., and Alaskan regions. Petrie Parkman calculated the
purchase price of reserves per unit of equivalent reserves for the acquired
assets in each transaction. For purposes of this analysis, equivalency is used
to compare quantities of oil with quantities of gas using a one barrel of oil to
six thousand cubic feet of gas conversion ratio ("Mcfe6"). Based on a review of
the purchase price of reserves per unit of equivalent reserves, Petrie Parkman
determined benchmark ranges of purchase prices to Forcenergy's corresponding
proved reserve figures in order to yield enterprise reference value ranges for
Forcenergy's proved reserves. The number of transactions per region and the
maximum, mean and minimum purchase prices for these transactions are set forth
in the following table, together with the benchmark purchase price ranges
determined by Petrie Parkman.
<TABLE>
<CAPTION>
GULF OF MEXICO ONSHORE U.S. ALASKA
-------------- ------------- -------------
<S> <C> <C> <C>
Number of Transactions............. 23 64 4
Purchase Price of Reserves / Proved
Reserves ($/Mcfe6)
MAXIMUM........................ $1.46 $1.42 $0.80
MEAN........................... $1.06 $0.77 $0.67
MINIMUM........................ $0.71 $0.30 $0.56
Benchmark Range of Purchase Price
($/Mcfe6)........................ $1.10 - $1.25 $0.80 - $1.00 $0.70 - $0.80
</TABLE>
Petrie Parkman applied the benchmark ranges of purchase price per unit of
equivalent reserves set forth above to Forcenergy's proved reserve figures and,
after adjusting for Forcenergy's non-reserve assets, determined an enterprise
reference value range. Petrie Parkman then deducted long-term debt of
$238 million and the liquidation value of preferred stock of $40 million, and
added net working capital of $5 million to such enterprise reference value range
and divided the resulting figure by the fully-diluted number of shares of
Forcenergy common stock outstanding to arrive at an equity reference value range
per fully-diluted share of Forcenergy common stock of $13.61 to $17.79.
48
<PAGE>
COMPANY TRANSACTION ANALYSIS--FORCENERGY. Petrie Parkman reviewed selected
publicly available information on the following 18 company acquisition
transactions and offers for control involving companies in the oil and gas
exploration and production industry that were announced between January 1997 and
June 2000:
<TABLE>
<CAPTION>
ACQUIROR OR BIDDER FOR CONTROL TARGET DATE OF ANNOUNCEMENT
------------------------------ ----------------------------------- --------------------
<S> <C> <C>
Canadian Natural Resources Ranger Oil Limited June 15, 2000
Limited..........................
Devon Energy Corporation........... Santa Fe Snyder Corporation May 26, 2000
Hunt Oil Company................... Newport Petroleum Corporation May 15, 2000
Anderson Exploration Ltd........... Ulser Petroleums Ltd. April 17, 2000
Anadarko Petroleum Corporation..... Union Pacific Resources Group Inc. April 3, 2000
Talisman Energy Inc................ Rigel Energy Corporation August 23, 1999
Burlington Resources Inc........... Poco Petroleums Ltd. August 16, 1999
Devon Energy Corporation........... Pennzenergy Co. May 20, 1999
Snyder Oil Corporation............. Santa Fe Energy Resources, Inc. January 14, 1999
Seagull Energy Corporation......... Ocean Energy, Inc. November 25, 1998
Kerr-McGee Corp.................... Oryx Energy Company October 15, 1998
Devon Energy Corporation........... Northstar Energy Company June 29, 1998
USX-Marathon Group................. Tarragon Oil & Gas May 30, 1998
Atlantic Richfield Company......... Union Texas Petroleum Holdings, May 4, 1998
Inc.
Union Pacific Resources Group Norcen Energy Resources January 26, 1998
Inc..............................
Sonat, Inc......................... Zilkha Energy Company November 24, 1997
Burlington Resources Inc........... Louisiana Land & Exploration July 17, 1997
Company
Mesa Inc........................... Parker & Parsley Petroleum Company April 7, 1997
</TABLE>
Using publicly available information, Petrie Parkman calculated purchase
price of equity multiples of latest twelve month ("LTM") discretionary cash
flow, current year's estimated discretionary cash flow and total investment,
which Petrie Parkman defined for the purposes of this analysis as purchase price
of equity plus net obligations assumed, multiples of LTM earnings before
interest, taxes, depreciation, depletion and amortization and exploration
expense ("EBITDX") for the target company in each transaction. Petrie Parkman
also calculated the implied purchase price of reserves, which Petrie Parkman
defined for the purposes of this analysis as total investment less undeveloped
acreage value and other assets at book value, multiples of equivalent proved
reserves for the target company in each transaction and multiples of
standardized measure of future net cash flows (which we refer to as
"Standardized Value") for the target company in each transaction. The maximum,
mean, median and minimum implied multiples in these transactions are set forth
below. The table also includes
49
<PAGE>
benchmark multiple ranges selected by Petrie Parkman based on a review of the
implied multiples in the recent transactions.
<TABLE>
<CAPTION>
IMPLIED MULTIPLES IN RECENT TRANSACTIONS
----------------------------------------- BENCHMARK
MINIMUM MEDIAN MEAN MAXIMUM RANGE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Purchase Price / LTM Discretionary Cash
Flow....................................... 1.9x 6.1x 6.3x 9.0x 4.0 - 5.0x
Purchase Price / Current Year's Estimated
Discretionary Cash Flow.................... 3.7x 5.7x 5.7x 8.8x 4.0 - 5.0x
Total Investment / LTM EBITDX................ 2.5x 7.3x 7.5x 11.0x 5.5 - 6.0x
Implied Purchase Price of Reserves /
Equivalent Proved Reserves ($/Mcfe6)....... $0.66 $1.11 $1.23 $3.15 $1.00 - $1.35
Implied Purchase Price of Reserves /
Standardized Value......................... 0.7x 1.7x 1.7x 2.6x 1.4 - 1.7x
</TABLE>
Petrie Parkman applied the benchmark multiples to Forcenergy's LTM discretionary
cash flow, current year estimated discretionary cash flow, historical EBITDX,
equivalent proved reserves, and Standardized Value to determine enterprise
reference value ranges.
Petrie Parkman also performed a premium analysis for the same universe of
company acquisition transactions and offers for control, which compared the
offer price per target company share with the target company's share price
measured one day, 30 days and 60 days prior to the public announcement of the
offer. The maximum, mean, median and minimum premiums (which Petrie Parkman
defined for the purposes of this analysis as excess of offer price over target
company's stock price stated as a percentage above the target company's stock
price), together with benchmark premiums selected by Petrie Parkman based on a
review of the implied premiums, for these periods were as follows:
<TABLE>
<CAPTION>
IMPLIED PREMIUMS IN RECENT TRANSACTIONS
----------------------------------------- BENCHMARK
MINIMUM MEDIAN MEAN MAXIMUM RANGE
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
One Day Prior.................................. (8.5)% 21.1% 22.6% 66.9% 15% - 25%
30 Days Prior.................................. (7.5)% 30.0% 31.0% 76.0% 25% - 35%
60 Days Prior.................................. (24.8)% 31.1% 26.6% 61.9% 25% - 35%
</TABLE>
Petrie Parkman applied the range of benchmark premiums to the corresponding
prices of Forcenergy common stock at one day, 30 days and 60 days prior to the
public announcements of the offer to determine enterprise reference value
ranges.
After selecting a composite enterprise reference value range and deducting
long-term debt of $238 million and the liquidation of preferred stock of
$40 million, adding net working capital of $5 million and dividing by the
fully-diluted number of shares of Forcenergy common stock outstanding, the
resulting equity reference value range per fully-diluted share was $25.30 to
$28.22.
CAPITAL MARKET COMPARISON--FORCENERGY. Using publicly available
information, Petrie Parkman calculated market capitalization multiples of LTM
and current year's estimated discretionary cash flow for ten publicly traded
companies. Petrie Parkman also calculated enterprise value multiples of LTM and
current year's estimated EBITDX, LTM operating cash flow, proved reserves, and
Standardized Value for those companies. In each case, multiples of estimated
discretionary cash flow and EBITDX were based upon published equity research
analyst estimates. Petrie Parkman defined market capitalization for purposes of
this analysis as the market value of common equity as of June 30, 2000. Petrie
Parkman determined the enterprise value of each company by adding the sum of its
long-term and short-term debt to the sum of the market value of its common
equity, the market value of its preferred stock (or, if not publicly traded,
liquidation or book value) and the book value of its minority interest in other
companies and subtracting net working capital.
50
<PAGE>
Based upon Petrie Parkman's view of the comparability of operating and
financial characteristics, Petrie Parkman selected the following companies for
this analysis:
<TABLE>
<S> <C> <C> <C>
- Basin Exploration, Inc. - The Houston Exploration Company
- Callon Petroleum Company - The Meridian Resource Corporation
- Chieftain International, Inc. - Newfield Exploration Company
- Comstock Resources, Inc. - St. Mary Land & Exploration Company
- Cross Timbers Oil Company - Stone Energy Corporation
</TABLE>
The minimum, median, mean and maximum multiples for the ten companies are
set forth below. The table also includes benchmark multiple ranges selected by
Petrie Parkman based on a review of the comparable company multiples.
<TABLE>
<CAPTION>
COMPARABLE COMPANY MULTIPLES
----------------------------------------- BENCHMARK
MEASURE MINIMUM MEDIAN MEAN MAXIMUM RANGE
------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Market Capitalization / LTM Discretionary
Cash Flow.................................. 3.1x 6.5x 6.6x 9.4x 5.0x - 6.0x
Market Capitalization / 2000 Estimated
Discretionary Cash Flow.................... 2.8x 4.5x 4.6x 6.8x 3.0x - 4.0x
Enterprise Value / LTM EBITDX................ 5.8x 8.0x 7.9x 9.2x 6.0x - 7.0x
Enterprise Value / 2000 Estimated EBITDX..... 4.1x 5.1x 5.3x 7.1x 4.0x - 5.0x
Enterprise Value / LTM Operating Cash Flow... 5.2x 7.4x 7.3x 8.6x 5.5x - 6.5x
Enterprise Value / Proved Reserves
($/Mcfe6).................................. $1.00 $1.80 $1.88 $3.38 $1.25 - $1.80
Enterprise Value / Standardized Value........ 1.0x 1.7x 1.8x 2.8x 1.3 - 1.7x
</TABLE>
From the enterprise reference value ranges implied by applying the benchmark
multiples to Forcenergy's LTM and 2000 estimated discretionary cash flow, LTM
and 2000 estimated EBITDX, LTM operating cash flow, proved reserves and
Standardized Value, Petrie Parkman determined a composite enterprise reference
value range. After deducting long term debt of $238 million and the liquidation
value of preferred stock of $40 million and adding net working capital of
$5 million to the composite enterprise reference value range and dividing by the
fully-diluted number of shares of Forcenergy common stock outstanding, the
equity reference value range per fully-diluted share of Forcenergy common stock
was $20.45 to $28.22.
GOING CONCERN ANALYSIS--FORCENERGY. Petrie Parkman projected the potential
financial performance of Forcenergy without giving effect to the merger for the
five year period beginning on January 1, 2000 using Pricing Cases I, II, III and
the Strip Pricing Escalated Case. Petrie Parkman prepared these projections
using financial, operating and reserve projections prepared and/or provided by
Forcenergy management and certain assumptions based upon discussions with
Forcenergy management regarding Forcenergy's potential future operating and
financial performance.
For each pricing case, Petrie Parkman evaluated a base case scenario and a
sensitivity case scenario using the following assumptions. In each scenario, up
to $200 million of available free cash flow was invested in additional
exploration activities at assumed finding and development costs of $1.50 per
Mcfe6 in the base case scenario and $1.00 per Mcfe6 in the sensitivity case
scenario. Excess free cash flow was used to pay down debt. Petrie Parkman
calculated a range of terminal equity values by applying terminal multiples of
3.5x, 4.5x and 5.5x to projected 2004 discretionary cash flow and applied
after-tax discount rates of 15.0% to 17.5% to terminal equity values. Throughout
its analysis, Petrie Parkman used Forcenergy's tax position as of December 31,
1999.
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<PAGE>
From the equity reference values implied by this analysis, Petrie Parkman
determined a composite equity reference value range per fully-diluted share of
Forcenergy common stock of $18.75 to $24.25 in the base case scenario and $26.50
to $32.50 in the sensitivity case scenario.
DISCOUNTED CASH FLOW ANALYSIS--FOREST. Petrie Parkman conducted a
discounted cash flow analysis for the purpose of determining the equity
reference value range per share of Forest common shares. Petrie Parkman
calculated the net present value of after-tax cash flows of Forest's oil and gas
reserve assets based on the proved, probable, possible and additional reserve
estimates referred to above and for its non-reserve assets utilizing information
provided by Forest.
Petrie Parkman evaluated the same five pricing scenarios and used the same
operating and capital cost escalation assumptions that were used in the
Forcenergy Discounted Cash Flow Analysis.
Applying various after-tax discount rates ranging from 10.0% to 30.0%
depending on reserve category to the after-tax cash flows, assuming a carry-over
of Forest's existing tax position as of March 31, 2000 and deducting long term
debt of $392 million and adding net working capital of $8 million, the
discounted cash flow analysis indicated the following equity reference value
ranges per share of Forest common shares, on a fully-diluted basis.
<TABLE>
<CAPTION>
PRICING CASE I PRICING CASE II PRICING CASE III STRIP PRICING ESC. STRIP PRICING FLAT
-------------- --------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Equity Reference
Value Range per
Common Share....... $4.53 - $6.13 $6.36 - $8.20 $8.22 - $10.29 $5.80 - $7.44 $5.24 - $6.72
</TABLE>
Based upon the foregoing, Petrie Parkman selected a composite equity reference
value range per fully-diluted Forest common share of $8.00 to $10.00.
PROPERTY TRANSACTIONS ANALYSIS--FOREST. Petrie Parkman reviewed selected
publicly available information for 148 announced oil and gas property
transactions and proprietary information for six oil and gas property
acquisition transactions between January 1997 and June 2000 in the Gulf of
Mexico, Gulf Coast, Rocky Mountain, and Canadian regions. Petrie Parkman
calculated the purchase price of reserves per unit of equivalent reserves for
the acquired assets in each transaction. Based on a review of the purchase price
of reserves per unit of equivalent reserves, Petrie Parkman determined benchmark
ranges of purchase prices to Forest's corresponding proved reserve figures in
order to yield enterprise reference value ranges for Forest's proved reserves.
The number of transactions per region and the maximum, mean and minimum purchase
prices for these transactions are set forth in the following table, together
with the benchmark purchase price ranges determined by Petrie Parkman.
<TABLE>
<CAPTION>
GULF OF MEXICO GULF COAST ROCKY MOUNTAIN CANADA
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Number of Transactions............... 23 44 35 52
Purchase Price of Reserves / Proved
Reserves ($/Mcfe6)
MAXIMUM............................ $1.46 $1.63 $1.39 $1.48
MEAN............................... $1.06 $0.83 $0.76 $0.72
MINIMUM............................ $0.71 $0.20 $0.30 $0.16
Benchmark Range of Purchase Prices
($/Mcfe6).......................... $1.10 - $1.25 $0.95 - $1.15 $0.90 - $1.10 $0.90 - $1.00
</TABLE>
Petrie Parkman applied the benchmark ranges of purchase price per unit of
equivalent reserves set forth above to Forest's proved reserve figures and,
after adjusting for Forest's non-reserve assets, determined an enterprise
reference value range. Petrie Parkman then deducted long-term debt of
$392 million and added net working capital of $8 million to such enterprise
reference value range and
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<PAGE>
divided the resulting figure by the fully-diluted number of Forest common shares
outstanding to arrive at an equity reference value range per fully-diluted
Forest common share of $5.27 to $7.87.
COMPANY TRANSACTION ANALYSIS--FOREST. Petrie Parkman reviewed selected
publicly available information on the same 18 company acquisition transactions
and offers for control that were reviewed in the Forcenergy Company Transaction
Analysis.
Using publicly available information, Petrie Parkman calculated purchase
price of equity multiples of LTM and current year's estimated discretionary cash
flow and total investment multiples of LTM EBITDX for the target company in each
transaction. Petrie Parkman also calculated the implied purchase price of
reserves multiples of equivalent proved reserves for the target company in each
transaction and multiples of Standardized Value for the target company in each
transaction. The maximum, mean, median and minimum implied multiples in these
transactions are set forth below. The table also includes benchmark multiple
ranges selected based on a review of the implied multiples in these recent
transactions.
<TABLE>
<CAPTION>
IMPLIED MULTIPLES IN RECENT TRANSACTIONS
-----------------------------------------
MINIMUM MEDIAN MEAN MAXIMUM BENCHMARK RANGE
-------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Purchase Price / LTM Discretionary Cash
Flow..................................... 1.9x 6.1x 6.3x 9.0x 4.0 - 6.0x
Purchase Price / Current Year's Estimated
Discretionary Cash Flow.................. 3.7x 5.7x 5.7x 8.8x 4.5 - 5.5x
Total Investment / LTM EBITDX.............. 2.5x 7.3x 7.5x 11.0x 6.0 - 8.0x
Implied Purchase Price of Reserves /
Equivalent Proved Reserves ($/Mcfe6)..... $0.66 $1.11 $1.23 $3.15 $1.00 - $1.35
Implied Purchase Price of Reserves/
Standardized Value....................... 0.7x 1.7x 1.7x 2.6x 1.5 - 2.1x
</TABLE>
Petrie Parkman applied the benchmark multiples to Forest's LTM discretionary
cash flow, current year's estimated discretionary cash flow, historical EBITDX,
equivalent proved reserves, and Standardized Value to determine enterprise
reference value ranges.
Petrie Parkman also performed a premium analysis for the same universe of
company acquisition transactions and offers for control, which compared the
offer price per target company share with the target company's share price for
the periods of one day, 30 days and 60 days prior to the public announcement of
the offer. The maximum, mean, median, and minimum premiums, together with
benchmark premiums chosen by Petrie Parkman as a result of such analyses, for
these periods were as follows:
<TABLE>
<CAPTION>
IMPLIED PREMIUMS IN RECENT TRANSACTIONS
----------------------------------------- BENCHMARK
MINIMUM MEDIAN MEAN MAXIMUM RANGE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
One Day Prior................................... (8.5)% 21.1% 22.6% 66.9% 15% - 25%
30 Days Prior................................... (7.5)% 30.0% 31.0% 76.0% 25% - 35%
60 Days Prior................................... (24.8)% 31.1% 26.6% 61.9% 25% - 35%
</TABLE>
Petrie Parkman applied the range of benchmark premiums to the corresponding
prices of Forest common shares to determine enterprise reference value ranges.
After selecting a composite enterprise reference value range and deducting
long-term debt of $392 million, adding net working capital of $8 million and
dividing by the fully-diluted number of Forest common shares outstanding, the
resulting equity reference value range per fully-diluted common share was $14.05
to $17.71.
CAPITAL MARKET COMPARISON--FOREST. Using publicly available information,
Petrie Parkman calculated market capitalization multiples of LTM and current
year's estimated discretionary cash flow for ten publicly traded companies.
Petrie Parkman also calculated enterprise value multiples of LTM
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<PAGE>
and current year's estimated EBITDX, LTM operating cash flow, proved reserves,
and Standardized Value for those companies. In each case, multiples of estimated
discretionary cash flow and EBITDX were based upon published equity research
analyst estimates. Petrie Parkman defined market capitalization for purposes of
this analysis as the market value of common equity as of June 30, 2000. Petrie
Parkman determined the enterprise value of each company by adding the sum of its
long-term and short-term debt to the sum of the market value of its common
equity, the market value of its preferred stock (or, if not publicly traded,
liquidation or book value) and the book value of its minority interest in other
companies and subtracting net working capital.
Based upon Petrie Parkman's view of the comparability of operating and
financial characteristics, Petrie Parkman selected the following companies for
this analysis:
<TABLE>
<S> <C> <C> <C>
- Barrett Resources Corporation - The Houston Exploration Company
- Basin Exploration, Inc. - Newfield Exploration Company
- Callon Petroleum Company - St. Mary Land & Exploration Company
- Chieftain International, Inc. - Stone Energy Corporation
- HS Resources, Inc. - Tom Brown, Inc.
</TABLE>
The minimum, median, mean and maximum multiples for the ten companies are
set forth below. The table also includes benchmark multiple ranges selected by
Petrie Parkman based on a review of the comparable company multiples.
<TABLE>
<CAPTION>
COMPARABLE COMPANY MULTIPLES
----------------------------------------- BENCHMARK
MEASURE MINIMUM MEDIAN MEAN MAXIMUM RANGE
------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Market Capitalization / LTM Discretionary
Cash Flow................................. 5.1x 7.3x 7.5x 10.0x 6.0x - 8.0x
Market Capitalization / 2000 Estimated
Discretionary Cash Flow................... 3.4x 5.3x 5.2x 7.4x 4.5x - 5.5x
Enterprise Value / LTM EBITDX............... 7.0x 8.6x 8.4x 10.1x 7.0x - 9.0x
Enterprise Value / 2000 Estimated EBITDX.... 4.1x 5.2x 5.5x 7.1x 4.5x - 5.5x
Enterprise Value / LTM Operating Cash
Flow...................................... 6.4x 7.7x 7.6x 9.0x 7.0x - 8.0x
Enterprise Value / Proved Reserves
($/Mcfe6)................................. $1.02 $1.75 $1.86 $3.38 $1.65 - $1.85
Enterprise Value / Standardized Value....... 1.2x 2.1x 2.0x 2.8x 1.7 - 2.1x
</TABLE>
From the enterprise reference value ranges implied by applying the benchmark
multiples to Forest's LTM and 2000 estimated discretionary cash flow, LTM and
2000 estimated EBITDX, LTM operating cash flow, proved reserves and Standardized
Value, Petrie Parkman determined a composite enterprise reference value range.
After deducting long term debt of $392 million, adding net working capital of
$8 million to the composite enterprise reference value range and dividing by the
fully-diluted number of Forest common shares outstanding, the equity reference
value range per fully-diluted Forest common share was $14.05 to $16.80.
GOING CONCERN ANALYSIS--FOREST. Petrie Parkman projected the potential
financial performance of Forest without giving effect to the merger for the five
year period beginning on January 1, 2000 using Pricing Cases I, II, III and the
Strip Pricing Escalated Case. Petrie Parkman prepared these projections using
financial, operating and reserve projections prepared and/or provided by Forest
management and certain assumptions based upon discussions with Forest management
regarding Forest's potential future operating and financial performance.
For each pricing case, Petrie Parkman evaluated a base case scenario and a
sensitivity case scenario using the following assumptions. In each scenario, up
to $300 million of available free cash flow was invested in additional
exploration activities at assumed finding and development costs of $1.30
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<PAGE>
per Mcfe6 in the base case scenario and at $1.00 per Mcfe6 in the sensitivity
case scenario. Excess free cash flow was used to pay down debt. Petrie Parkman
calculated a range of terminal equity values by applying terminal multiples of
4.5x, 5.5x and 6.5x to projected 2004 discretionary cash flow and applied
after-tax discount rates of 15.0% to 17.5% to terminal equity values. Throughout
its analysis, Petrie Parkman used Forest's existing tax position as of
December 31, 1999.
From the equity reference values implied by this analysis, Petrie Parkman
determined a composite equity reference value range per fully-diluted Forest
common share of $12.50 to $15.25 in the base case scenario, and $18.25 to $21.50
in the sensitivity case scenario.
SUMMARY OF REFERENCE VALUE ANALYSES. The following is a summary of the
reference value analyses for both Forcenergy and Forest and the exchange ratios
implied by such analyses.
<TABLE>
<CAPTION>
FORCENERGY
REFERENCE FOREST REFERENCE IMPLIED EXCHANGE
VALUE RANGE VALUE RANGE RATIORANGE
METHODOLOGY $/SHARE $/SHARE (FORCENERGY/FOREST)
----------- ---------------- ---------------- -------------------
<S> <C> <C> <C>
Discounted Cash Flow Analysis.............. $16.00 - $20.00 $ 8.00 - $10.00 2.00 - 2.00
Property Transaction Analysis.............. $13.61 - $17.79 $ 5.27 - $ 7.87 2.58 - 2.26
Company Transaction Analysis............... $25.30 - $28.22 $14.05 - $17.71 1.80 - 1.59
Capital Market Comparison.................. $20.45 - $28.22 $14.05 - $16.80 1.46 - 1.68
Going Concern Analysis.....................
Base Case Scenario....................... $18.75 - $24.25 $12.50 - $15.25 1.50 - 1.59
Sensitivity Case Scenario................ $26.50 - $32.50 $18.25 - $21.50 1.45 - 1.51
</TABLE>
CONTRIBUTION ANALYSIS. Petrie Parkman analyzed certain historical and
projected operational and financial effects of the merger for the two-year
period beginning January 1, 2000. Petrie Parkman calculated relative
contributions to the combined company of production, reserves, EBITDX,
enterprise value, market capitalization, discretionary cash flow, and net income
by Forcenergy and Forest. The analysis was based on historical financial data
and projections based upon research analyst estimates as adjusted to reflect
discussions with Forcenergy and Forest management. The following table sets
forth the contribution Forcenergy would be expected to make to the operational
and financial results of the combined entity.
<TABLE>
<CAPTION>
FORCENERGY
CONTRIBUTION
-------------------
MEASURE 2000E 2001E
------- -------- --------
<S> <C> <C>
Production.................................................. 51% 52%
12/31/99 Proved Reserves.................................... 49% N/A
EBITDX...................................................... 48% 51%
6/30/00 Enterprise Value.................................... 39% N/A
6/30/00 Market Value........................................ 37% N/A
Discretionary Cash Flow..................................... 49% 52%
Net Income.................................................. 36% 42%
</TABLE>
PRO FORMA MERGER ANALYSIS. Petrie Parkman analyzed the pro forma financial
effects of the merger as of March 31, 2000 and for the fiscal years ended 2000
and 2001 with operating projections based upon research analyst estimates as
adjusted to reflect discussions with Forcenergy and Forest management. For
purposes of its analysis, Petrie Parkman used the merger exchange ratio, made
assumptions about cost savings based on discussions with Forcenergy management
and assumed the merger would be accounted for as pooling of interests
transaction. This analysis indicated that the merger would be dilutive to
Forest's current year's estimated earnings, accretive to estimated earnings in
2001 and accretive to estimated discretionary cash flow in 2000 and 2001. The
analysis also indicated that the merger would result in a lower total debt to
total book capitalization ratio and a lower total debt to total market
capitalization ratio than projected for Forest on a stand-alone basis as of
March 31, 2000. The analysis also indicated that the merger would result in
improved debt coverage, specifically projected 2000 EBITDX to interest expense
ratio, total debt to projected 2000 EBITDX ratio, and total debt to projected
2000 discretionary cash flow ratio, than for Forest on a stand-alone basis.
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<PAGE>
The description set forth above constitutes a summary of the analyses
employed and factors considered by Petrie Parkman in rendering its opinion to
the Forcenergy board. Petrie Parkman believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses and factors, could create an incomplete view of the
process underlying its opinion. The preparation of a fairness opinion is a
complex, analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and is not necessarily susceptible
to partial analysis or summary description.
In arriving at its opinion, Petrie Parkman did not attribute any particular
weight to any analysis considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis. Any estimates resulting
from the analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth in this document.
In addition, analyses based on forecasts of future results are not
necessarily indicative of future results, which may be significantly more or
less favorable than suggested by these analyses. Estimates of reference values
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies may actually be sold. Because the estimates are inherently
subject to uncertainty and based upon numerous factors or events beyond the
control of the parties and Petrie Parkman, Petrie Parkman cannot assure you that
the estimates will prove to be accurate.
No company used in the analyses of other publicly traded companies nor any
transaction used in the analyses of comparable transactions is identical to
Forcenergy, Forest or the proposed merger. Accordingly, these analyses must take
into account differences in the financial and operating characteristics of the
selected publicly traded companies and differences in the structure and timing
of the selected transactions and other factors that would affect the public
trading values and acquisition values of the companies considered.
Petrie Parkman, as part of its investment banking business, is continually
engaged in the evaluation of energy-related businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Forcenergy selected Petrie Parkman
as its financial advisor because it is an internationally recognized investment
banking firm that has substantial experience in transactions similar to the
proposed merger. Petrie Parkman has in the past provided financial advisory
services to Forcenergy and Forest and has received customary fees for these
services. In the ordinary course of business, Petrie Parkman or its affiliates
may trade in the debt or equity securities of Forcenergy and Forest for its
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
OPINIONS OF FOREST'S FINANCIAL ADVISORS
SALOMON SMITH BARNEY
At the meeting of Forest's board held on July 7, 2000, Salomon Smith Barney
delivered its oral opinion, which opinion was subsequently confirmed in a
written opinion, dated as of July 10, 2000, to the effect that, as of such date,
the merger consideration was fair to Forest from a financial point of view.
Subsequent to the meeting of Forest's board, the terms of the transaction with
respect to Forcenergy's preferred stock were finalized. The change to these
terms did not impact Salomon Smith Barney's opinion that, as of such date, the
merger consideration was fair to Forest from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY IS SET FORTH AS
ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND SETS FORTH THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED AND MATTERS
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<PAGE>
CONSIDERED BY SALOMON SMITH BARNEY. HOLDERS OF FOREST COMMON SHARES ARE URGED TO
READ SALOMON SMITH BARNEY'S OPINION IN ITS ENTIRETY.
In connection with its opinion, Salomon Smith Barney reviewed publicly
available information concerning Forest and Forcenergy and other financial
information concerning Forest and Forcenergy, including financial forecasts,
that were provided to, or discussed with, Salomon Smith Barney by Forest and
Forcenergy. Salomon Smith Barney discussed the past and current business
operations, financial condition and prospects of Forest and Forcenergy with
certain officers and employees of Forest and Forcenergy. Salomon Smith Barney
also considered other information, financial studies, analyses, investigations
and financial, economic and market criteria that it deemed relevant.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of the information
it reviewed for the purpose of its opinion, and Salomon Smith Barney did not
assume any responsibility for independent verification of this information. With
respect to the financial forecasts of Forest and Forcenergy, Salomon Smith
Barney was advised by the respective managements of Forest and Forcenergy that
these forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Forest and
Forcenergy. Salomon Smith Barney expressed no opinion with respect to these
forecasts or the assumptions on which they were based. Salomon Smith Barney did
not make or obtain, or assume any responsibility for making or obtaining, any
independent evaluation or appraisal of any of the assets (including properties
and facilities) or liabilities of Forest or Forcenergy.
Salomon Smith Barney's opinion is necessarily based upon conditions as they
existed and could be evaluated on the date of the opinion. Salomon Smith
Barney's opinion does not imply any conclusion as to the likely trading range
for Forest's common shares following the completion of the merger, which may
vary depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. Salomon Smith Barney's opinion did
not address Forest's underlying business decision to effect the merger. Salomon
Smith Barney's opinion is directed only to the fairness, from a financial point
of view, of the merger consideration to Forest and does not constitute a
recommendation concerning how holders of Forest's common shares should vote with
respect to the transactions contemplated by the merger agreement.
A summary of the presentation made on July 7, 2000 by Salomon Smith Barney
to Forest's board in connection with its oral opinion is set forth below. This
summary includes information presented in tabular format. IN ORDER TO FULLY
UNDERSTAND THE FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE
TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION
OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH BELOW WITHOUT
CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING
THE METHODOLOGIES AND THE ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A
MISLEADING OR INCOMPLETE VIEW OF THE FINANCIAL ANALYSES OF SALOMON SMITH BARNEY.
HISTORICAL EXCHANGE RATIO ANALYSIS. Salomon Smith Barney reviewed the daily
closing prices of Forest's common shares and shares of Forcenergy common stock
during the period beginning on March 11, 2000, the first day shares of
Forcenergy common stock began trading following its emergence from bankruptcy
protection, and ending on July 5, 2000, and for the one month period ending on
July 5, 2000. Salomon Smith Barney determined the implied exchange ratios by
dividing the price per share of Forcenergy common stock by the price per Forest
common share over each such period. This
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<PAGE>
analysis indicated the following implied exchange ratios, as compared to the
exchange ratio of 1.60 Forest common shares per share of Forcenergy common stock
in the merger agreement:
<TABLE>
<CAPTION>
HIGH LOW AVERAGE
-------- -------- --------
<S> <C> <C> <C>
Period beginning on 3/11/00 and ending on
7/05/00........................................ 1.64 1.17 1.38
One month period ending on 7/05/00............... 1.41 1.22 1.33
</TABLE>
COMPARABLE COMPANIES ANALYSIS. Salomon Smith Barney compared financial,
operating and stock market information, and forecasted financial information for
Forcenergy and Forest, with the same information for selected publicly traded
independent oil and gas exploration and production companies. The selected
comparable companies considered by Salomon Smith Barney were:
- Barrett Resources Corporation
- Basin Exploration Inc.
- Chieftain International Inc.
- EOG Resources Inc.
- The Houston Exploration Company
- Louis Dreyfus Natural Gas Corporation
- Meridian Resources Co.
- Noble Affiliates Inc.
- Newfield Exploration Company
- Pogo Producing Company
- Stone Energy Corporation
The forecasted financial information used by Salomon Smith Barney for the
selected comparable companies in the course of these analyses was based on
information published by First Call Corporation, which compiles summaries of
financial forecasts published by various investment banking firms. With respect
to Forcenergy and Forest, the forecasted financial information used by Salomon
Smith Barney was based on information provided by the respective managements of
Forcenergy and Forest as well as commodity pricing information published by
First Call Corporation.
For each of the selected comparable companies, Salomon Smith Barney derived
and compared the ratio of:
- the company's equity value (defined as fully-diluted common shares
outstanding multiplied by the share price) as of July 5, 2000 to its
estimated cash flow (defined as net income plus depreciation, depletion,
amortization and deferred tax expenses) for 2000;
- the company's equity value as of July 5, 2000 to its estimated cash flow
for 2001;
- the company's firm value (defined as equity value less cash and option
proceeds plus indebtedness plus the value of the preferred stock) to its
estimated EBITDA (defined as earnings before interest, taxes, depreciation
and amortization expenses) for 2000;
- the company's firm value to its estimated EBITDA for 2001; and
- the company's firm value per thousand cubic foot equivalent (Mcfe) of
proven reserves as of December 31, 1999.
58
<PAGE>
The following table sets forth the results of these calculations:
<TABLE>
<CAPTION>
RANGE MEDIAN
------------- --------
<S> <C> <C>
Equity Value/Estimated Cash Flow for 2000.............. 2.8x - 6.5x 4.5x
Equity Value/Estimated Cash Flow for 2001.............. 3.0x - 5.9x 4.0x
Firm Value/Estimated EBITDA for 2000................... 4.3x - 7.3x 5.7x
Firm Value/Estimated EBITDA for 2001................... 4.1x - 7.7x 5.2x
Firm Value/Proven Reserves (Mcfe)...................... $1.11 - $3.07 $1.55
</TABLE>
Based on the information derived from the selected comparable companies,
Salomon Smith Barney derived equity value reference ranges for Forcenergy and
Forest. Salomon Smith Barney then translated these reference equity value ranges
into an implied exchange ratio range of 1.46 to 1.59, as compared to the
transaction exchange ratio of 1.60. Additionally, when the present value of
potential synergies was added to the reference equity value range for
Forcenergy, the implied exchange ratio range derived was 1.46 to 1.75, as
compared to the transaction exchange ratio of 1.60.
No company used in the comparable public company analysis described above is
identical to Forcenergy or Forest. Accordingly, an examination of the results of
the analysis necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
businesses and other factors that could affect the public trading value of the
companies to which they are being compared.
DCF BLOWDOWN ANALYSIS--PROVED RESERVES. Salomon Smith Barney conducted a
discounted cash flow analysis to calculate the net present value of estimates of
future pre-tax cash flows generated from the production of each company's proved
reserves as of December 31, 1999, adjusted for production through March 31,
2000, for each of Forcenergy and Forest.
Salomon Smith Barney's analysis included varying the selling prices for oil
and gas. Salomon Smith Barney used two pricing cases. The "Base Case" reflected
commodity prices of $25.00 for oil and $3.25 for natural gas in 2000 and 2001
and commodity prices based on the New York Mercantile Exchange forward commodity
strip prices as of June 19, 2000, for oil through fiscal year 2006 and for
natural gas through fiscal year 2003, and assuming increases of 2% per year
thereafter. The "Down Case" reflected commodity prices of $25.00 for oil and
$3.25 for natural gas in 2000 and 2001 and commodity prices of $18.00 for oil
and $2.50 for natural gas thereafter.
Based upon this analysis, Salomon Smith Barney calculated equity value
reference ranges for each of Forest and Forcenergy to derive an implied exchange
ratio reference range of 2.97 to 4.62 as compared to the transaction exchange
ratio of 1.60.
DCF BLOWDOWN ANALYSIS--ALL RESERVE CATEGORIES. Salomon Smith Barney
conducted a discounted cash flow analysis to calculate the net present value of
estimates of future pre-tax cash flows generated from the production of each
company's proved, probable and possible reserves as of December 31, 1999,
adjusted for production through March 31, 2000, for each of Forcenergy and
Forest.
Salomon Smith Barney's analysis included varying the selling prices for oil
and gas using the Base Case and the Down Case.
Based upon this analysis, Salomon Smith Barney calculated equity value
reference ranges for each of Forest and Forcenergy to derive an implied exchange
ratio reference range of 2.06 to 2.59 as compared to the transaction exchange
ratio of 1.60.
NAV ANALYSIS. Salomon Smith Barney conducted a net asset value analysis to
calculate equity value reference ranges for each of Forcenergy and Forest to
derive an implied exchange ratio range. The net asset value analysis involved
adding to the DCF Blowdown Analysis the estimated value of
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<PAGE>
additional assets controlled by each company, including undeveloped acreage,
non-cash working capital and other balance sheet assets.
Salomon Smith Barney's analysis included varying the selling prices for oil
and gas using the Base Case and the Down Case. For the purposes of sensitizing
the NAV Analysis, Salomon Smith Barney varied the estimated value of the
additional undeveloped acreage controlled by each company, using a lower value
in conjunction with the Down Case and a higher value in conjunction with the
Base Case.
Based upon this analysis, Salomon Smith Barney calculated equity value
reference ranges for each of Forest and Forcenergy to derive an implied exchange
ratio range of 1.53 to 1.75 in the Base Case, and an implied exchange ratio
range of 1.52 to 1.86 in the Down Case. When the present value of potential
synergies was added to the Forcenergy equity value reference range, the derived
implied exchange ratio range was 1.53 to 1.91 in the Base Case and 1.52 to 2.09
in the Down Case, in each case as compared to the transaction exchange ratio of
1.60.
CONTRIBUTION ANALYSIS. Salomon Smith Barney reviewed the relative
contribution from each of Forest and Forcenergy to the merged entity for each of
the following financial and operating items:
- EBITDA for 1999 and estimated 2000 and 2001;
- EBITDA, net of an estimated replacement cost of reserves based upon
5 year historical averages for Forest and Forcenergy, for 1999 and
estimated 2000 and 2001;
- production of oil and gas for 1999 and estimated 2000 and 2001;
- fiscal year end 1999 reserves;
- fiscal year end 1999 after tax value of the standardized measure of net
future revenues;
- total assets at March 31, 2000;
- equity book value at March 31, 2000;
- cash flow for 1999 and estimated 2000 and 2001;
- cash flow, net of an estimated replacement cost of reserves based upon
5 year historical averages for Forest and Forcenergy, for 1999 and
estimated 2000 and 2001;
- net income for 1999 and estimated 2000 and 2001;
- common equity market value at March 31, 2000; and
- firm value at March 31, 2000.
The indicated ratios, excluding those that were not meaningful, showed an
implied exchange ratio reference range of 1.07 to 3.38 as compared to the
transaction exchange ratio of 1.60.
PRECEDENT TRANSACTIONS ANALYSIS. Salomon Smith Barney reviewed publicly
available information regarding ten recent pending or completed exploration and
production industry stock acquisitions. The precedent transactions considered by
Salomon Smith Barney were the following (in each case, the acquiring company's
name is listed first and the target's name is listed second):
- Devon Energy Corp./Santa Fe Snyder;
- Anadarko Petroleum Corp./Union Pacific Resources Group Inc.
- Burlington Resources Inc./Poco Petroleums Ltd.
- Devon Energy Corp./PennzEnergy Company
- Santa Fe Energy Resources/Snyder Oil Corp.
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<PAGE>
- Seagull Energy Corp./Ocean Energy Inc.
- Lomak Petroleum Inc./Domain Energy Corporation
- Ocean Energy, Inc./United Meridian Corp.
- Burlington Resources Inc./Louisiana Land & Exploration Co.
- Meridian Resource Co./Cairn Energy USA
With respect to the financial information for the companies involved in the
precedent transactions, Salomon Smith Barney relied on information available in
public documents, equity research reports published by certain investment banks
and First Call Corporation estimates. With respect to Forcenergy, the forecasted
financial information used by Salomon Smith Barney was based on information
provided by, or discussed with, Forcenergy's management.
For the proposed transaction and each precedent transaction, Salomon Smith
Barney derived the following:
- the multiple of the equity value of the acquired company implied by the
transaction value to the acquired company's cash flow for the last
twelve-month period for which financial results were available prior to
the announcement ("LTM Cash Flow");
- the multiple of the equity value of the acquired company implied by the
transaction value to the acquired company's estimated cash flow for the
twelve-month period following the announcement of the transaction based on
public sources prior to the announcement ("Estimated Cash Flow");
- the multiple of firm value implied by the transaction value to the
acquired company's EBITDA for the last twelve-month period for which
financial results were available prior to the announcement ("LTM EBITDA");
- the multiple of firm value implied by the transaction value to the
acquired company's estimated EBITDA for the twelve-month period following
the announcement of the transaction based on public sources prior to the
announcement ("Estimated EBITDA");
- the multiple of firm value of the acquired company implied by the
transaction value per Mcfe of its proven reserves as of the end of the
company's last fiscal year immediately preceding the announcement;
- the relative percentage of the multiple of firm value of the acquired
company implied by the transaction value per Mcfe of its proven reserves
as of the end of the company's last fiscal year immediately preceding the
announcement as compared to the multiple implied by the firm value of the
acquirer based on its trading value on the day prior to the transaction
announcement per Mcfe of its proven reserves ("Relative Firm Value/Mcfe");
and
- the multiple of firm value of the acquired company implied by the
transaction value plus estimated future development costs, as reported in
the most recent financial statement ("Adjusted Firm Value") per Mcfe of
its proven reserves as of the end of the company's last fiscal year
immediately preceding the announcement.
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<PAGE>
The following table sets forth the results of these analyses as well as
those derived by Salomon Smith Barney for Forcenergy at the transaction exchange
ratio of 1.60 and assuming Forest's closing share price on July 5, 2000:
<TABLE>
<CAPTION>
FORCENERGY AT
RANGE MEDIAN TRANSACTION PRICE
-------------------- -------- -----------------
<S> <C> <C> <C>
Equity Value/ LTM Cash Flow............................. 3.9x- 11.1x 6.5x 4.2x
Equity Value/Estimated Cash Flow........................ 3.8x- 8.2x 5.3x 3.7x
Firm Value/LTM EBITDA................................... 3.7x- 11.3x 7.5x 5.1x
Firm Value/Estimated EBITDA............................. 4.3x- 9.3x 6.9x 4.9x
Firm Value/Proven Reserves (Mcfe)....................... $0.91- $2.61 $1.31 $1.36
Relative Firm Value /Proven Reserves.................... 78%- 176% 105% 78%
Adjusted Firm Value/ Proven Reserves (Mcfe)............. $1.11- $3.17 $1.61 $1.83
</TABLE>
PRECEDENT ASSET TRANSACTIONS. Salomon Smith Barney also reviewed publicly
available information regarding eight recent exploration and production industry
asset acquisitions:
- Westport Oil and Gas's acquisition of assets from Equitable Resources,
Inc;
- Santa Fe Snyder Corporation's acquisition of assets from USX-Marathon
Group;
- Consolidated Natural Gas's acquisition of assets from Pioneer Natural
Resources Co;
- ENI SpA's acquisition of assets from Royal Dutch/Shell Group;
- Santa Fe Snyder's acquisition of assets from Royal Dutch/Shell Group;
- An undisclosed purchaser's acquisition of assets from MCN Energy Group
Inc;
- Apache Corp.'s acquisition of assets from Royal Dutch/Shell Group; and
- Energen/Westport's acquisition of assets from Total S.A.
With respect to the financial information for the companies involved in the
precedent transactions, Salomon Smith Barney relied on information available in
public documents, equity research reports published by certain investment banks
and First Call Corporation estimates. With respect to Forcenergy, the forecasted
financial information used by Salomon Smith Barney was based on information
provided by, or discussed with, Forcenergy's management.
For the proposed transaction and each precedent transaction, Salomon Smith
Barney derived the following:
- the multiple of firm value of the acquired company implied by the
transaction value per Mcfe of its proven reserves as of the end of the
company's last fiscal year immediately preceding the announcement; and
- the multiple of firm value of the acquired company implied by the
transaction value per Mcfe of its annual production for the last twelve
month period information was available prior to the announcement.
The following table sets forth the results of these analyses as well as
those derived by Salomon Smith Barney for Forcenergy at the transaction exchange
ratio of 1.60 and assuming Forest's closing share price on July 5, 2000:
<TABLE>
<CAPTION>
FORCENERGY
RANGE MEDIAN AT TRANSACTION PRICE
-------------------- -------- --------------------
<S> <C> <C> <C>
Firm Value/Proven Reserves (Mcfe).................... $ 0.73 - $1.52 $0.98 $1.36
Firm Value/LTM Production............................ $ 4.00 - $8.69 $5.22 $8.67
</TABLE>
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PRO FORMA MERGER CONSEQUENCES. Salomon Smith Barney analyzed certain pro
forma effects on Forest from the merger for the fiscal years 2000 and 2001
including the effects on earnings per share, cash flow per share, reserves per
share and production per share. In completing its analysis, Salomon Smith Barney
included the pro forma impact of potential synergies as if such synergies were
realized immediately.
The following table shows the accretion or dilution to the shareholders of
Forest for the statistics and periods indicated.
<TABLE>
<CAPTION>
STATISTIC % ACCRETION /(DILUTION) AT TRANSACTION EXCHANGE RATIO
--------- -----------------------------------------------------
<S> <C>
2000 Cash Flow Per Share..................... 16.1%
2001 Cash Flow Per Share..................... 12.0%
2000 Earnings Per Share...................... (5.1%)
2001 Earnings Per Share...................... (8.7%)
FYE 1999 Reserves Per Share.................. 11.1%
2000 Production Per Share.................... 15.8%
</TABLE>
In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
Forest or Forcenergy. The analyses which Salomon Smith Barney performed are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by the analyses. These
analyses were prepared solely as part of Salomon Smith Barney's analysis of the
fairness, from a financial point of view, of the merger consideration to Forest.
The analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future.
Pursuant to an engagement letter dated November 30, 1999, Forest agreed to
pay to Salomon Smith Barney a fee of approximately $4.25 million if the merger
is completed, $250,000 of which has previously been paid. Forest also agreed to
indemnify Salomon Smith Barney and certain related persons against various
liabilities relating to or arising out of its engagement.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and other purposes. In the past, Salomon Smith Barney and its affiliates have
rendered certain investment banking and financial advisory services to Forest
and Forcenergy for which they received compensation. In addition, in the
ordinary course of their business, Salomon Smith Barney and its affiliates may
actively trade the securities of Forest and Forcenergy for their own account and
the accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities. Salomon Smith Barney and its affiliates,
including Citigroup Inc., may have other business relationships with Forest and
Forcenergy. Forest's board retained Salomon Smith Barney based on Salomon Smith
Barney's expertise in the valuation of companies as well as its substantial
experience in transactions such as the merger.
CHASE SECURITIES
Chase Securities delivered its written opinion, dated as of July 10, 2000,
to Forest's board of directors, to the effect that, as of that date and based
upon the assumptions made, matters considered and limits of review set forth in
its opinion, the merger consideration was fair to Forest from a financial point
of view.
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<PAGE>
The full text of Chase Securities' written opinion dated as of July 10,
2000, which sets forth the assumptions made, matters considered and certain
limitations on the scope of review undertaken by Chase Securities, is attached
as Annex D to this joint proxy statement/prospectus. Shareholders are urged to
read this opinion in its entirety. Chase Securities' opinion was provided for
the use and benefit of Forest's board of directors in its evaluation of the
merger, was directed only to the fairness to Forest of the merger consideration
from a financial point of view, and does not constitute a recommendation as to
how any shareholder should vote with respect to the issuance of Forest common
shares or any other matters relating to the merger. This summary of Chase
Securities' opinion is qualified in its entirety by reference to the full text
of its opinion, which is attached to this joint proxy statement/prospectus as
Annex D.
In arriving at its opinion, Chase Securities, among other things:
- reviewed a draft dated July 7, 2000 of the merger agreement;
- reviewed certain publicly available business and financial information
that Chase Securities deemed relevant relating to Forest and Forcenergy
and the industries in which they operate;
- reviewed certain internal non-public financial and operating data and
forecasts provided to Chase Securities by the management of Forest
relating to its business, as well as the amount and timing of the cost
savings and related expenses and synergies expected to result from the
merger, which are referred to as the synergies, furnished to Chase
Securities by Forest and Forcenergy;
- reviewed certain internal non-public financial and operating data and
forecasts provided to Chase Securities by the management of Forcenergy
relating to its business, which included financial forecasts for fiscal
years 2000 and 2001 only, having been advised that Forcenergy had not
prepared such forecasts beyond fiscal year 2001;
- discussed, with members of the senior managements of Forest and
Forcenergy, Forest's and Forcenergy's operations, historical financial
statements and future prospects, before and after giving effect to the
merger and the synergies;
- compared the financial and operating performance of Forest and Forcenergy
with publicly available information concerning certain other companies
Chase Securities deemed comparable and reviewed the relevant historical
stock prices of Forest common shares and shares of Forcenergy common stock
and certain publicly traded securities of such other companies;
- compared the proposed financial terms of the merger with the financial
terms of certain recent transactions Chase Securities deemed reasonably
comparable to the merger and otherwise relevant to Chase Securities'
inquiry; and
- made such other analyses and examinations as Chase Securities deemed
necessary or appropriate.
In rendering its opinion, Chase Securities assumed and relied upon, without
assuming any responsibility for verification, the accuracy and completeness of
all of the financial and other information provided to, discussed with or
reviewed by or for Chase Securities, or publicly available, for purposes of its
opinion and further relied upon the assurance of the managements of Forest and
Forcenergy that they were not aware of any facts that would make such
information inaccurate or misleading. Chase Securities neither made nor obtained
any independent evaluations or appraisals of the assets or liabilities of Forest
or Forcenergy, nor did Chase Securities conduct a physical inspection of the
properties or facilities of Forest or Forcenergy. Chase Securities assumed that
the financial forecasts and the synergies provided to or discussed with it by
Forest and Forcenergy had been reasonably determined on bases reflecting the
best currently available estimates and judgments of the managements of Forest
and Forcenergy as to the future financial performance of their respective
64
<PAGE>
companies and the synergies. Chase Securities expressed no view as to such
forecast or projection information or the assumptions on which they were based.
For purposes of rendering its opinion, Chase Securities assumed that, in all
respects material to its analysis, the representations and warranties of each
party contained in the merger agreement were true and correct, that each party
would perform all of the covenants and agreements required to be performed by it
under the merger agreement and that all conditions to the consummation of the
merger would be satisfied without waiver thereof. Chase Securities further
assumed that all material governmental, regulatory or other consents and
approvals would be obtained and that in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, or any amendments,
modifications or waivers to any documents to which either Forest or Forcenergy
is a party, as contemplated by the merger agreement, no restrictions would be
imposed or amendments, modifications or waivers made that would have any
material adverse effect on the contemplated benefits of the merger. Chase
Securities further assumed that the merger would qualify as a tax-free
reorganization for U.S. federal income tax purposes. Chase Securities also
assumed that the definitive merger agreement would not differ in any material
respects from the draft thereof furnished to Chase Securities.
Chase Securities did not participate in the structuring or the negotiation
of the terms of the merger.
Chase Securities' opinion was necessarily based on market, commodity price,
economic and other conditions as they existed and could be evaluated on the date
of its opinion. Chase Securities' opinion was limited to the fairness, from a
financial point of view, to Forest of the merger consideration and Chase
Securities expressed no opinion as to the merits of the underlying decision by
Forest to engage in the merger. In addition, Chase Securities expressed no
opinion as to the prices at which Forest common shares would trade following the
announcement or the consummation of the merger.
The following is a summary of certain financial and comparative analyses
performed by Chase Securities in arriving at its opinion. Some of these
summaries of financial analyses include information presented in tabular format.
In order to understand fully the financial analyses used by Chase Securities,
the tables must be read together with the text of each summary. The tables alone
do not constitute a complete description of the financial analyses.
HISTORICAL EXCHANGE RATIO ANALYSIS. Chase Securities reviewed the per share
daily closing market price movements of Forest common shares and shares of
Forcenergy common stock for the period from March 13, 2000, the first
post-bankruptcy trading day for shares of Forcenergy common stock, to July 7,
2000, and calculated the historical exchange ratios during this period implied
by dividing the daily closing prices per share of Forcenergy common stock by
those of Forest common shares and the averages of those historical trading
ratios for the one-week, two-week, one-month and two-month periods ending
July 7, 2000 and the period from March 13, 2000 to July 7, 2000. The analysis
resulted in the following average historical trading ratios for the periods
indicated (rounded to the nearest hundredth):
<TABLE>
<CAPTION>
PERIOD ENDING JULY 7, 2000 IMPLIED EXCHANGE RATIO
-------------------------- ----------------------
<S> <C>
July 3, 2000............................................ 1.32x
Last 1 Week............................................. 1.24x
Last 2 Weeks............................................ 1.29x
Last 1 Month............................................ 1.31x
Last 2 Months........................................... 1.32x
March 13, 2000 to July 7, 2000.......................... 1.36x
</TABLE>
65
<PAGE>
CONTRIBUTION ANALYSIS. Chase Securities estimated the contribution of each
of Forest and Forcenergy to the pro forma combined company with respect to:
- projected discretionary cash flow;
- projected earnings before interest, taxes, depreciation and amortization,
which is referred to as EBITDA;
- projected production for fiscal years 2000 and 2001;
- projected total assets for fiscal years 2000 and 2001;
- fiscal year 1999 actual proven reserves; and
- adjusted proven reserves.
The reserve measures for the adjusted proven reserves were based upon
reserve reports provided by Forest and Forcenergy management, risk-adjusted at
90% proved developed producing, which is referred to as PDP, 70% proved
developed non-producing, which is referred to as PDNP, and 50% proved
undeveloped, which is referred to as PUD. The relative contributions of Forest
to the pro forma combined company based upon projected discretionary cash flow
and projected EBITDA resulted in an implied exchange ratio range of 1.94x to
2.21x.
COMPARABLE PUBLIC COMPANIES ANALYSIS. Using publicly available information,
Chase Securities compared certain financial and operating information and ratios
for Forest with corresponding financial and operating information and ratios for
the following five companies in lines of business believed to be generally
comparable to those of Forest, as follows:
- Barrett Resources Corporation;
- Tom Brown, Inc.;
- The Houston Exploration Company;
- Stone Energy Corporation; and
- Swift Energy Company.
The analysis indicated that:
- the ratio of the equity value, meaning the market value of equity, to
projected discretionary cash flow ranged from 4.1x to 7.5x for 2000, with
a mean of 5.6x and a median of 5.3x, and ranged from 3.9x to 6.7x for
2001, with a mean of 5.2x and a median of 4.9x; and
- the ratio of the firm value, meaning the market value of equity plus total
debt, preferred stock and minority interest minus cash as of March 31,
2000, to estimated earnings before interest, taxes, depreciation,
amortization and exploration expense, which is referred to as EBITDAX,
ranged from 4.9x to 8.3x for 2000, with a mean of 6.2x and a median of
6.0x, and ranged from 4.7x to 8.3x for 2001, with a mean of 6.1x and
median of 5.8x.
Chase Securities also compared certain financial and operating information
and ratios for Forcenergy with corresponding financial and operating information
and ratios for the following eight companies in lines of business believed to be
generally comparable to those of Forcenergy, as follows:
- Chieftain International, Inc.;
- Comstock Resources, Inc.;
- EEX Corporation;
- The Houston Exploration Company;
- The Meridian Resource Corporation;
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<PAGE>
- St. Mary Land & Exploration Company;
- Stone Energy Corporation; and
- Swift Energy Company.
This analysis indicated that:
- the ratio of the equity value to projected discretionary cash flow ranged
from 1.9x to 6.6x for 2000, with a mean of 4.0x and a median of 4.1x, and
ranged from 1.7x to 6.0x for 2001, with a mean and median of 3.7x; and
- the ratio of the firm value to estimated EBITDAX ranged from 4.4x to 6.0x
for 2000, with a mean of 5.0x and a median of 4.8x, and ranged from 3.7x
to 5.8x for 2001, with a mean of 4.9x and median of 5.1x.
Based upon the range of multiples derived from the analysis conducted for
the two sets of companies listed above, Chase Securities estimated an equity
value reference range per Forest common share of $15.10 to $20.50, and an equity
value reference range per share of Forcenergy common stock of $23.10 to $30.40.
The analysis yielded the following implied exchange ratios (rounded to the
nearest hundredth):
<TABLE>
<CAPTION>
COMPARISON IMPLIED EXCHANGE RATIO
---------- ----------------------
<S> <C>
Lowest estimated valuation of Forcenergy common stock
divided by highest estimated valuation of Forest
common shares......................................... 1.13x
Highest estimated valuation of Forcenergy common stock
divided by lowest estimated valuation of Forest common
shares................................................ 2.01x
</TABLE>
COMPARABLE ASSET TRANSACTIONS ANALYSIS. Chase Securities reviewed certain
publicly available information regarding selected asset sales in the oil and gas
exploration and production industry in two categories:
- Gulf Coast Asset Transactions and
- Gulf of Mexico--Offshore Asset Transactions.
For Gulf Coast Asset Transactions, the comparable transactions and the month
in which each transaction closed were as follows:
- Cabot Oil & Gas Corporation/Oryx Energy Company (December 1998);
- Cross Timbers Oil Company/EEX Corporation (April 1998);
- EEX Corporation/Tesoro Petroleum Corporation (December 1999);
- Forest Oil Corporation/LLOG Exploration Company (February 1998);
- The Meridian Resource Corporation/Shell Oil Company (June 1998); and
- Phillips Petroleum Company/Kelley Oil & Gas Corporation (May 1999).
For Gulf of Mexico--Offshore Asset Transactions, the comparable transactions
and the month in which each transaction closed were as follows:
- The Coastal Corporation/Titan Exploration, Inc. (May 1999);
- Eni SpA/Royal Dutch/Shell Group (August 1999);
- Enron Oil & Gas Company/Union Pacific Resources Group Inc. (August 1998);
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<PAGE>
- Newfield Exploration Company/an undisclosed private corporation
(August 1998);
- Santa Fe Snyder Corporation/USX-Marathon Group (January 2000);
- The Houston Exploration Company/Chevron Corporation (November 1998); and
- Westport Oil and Gas Company/Equitable Resources, Inc. (April 2000).
The analysis indicated that:
- for the Gulf Coast Asset Transactions, the ratio of transaction value to
proven thousands of cubic feet equivalent of reserves, which is referred
to as Mcfe, ranged from $0.73 to $1.38, with a mean of $1.04 and a median
of $1.00; and
- for the Gulf of Mexico--Offshore Asset Transactions, the ratio of
transaction value to proven Mcfe ranged from $0.80 to $1.25, with a mean
of $1.12 and a median of $1.20.
Based upon the range of multiples derived from the analysis conducted for
the transactions listed above, Chase Securities estimated a reference range for
the ratio of firm value to 1999 actual proven Mcfe for Forcenergy of $1.00 to
$1.40. This reference range translated into an implied equity value reference
range per Forcenergy common share of $16.80 to $27.50.
The analysis yielded the following implied exchange ratios (rounded to the
nearest hundredth):
<TABLE>
<CAPTION>
COMPARISON IMPLIED EXCHANGE RATIO
---------- ----------------------
<S> <C>
Lowest estimated valuation of shares of Forcenergy
common stock divided by closing share price of Forest
common shares as of July 7, 2000...................... 1.05x
Highest estimated valuation of shares of Forcenergy
common stock divided by closing share price of Forest
common shares as of July 7, 2000...................... 1.72x
</TABLE>
PREMIUMS PAID ANALYSIS. Chase Securities reviewed the premiums paid in
selected business combinations in the oil and gas exploration and production
industry that Chase Securities determined were comparable to the merger. The
transactions and the month in which each transaction was announced were:
- Devon Energy Corporation's acquisition of Santa Fe Snyder Corporation
(May 2000);
- Anadarko Petroleum Corporation's acquisition of Union Pacific Resources
Group Inc. (April 2000);
- Devon Energy Corporation's acquisition of PennzEnergy Company (May 1999);
- Sante Fe Energy Resources, Inc.'s acquisition of Snyder Oil Corporation
(January 1999);
- Seagull Energy Corporation's acquisition of Ocean Energy, Inc.
(November 1998);
- Kerr-McGee Corporation's acquisition of Oryx Energy Company
(October 1998);
- Lomak Petroleum, Inc.'s acquisition of Domain Energy Corporation
(May 1998);
- Atlantic Richfield Co.'s acquisition of Union Texas Petroleum
Holdings, Inc. (May 1998);
- Ocean Energy, Inc.'s acquisition of United Meridian Corporation
(December 1997);
- Chesapeake Energy Corporation's acquisition of Hugoton Energy Corporation
(November 1997);
- Texaco Inc.'s acquisition of Monterey Resources, Inc. (August 1997);
- Burlington Resources Inc.'s acquisition of The Louisiana Land and
Exploration Company (July 1997);
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<PAGE>
- The Meridian Resource Corporation's acquisition of Cairn
Energy USA, Inc. (July 1997);
- Louis Dreyfus Natural Gas Corp.'s acquisition of American Exploration
Company (June 1997);
- Forcenergy Inc's acquisition of Convest Energy Corporation (June 1997);
- Monterey Resources, Inc.'s acquisition of McFarland Energy, Inc.
(June 1997); and
- MESA Inc.'s acquisition of Parker & Parsley Petroleum Company
(April 1997).
For each transaction listed above, Chase Securities calculated the premium
represented by the offer price over the target company's share price one day,
one week and one month prior to the date of the transaction's announcement. The
analysis indicated that:
- the premium to the share price one day prior to announcement ranged from
negative 3.6% to 50.6%, with a mean of 16.8% and a median of 13.0%;
- the premium to the share price one week prior to announcement ranged from
negative 9.6% to 54.8%, with a mean of 21.2% and a median of 16.1%; and
- the premium to the share price one month prior to announcement ranged from
negative 15.6% to 74.9%, with a mean of 24.7% and a median of 21.6%.
Chase Securities calculated a range of implied prices per share of
Forcenergy common stock by applying the mean and median figures listed above to
the closing share price of Forcenergy common stock as of July 7, 2000. By
comparing this range of implied prices per share of Forcenergy common stock to
the closing price of Forest common shares as of July 7, 2000, Chase Securities
calculated a range of implied exchange ratios. Thus, the analysis yielded an
implied exchange ratio range of 1.50x to 1.65x (rounded to the nearest
hundredth).
RELATIVE VALUATION ANALYSIS. Chase Securities reviewed certain publicly
available information regarding selected merger transactions in the oil and gas
exploration and production industry that Chase Securities determined were
comparable to the merger. These merger transactions, along with the month in
which each transaction was announced, were as follows:
- Devon Energy Corporation's acquisition of Santa Fe Snyder Corporation
(May 2000);
- Anadarko Petroleum Corporation's acquisition of Union Pacific Resources
Group Inc. (April 2000);
- Talisman Energy Inc.'s acquisition of Rigel Energy Corporation
(August 1999);
- Burlington Resources Inc.'s acquisition of Poco Petroleums Ltd.
(August 1999);
- Devon Energy Corporation's acquisition of PennzEnergy Company (May 1999);
- Sante Fe Energy Resources, Inc.'s acquisition of Snyder Oil Corporation
(January 1999);
- Seagull Energy Corporation's acquisition of Ocean Energy, Inc.
(November 1998);
- Kerr-McGee Corporation's acquisition of Oryx Energy Company
(October 1998);
- Devon Energy Corporation's acquisition of Northstar Energy Corporation
(June 1998);
- Lomak Petroleum, Inc.'s acquisition of Domain Energy Corporation
(May 1998);
- Atlantic Richfield Company's acquisition of Union Texas Petroleum
Holdings, Inc. (May 1998); and
- Union Pacific Resources Group Inc.'s acquisition of Norcen Energy
Resources Limited (January 1998).
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<PAGE>
Chase Securities reviewed the ratios between the transaction value and
EBITDAX, earnings before interest and taxes, which is referred to as EBIT, the
after-tax present value of the estimated future net oil and gas cash flows
discounted at 10%, which is referred to as the A-T SEC PV 10, and proven Mcfe
for the transactions listed above. The analysis indicated that:
- the ratio of transaction value to EBITDAX ranged from 3.7x to 9.8x, with a
mean of 7.1x and a median of 7.4x, compared to the ratio implied by the
merger of 4.9x;
- the ratio of transaction value to EBIT ranged from 16.2x to 31.5x, with a
mean of 23.1x and a median of 21.7x, compared to the ratio implied by the
merger of 11.1x;
- the ratio of transaction value to A-T SEC PV 10 ranged from 1.2x to 2.5x,
with a mean and median of 1.9x, compared to the ratio implied by the
merger of 1.2x; and
- the ratio of transaction value to proven Mcfe ranged from $0.84 to $1.74,
with a mean of $1.19 and a median of $1.16, compared to the ratio implied
by the merger of $1.38.
For this analysis, the transaction value was defined as the equity purchase
price plus debt and preferred stock less cash. In completing this analysis,
Chase Securities assumed that the Forcenergy preferred stock was acquired for
68.6141 Forest common shares for each share of $1,000 stated value Forcenergy
preferred stock.
PRO FORMA MERGER ANALYSIS. Chase Securities also analyzed the pro forma
effects of the merger on the projected discretionary cash flow of Forest for
fiscal years 2000 and 2001, including synergies furnished to it by Forest
management. The analysis yielded the following percentages accretion to the
shareholders of Forest as a result of the merger.
<TABLE>
<CAPTION>
PERIOD ACCRETION
------ ---------
<S> <C>
2000........................................................ 7.8%
2001........................................................ 8.7%
</TABLE>
The following is a summary of implied exchange ratio ranges derived from
Chase Securities' historical exchange ratio analysis, contribution analysis,
comparable public companies analysis, comparable transactions analysis and
premiums paid analysis, all as described above:
<TABLE>
<CAPTION>
METHOD OF ANALYSIS IMPLIED EXCHANGE RATIO RANGE
------------------ ----------------------------
<S> <C>
Historical Exchange Ratio Analysis................. 1.17x to 1.64x
Contribution Analysis.............................. 1.94x to 2.21x
Comparable Public Companies Analysis............... 1.13x to 2.01x
Comparable Transactions Analysis................... 1.05x to 1.72x
Premiums Paid Analysis............................. 1.50x to 1.65x
</TABLE>
The summary set forth above does not purport to be a complete description of
the analyses performed by Chase Securities in arriving at its opinion. Arriving
at a fairness opinion is a complex process not necessarily susceptible to
partial analysis or summary description. Chase Securities believes that its
analyses must be considered as a whole and that selecting portions of analyses
and of the factors considered by it, without considering all such factors and
analyses, could create a misleading view of the processes underlying its
opinion. Chase Securities did not assign relative weights to any of its analyses
in preparing its opinion. The matters considered by Chase Securities in its
analyses were based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Forest's and Forcenergy's
control and involve the application of complex methodologies and educated
judgment. Any estimates incorporated in the analyses performed by Chase
Securities are not necessarily
70
<PAGE>
indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and such estimates are
inherently subject to uncertainty. None of the comparable companies used in the
comparable public companies analysis described above is identical to Forest or
Forcenergy, and none of the comparable transactions used in the comparable
transactions analysis, the premiums paid analysis or the relative valuation
analysis described above is identical to the merger. Accordingly, an analysis of
publicly traded comparable companies and transactions is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
Forest's board of directors selected Chase Securities to act as its
financial advisor on the basis of the reputation of Chase Securities as an
internationally recognized investment banking firm with substantial expertise in
transactions similar to the merger and because it is familiar with Forest and
its business. As part of its financial advisory business, Chase Securities is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. Chase Securities acted as financial advisor to Forest's
board of directors in connection with the merger. In the ordinary course of
business, Chase Securities or its affiliates may trade in the debt and equity
securities of Forest and Forcenergy for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities.
The terms of the engagement of Chase Securities by Forest's board of
directors are set forth in a letter dated June 1, 2000. Pursuant to the terms of
the letter agreement, Forest agreed to pay to Chase Securities a fee of $500,000
upon delivery of Chase Securities' fairness opinion. In addition to this
compensation, Forest has also agreed to reimburse Chase Securities for its
reasonable out-of-pocket expenses (including the fees of its legal counsel) and
to indemnify Chase Securities and certain related persons from and against
certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws, arising out of its engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
FORCENERGY
Some of Forcenergy's directors and executive officers have interests in the
merger that are different from the Forcenergy stockholders' interests.
CERTAIN EXECUTIVE OFFICERS. Pursuant to their respective employment
agreements, the following Forcenergy officers are entitled to receive the
benefits described below. The merger will constitute a "change of control" for
purposes of these employment agreements.
- Richard G. Zepernick, Jr., President and Chief Executive Officer, will
receive a bonus equal to his base salary of $350,000 payable within 15
days of the date of the change of control. It is expected that
Mr. Zepernick will continue employment with Forest as President and Chief
Operating Officer. Under his current employment agreement, Mr. Zepernick
may resign his employment at any time up to two years after the date of
the change of control and will receive 2.5 times his total annual
compensation, an indemnity for any excise tax liability of up to $500,000
and a continuation of his health benefits for a period of 30 months. The
300,000 options for the purchase of shares of Forcenergy common stock held
by Mr. Zepernick will vest on consummation of the merger and will be
exercisable to purchase Forest common shares until the earlier to occur of
18 months after his employment is terminated or ten years from the date of
original grant.
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- E. Joseph Grady, Vice President, Treasurer and Chief Financial Officer,
will receive two times his base salary of $300,000 if his employment is
terminated following the merger. The 86,715 options for the purchase of
shares of Forcenergy common stock held by Mr. Grady will vest on
consummation of the merger and will be exercisable to purchase Forest
common shares until the earlier to occur of twelve months after his
employment is terminated or ten years from the date of original grant.
- Thomas F. Getten, Vice President--General Counsel and Secretary, will
receive two times his base salary of $300,000 if his employment is
terminated following the merger. The 65,802 options for the purchase of
shares of Forcenergy common stock held by Mr. Getten will vest on
consummation of the merger and will be exercisable to purchase Forest
common shares until the earlier to occur of twelve months after his
employment is terminated or ten years from the date of original grant.
- Robert G. Gerdes, Vice President--Geoscience, will receive two times his
base salary of $200,000 if his employment is terminated following the
merger. The 48,994 options for the purchase of shares of Forcenergy common
stock held by Mr. Gerdes will vest on consummation of the merger and will
be exercisable to purchase Forest common shares until the earlier to occur
of twelve months after his employment is terminated or ten years from the
date of original grant.
- Gary E. Carlson, Vice President--Alaska Division, will receive two times
his base salary of $275,000 if his employment is terminated following the
merger. The 58,596 options for the purchase of shares of Forcenergy common
stock held by Mr. Carlson will vest on consummation of the merger and will
be exercisable to purchase Forest common shares until the earlier to occur
of twelve months after his employment is terminated or ten years from the
date of original grant.
CERTAIN DIRECTORS. Pursuant to the merger agreement, Stephen A. Kaplan and
Forrest E. Hoglund, each a director of Forcenergy, will be appointed directors
of Forest.
The Oaktree funds own 11,676 shares of Forcenergy's preferred stock,
representing approximately 28% of the outstanding Forcenergy preferred stock. In
addition to their positions as directors of Forcenergy, Stephen A. Kaplan and B.
James Ford serve as principal and vice president, respectively, of Oaktree.
Lehman Brothers owns 11,625 shares of Forcenergy's preferred stock, representing
approximately 28% of the outstanding Forcenergy preferred stock. In addition to
his position as a director of Forcenergy, Gregory P. Pipkin is a managing
director of Lehman. Pursuant to the terms of the certificate of designation for
the preferred stock, upon the occurrence of a change of control, holders of
preferred stock are entitled to "put" their shares of preferred stock to
Forcenergy for a cash amount equal to 101% of the $1,000 per share liquidation
preference. Pursuant to the merger agreement, and in lieu of any such cash
payment, each share of Series A Preferred Stock will be converted into the right
to receive 68.6141 Forest common shares.
The Oaktree funds own warrants for the purchase of 505,530 shares of
Forcenergy common stock. Lehman owns warrants for the purchase of 503,325 shares
of Forcenergy common stock. Pursuant to the terms of the merger agreement,
warrants to purchase Forcenergy common stock will be converted into warrants to
purchase of Forest common shares. The number of shares purchasable under these
warrants and the exercise price therefor will be adjusted to reflect the
exchange ratio. Thus, although the economic value represented by these warrants
will not be increased or decreased as a result of the merger, the merger may be
considered as providing an additional benefit to Lehman and the Oaktree funds in
their capacity as warrantholders in that the Forest common shares for which the
warrants will be exercisable following the merger are expected to represent a
more liquid security than the Forcenergy common stock, which would facilitate
resales of the underlying shares following exercise of the warrants.
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Lehman has been retained by Forcenergy as a financial advisor in connection
with the merger, for which Lehman will be paid a fee of $3 million upon
consummation of the merger.
Two of Forcenergy's directors, Michael Bennett and Clifford Hickey, are
designated by The Anschutz Corporation, which also has designated directors of
Forest. Mr. Bennett and Mr. Hickey did not participate in the Forcenergy board's
decision on this transaction.
FOREST
Some of Forest's directors have interests in the merger that are different
from Forest shareholders' interests.
Three of Forest's directors, Philip Anschutz, Craig Slater and Cannon
Harvey, are designated by The Anschutz Corporation. The Anschutz Corporation
owns both common stock and preferred stock of Forcenergy that will be converted
into Forest common shares in the merger. However, Mr. Anschutz, Mr. Slater and
Mr. Harvey did not participate in the Forest board's decision on this
transaction due to this interest of The Anschutz Corporation.
ACCOUNTING TREATMENT
The merger will be accounted for as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Forest and Forcenergy will be carried forward to the
combined company at their recorded amounts, and income of the combined company
will include income of Forest and Forcenergy for the entire fiscal year in which
the merger occurs. The results of operations of Forecenergy prior to
December 31, 1999, the effective date of its reorganization and fresh start
reporting, will not be included in the financial statements of the combined
company. Unaudited pro forma combined financial statements giving effect to the
merger are presented under "Condensed Pro Forma Combined Financial Information."
The merger agreement provides that it is a condition to the obligations of
Forest and Forcenergy that certain affiliates of Forest and Forcenergy execute a
written agreement at the effective time of the merger to the effect that they
have not transferred shares of Forest common stock or Forcenergy common stock
within the preceding 30 days and will not transfer any Forest common shares or
shares of Forcenergy common stock prior to the date that Forest publishes
financial statements that reflect 30 days of consolidated operations of Forest
and Forcenergy (which agreements relate to the ability of Forest to account for
the merger as a pooling of interests).
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Act, the merger may not be consummated unless
certain filings have been submitted to the Federal Trade Commission and the
Antitrust Division of the U.S. Department of Justice and certain waiting period
requirements have been satisfied. On , 2000, Forest and Forcenergy
submitted the required filings to the Federal Trade Commission and the Antitrust
Division. The waiting period under the Hart-Scott-Rodino Act terminated on
, 2000.
The Federal Trade Commission and the Antitrust Division frequently
scrutinize the legality under the antitrust laws of transactions like the
merger. At any time before or after the completion of the merger, the Federal
Trade Commission or the Antitrust Division could take any action under the
antitrust laws as its deems necessary or desirable in the public interest,
including seeking to enjoin the completion of the merger or seeking the
divestiture of substantial assets of Forest or Forcenergy. Forest and Forcenergy
believe that the completion of the merger will not violate the antirust laws. We
cannot predict, however, whether the merger will be challenged on antitrust
grounds, or, if such a challenge is made, what the result will be.
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Other than as we describe in this document, the merger does not require the
approval of any U.S. federal or state or foreign agency. We will, however, be
required to make various filings with U.S. federal and state and foreign
governmental authorities to complete the merger.
LEGAL PROCEEDINGS
On March 21, 1999, Forcenergy and its wholly-owned subsidiary, Forcenergy
Resources Inc., filed voluntarily under Chapter 11 of the U.S. Bankruptcy Code
in order to facilitate the restructuring of Forcenergy's long-term debt,
revolving credit, trade and other obligations. Forcenergy continued to operate
as a debtor-in-possession subject to the bankruptcy court's supervision and
orders until its plan of reorganization (which was confirmed on January 19,
2000) became effective on February 15, 2000.
Forcenergy is a party to various claims and routine litigation arising in
the normal course of its business. Obligations of Forcenergy arising out of
activities prior to the March 21, 1999 bankruptcy petition date will be
discharged in accordance with the plan of reorganization. The largest remaining
disputed claim filed with the bankruptcy court is the claim of Escopeta Oil &
Gas Corp., Escopeta Production Alaska, Inc., Danny S. Davis, Robert Warthen and
Walten D. Wells (collectively, the "Escopeta Group"), which asserted a claim in
excess of $100 million. Forcenergy believes the Escopeta Group claim to be
without merit and continues to vigorously contest it. Based on information
currently available, management of Forcenergy believes, after consultation with
legal counsel, that the result of all remaining claims and litigation, including
that of the Escopeta Group, will not have a material adverse effect on the
financial position or results of operations of Forcenergy.
Pursuant to its plan of reorganization, Forcenergy established a reserve and
issued and deposited in the reserve shares of Forcenergy common stock to be
distributed to claimants in the event their disputed claims are finally
determined by the bankruptcy court to be allowed claims. The shares of
Forcenergy common stock in the reserve will be exchanged for Forest common
shares in accordance with the merger agreement. The shares deposited in the
reserve are sufficient to cover approximately $15 million in allowed claims. If
the shares in the reserve are inadequate to cover all allowed claims, then under
its plan of reorganization Forcenergy would be required to issue additional
shares of common stock to the holders of such claims. Forest has agreed,
pursuant to the merger agreement, to issue additional Forest common shares
(adjusted in accordance with the exchange ratio) to holders of allowed claims in
satisfaction of Forcenergy's obligation under the plan of reorganization in the
event the Forcenergy reserve is insufficient to cover all such allowed claims.
Forcenergy believes, however, that the shares in the reserve are adequate to
cover all remaining disputed claims that may be subsequently allowed.
APPRAISAL RIGHTS
The following summary of the provisions of Section 262 of the Delaware
General Corporation Law is not intended to be a complete statement of these
provisions and is qualified in its entirety by reference to the full text of
Section 262 of the Delaware General Corporation Law, a copy of which is attached
to this joint proxy statement/prospectus as Annex F and is incorporated into
this summary by reference.
Under Delaware law, Forcenergy common stockholders are not entitled to
appraisal rights in connection with the merger. However, holders of Forcenergy
preferred stock are entitled to appraisal rights under Delaware law. If the
merger is completed, each holder of Forcenergy preferred stock who (1) files
written notice with Forcenergy of an intention to exercise rights to appraisal
of his, her or its shares prior to the Forcenergy special meeting and
(2) follows the procedures set forth in Section 262 will be entitled to be paid
for his or her shares of Forcenergy preferred stock by the surviving corporation
the fair value in cash of the shares of Forcenergy preferred stock. The fair
value of shares of Forcenergy preferred stock will be determined by the Delaware
Court of Chancery, exclusive of any element of value arising from the merger.
The shares of Forcenergy preferred stock with respect to
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which holders have perfected their appraisal rights in accordance with
Section 262 and have not effectively withdrawn or lost their appraisal rights
are referred to in this joint proxy statement/ prospectus as the "dissenting
shares."
Within ten days after the effective date of the merger, Forcenergy, as the
surviving corporation in the merger, must mail a notice to all stockholders who
have complied with (1) and (2) above notifying such stockholders of the
effective date of the merger. Within 120 days after the effective date, holders
of Forcenergy preferred stock may file a petition in the Delaware Court of
Chancery for the appraisal of their shares, although they may, within 60 days of
the effective date, withdraw their demand for appraisal. Within 120 days of the
effective date, the holders of dissenting shares may also, upon written request,
receive from Forcenergy a statement setting forth the aggregate number of shares
with respect to which demands for appraisals have been received.
Appraisal rights are available only to the record holder of shares. If you
wish to exercise appraisal rights but have a beneficial interest in shares which
are held of record by or in the name of another person, such as a broker or
nominee, you should act promptly to cause the record holder to follow the
procedures set forth in Section 262 to perfect your appraisal rights. A demand
for appraisal should be signed by or on behalf of the stockholder exactly as the
stockholder's name appears on the stockholder's stock certificates. If the
shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the demand should be executed in that capacity, and if
the shares are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of a record holder; however, in the demand the
agent must identify the record owner or owners and expressly disclose that the
agent is executing the demand as an agent for the record owner or owners. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights for the shares held for one or
more beneficial owners and not exercise rights for the shares held for other
beneficial owners. In this case, the written demand should state the number of
shares for which appraisal rights are being demanded. When no number of shares
is stated, the demand will be presumed to cover all shares held of record by the
broker or nominee.
If any holder of Forcenergy preferred stock who demands appraisal of his or
her shares under Section 262 fails to perfect, or effectively withdraws or loses
the right to appraisal, his or her shares will be converted into a right to
receive a number of Forest common shares in accordance with the terms of the
merger agreement. Dissenting shares lose their status as dissenting shares if:
- the merger is abandoned;
- the stockholder seeking appraisal rights fails to make a timely written
demand for appraisal;
- neither Forcenergy nor the stockholder files a complaint or intervenes in
a pending action within 120 days after the effective date of the merger;
or
- the stockholder delivers to Forcenergy, as the surviving corporation,
within 60 days of the effective date of the merger, or thereafter with
Forcenergy's approval, a written withdrawal of the stockholder's demand
for appraisal of the dissenting shares, although no appraisal proceeding
in the Delaware Court of Chancery may be dismissed as to any stockholder
without the approval of the court.
Failure to follow the steps required by Section 262 of the Delaware General
Corporation Law for perfecting appraisal rights may result in the loss of
appraisal rights, in which event a Forcenergy stockholder will be entitled to
receive the consideration with respect to the holder's dissenting shares in
accordance with the merger agreement. In view of the complexity of the
provisions of Section 262 of the Delaware General Corporation Law, Forcenergy
preferred stockholders are encouraged to consult with their own advisors
regarding these appraisal rights.
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FEDERAL SECURITIES LAW CONSEQUENCES
All Forest common shares that Forcenergy stockholders will receive in the
merger will be freely transferable, except for Forest common shares that are
received by persons who are deemed to be "affiliates" of Forcenergy under the
Securities Act of 1933, as amended, at the time of the Forcenergy special
meeting. These affiliates may resell the Forest common shares they receive in
the merger only in transactions permitted by Rule 145 under the Securities Act
or as otherwise permitted under the Securities Act. Persons who may be deemed to
be affiliates of Forcenergy for the above purposes generally include individuals
or entities that control, are controlled by or are under common control with
Forcenergy, and include directors and certain executive officers of Forcenergy.
The merger agreement requires that Forcenergy use its reasonable best efforts to
cause each of these affiliates to deliver to Forest, prior to the effective
time, a written agreement to the effect that these persons will not sell,
transfer or otherwise dispose of any of the Forest common shares issued to them
in the merger in violation of the Securities Act or the related SEC rules.
Concurrently with the execution of the merger agreement, Forest entered into
a registration rights agreement with Lehman, the Oaktree funds and The Anschutz
Corporation. Those holders will have the right to demand registration for the
sale of their Forest common shares under the Securities Act of 1933 in certain
circumstances. See "Registration Rights Agreement."
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion summarizes the anticipated material
U.S. federal income tax consequences of the merger to Forcenergy stockholders.
This discussion addresses only those stockholders who hold their shares of
Forcenergy common stock as a capital asset, and does not address all of the
U.S. federal income tax consequences that may be relevant to particular
Forcenergy stockholders in light of their individual circumstances, or to
Forcenergy stockholders that are subject to special rules, such as:
- financial institutions;
- mutual funds;
- tax-exempt organizations;
- insurance companies;
- dealers in securities or foreign currencies;
- traders in securities who elect to apply a mark-to-market method of
accounting;
- foreign holders;
- persons who hold shares of Forcenergy common stock as a hedge against
currency risk or as part of a straddle, constructive sale or conversion
transaction; or
- holders who acquired their shares of Forcenergy common stock upon the
exercise of employee stock options or otherwise as compensation.
The following discussion is not binding on the Internal Revenue Service. It
is based upon the Internal Revenue Code of 1986, as amended, and the
regulations, rulings and decisions thereunder in effect as of the date of this
document, all of which are subject to change, possibly with retroactive effect.
Tax consequences under state, local and foreign laws and U.S. federal laws other
than U.S. federal income tax laws, are not addressed. FORCENERGY STOCKHOLDERS
ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
U.S. FEDERAL, STATE AND LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS IN THEIR
PARTICULAR CIRCUMSTANCES. It is a condition to the closing of the merger that
Forcenergy receive an opinion
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from its counsel, Weil, Gotshal & Manges LLP, and that Forest receives an
opinion from its tax advisor, Ernst & Young LLP, each to the effect that the
merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. The opinion is based on customary assumptions and
customary representations made by, among others, Forcenergy, Forest and Forest
Acquisition I Corporation. An opinion of counsel or other tax advisor represents
counsel's or the advisor's best legal judgment and is not binding on the
Internal Revenue Service or any court. No ruling has been, or will be, sought
from the Internal Revenue Service as to the U.S. federal income tax consequences
of the merger. Assuming the merger qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, holders of shares of
Forcenergy common stock that receive Forest common shares in the merger will not
recognize gain or loss for U.S. federal income tax purposes, except with respect
to cash, if any, they receive in lieu of a fractional Forest common share. Each
stockholder's aggregate tax basis in the Forest common shares received in the
merger will be the same as his aggregate tax basis in the shares of Forcenergy
common stock surrendered in the merger, decreased by the amount of any tax basis
allocable to any fractional share interest for which cash is received. The
holding period of the Forest common shares received in the merger by a holder of
shares of Forcenergy common stock will include the holding period of shares of
Forcenergy common stock that he surrendered in the merger. A holder of shares of
Forcenergy common stock that receives cash in lieu of a fractional Forest common
share will recognize gain or loss equal to the difference between the amount of
cash received and his tax basis in the shares of Forcenergy common stock
allocable to the fractional share. That gain or loss generally will constitute
capital gain or loss. In the case of an individual stockholder, any of this
capital gain generally will be subject to a maximum U.S. federal income tax rate
of 20% if the individual has held his shares of Forcenergy common stock for more
than 12 months on the date of the merger. The deductibility of capital losses is
subject to limitations for both individuals and corporations. Because Forest
common shares will remain unchanged in the merger, the merger will not cause
Forest shareholders to recognize any gain or loss. No gain or loss will be
recognized by Forest, Forcenergy or Forest Acquisition I Corporation. If the
reverse stock split is approved, Forest shareholders will not recognize gain or
loss as a result of this reverse stock split, but the tax basis of their shares
will be appropriately adjusted.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement, a
copy of which is attached as Annex A to this document and is incorporated in
this document by reference. This summary is qualified in its entirety by
reference to the merger agreement. You should carefully read the merger
agreement because it, and not this document, is the legal document that governs
the merger.
THE MERGER
At the effective time of the merger, Forest Acquisition I Corporation will
merge with and into Forcenergy, which will be the surviving corporation in the
merger and become a wholly owned subsidiary of Forest.
The closing date of the merger will occur no later than the second business
day following the date on which all conditions to the merger, other than those
conditions that by their nature are to be satisfied at the closing, have been
satisfied or waived, unless we agree on another time. As soon as practicable on
or after the closing date of the merger, we will file a certificate of merger
with the Secretary of State of the State of Delaware. The effective time of the
merger will be the time we file the certificate of merger with the Secretary of
State of the State of Delaware or at a later time as we may agree and specify in
the certificate of merger. We currently anticipate that we will complete the
merger shortly after the Forcenergy and Forest special meetings, assuming our
respective stockholders and shareholders approve at these meetings the merger
and the issuance of Forest common shares in connection with the merger and all
other conditions to the merger have been satisfied or waived.
MERGER CONSIDERATION
EXCHANGE RATIO
At the effective time of the merger,
- each share of Forcenergy common stock, including common stock held in the
reserve created pursuant to Forcenergy's plan of reorganization, issued
and outstanding immediately before the effective time of the merger (other
than shares of Forcenergy common stock held by Forcenergy, Forest or any
of their subsidiaries, which will be canceled and retired without the
right to receive any consideration in exchange therefor) will be converted
into the right to receive 1.6 Forest common shares (or 0.8 of a Forest
common share if the proposed 1-for-2 reverse stock split of the Forest
common shares is approved),
- (1) each issued and outstanding share of Forcenergy preferred stock with a
stated value of $1,000 (other than those shares held by Forcenergy, Forest
or any of their subsidiaries, which will be canceled and retired without
the right to receive any consideration in exchange therefor, and other
than shares held by persons who duly dissent from the merger and require
appraisal of their shares of preferred stock) will be converted into the
right to receive 68.6141 Forest common shares (or 34.30705 Forest common
shares if the reverse stock split is approved), and (2) all accrued and
unpaid dividends on each such outstanding share of Forcenergy preferred
stock, whether or not declared, will be converted into the right to
receive the number of Forest common shares as shall equal the product of
68.6141 (or 34.30705 if the reverse stock split is approved) and a
fraction, the numerator of which shall equal the amount of the accrued and
unpaid dividends on the share of preferred stock and the denominator of
which is $1,000, and
- (1) each outstanding warrant to purchase or acquire Forcenergy common
stock under the warrant agreements listed on a disclosure schedule to the
merger agreement will be converted into a warrant to purchase the number
of Forest common shares equal to 1.6 (or 0.8 if the proposed 1-for-2
reverse stock split of the Forest common shares is approved) times the
number of shares of Forcenergy common stock that could have been obtained
immediately prior to the
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effective time of the merger upon the exercise of the warrant at an
exercise price per share equal to the aggregate exercise price for shares
of Forcenergy common stock subject to the warrant under the applicable
warrant agreement divided by the aggregate number of Forest common shares
deemed purchasable pursuant to the warrant, and (2) Forest will assume the
obligations of Forcenergy under the warrant agreements.
FRACTIONAL SHARES
Certificates for fractional Forest common shares will not be issued in the
merger. Forcenergy stockholders who would otherwise receive fractional shares
will instead be entitled to receive a cash payment equal to the value of these
fractional share interests.
EXCHANGE PROCEDURES
As soon as reasonably practicable after the effective time of the merger,
but no later than 10 days thereafter, an exchange agent will mail a letter of
transmittal to each holder of record of Forcenergy stock certificates. This
letter of transmittal must be used in surrendering Forcenergy stock certificates
to the exchange agent for cancellation. Upon surrender of a Forcenergy stock
certificate for cancellation, together with a duly executed letter of
transmittal and any other documents that the exchange agent may reasonably
require, the holder of the Forcenergy stock certificate will be entitled to
receive in exchange therefor (a) a Forest certificate representing the number of
whole Forest common shares that the holder has the right to receive, (b) a check
representing the amount of cash payable in lieu of any fractional Forest common
shares, if any, and (c) unpaid dividends and distributions, if any, that the
holder has the right to receive pursuant to the merger agreement, after giving
effect to any required withholding tax. FORCENERGY STOCKHOLDERS SHOULD NOT SEND
IN THEIR FORCENERGY STOCK CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF
TRANSMITTAL.
After the effective time of the merger, each Forcenergy stock certificate,
until surrendered and exchanged, will represent only the right to receive a
certificate representing Forest common shares and cash in lieu of fractional
shares, if any, and unpaid dividends and distributions, if any. Holders of
Forcenergy stock certificates will not be entitled to receive any dividends or
other distributions with respect to Forest common shares declared or made by
Forest having a record date after the effective time of the merger until the
Forcenergy stock certificates are surrendered. Subject to applicable law,
following surrender of the Forcenergy stock certificates, such dividends and
distributions, if any, will be paid without interest.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary and substantially reciprocal
representations and warranties made by each of us to the other. These
representations and warranties relate to, among other things:
- corporate organization, qualification and good standing and ownership of
subsidiaries;
- capitalization;
- corporate power and authority to enter into the merger agreement, and due
execution, delivery and enforceability of the merger agreement;
- absence of a breach of charter documents, by-laws, material agreements,
orders, decrees, licenses or permits as a result of the merger;
- authorizations, consents, approvals and filings required to enter into the
merger agreement or to complete the transactions contemplated by the
merger agreement;
- timely and accurate filings with the SEC in compliance with applicable
rules and regulations;
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- undisclosed liabilities;
- compliance with applicable laws;
- environmental matters;
- employee benefits and ERISA compliance;
- absence of certain adverse changes or events;
- absence of undisclosed investigations, material litigation and material
judgments or injunctions;
- accuracy of information supplied for inclusion in the registration
statement, of which this document forms a part;
- stockholder rights plans;
- lack of ownership of the other party's common shares;
- tax matters and actions that would prevent the merger from receiving
certain tax treatment under the Internal Revenue Code;
- fairness opinions of financial advisors;
- required vote of stockholders and shareholders to approve the merger and
the issuance of Forest common shares in connection with the merger;
- eligibility of the merger for pooling of interests accounting treatment;
- insurance;
- labor and employee matters;
- reserve reports;
- material contracts;
- possession of required permits;
- intellectual property;
- hedging; and
- state takeover laws.
Forest also made a representation in the merger agreement regarding a letter
from a financial institution with respect to the availability of financing for
the transactions contemplated by the merger agreement. The merger agreement
contains representations and warranties relating to Forest Acquisition I
Corporation, including due organization, corporate authorization and
non-contravention.
The representations and warranties contained in the merger agreement will
not survive the merger, but they form the basis of certain conditions to our
obligations to complete the merger. Certain agreements in the merger agreement
will survive the effective time of the merger.
COVENANTS
We have each undertaken certain covenants in the merger agreement. The
following summarizes the more significant of these covenants.
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NO SOLICITATION
We have each agreed that that we, and our officers, directors, employees,
attorneys, financial advisors, agents and other representatives and those of any
of our subsidiaries:
- will not, directly or indirectly, solicit, initiate or knowingly encourage
(including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal that
constitutes a third party "takeover proposal" of the type described below,
or continue discussions or negotiations relating thereto; and
- will immediately cease and cause to be terminated any activities,
discussions or negotiations existing as of the date of the merger
agreement with any parties conducted prior to that date with respect to
any takeover proposal.
However, we are permitted, to:
- comply with applicable provisions of federal securities laws requiring us
to disclose to our stockholders or shareholders, as the case may be, our
position with respect to any acquisition proposal;
- effect a change in our board of directors' recommendations regarding the
merger and the issuance of the Forest common shares in connection with the
merger; and
- engage in discussions or negotiations with, or provide information to, any
person in response to an unsolicited bona fide written takeover proposal
by that person;
if and only to the extent that, in any such case as is referred to in the
second or third bullet immediately above,
(1) the Forcenergy stockholders meeting or the Forest shareholders meeting,
as the case may be, shall not have occurred;
(2) (A) in the case of second bullet immediately above, the party has
received an unsolicited bona fide written takeover proposal from a third
party and that party's board of directors concludes in good faith that
the takeover proposal constitutes a "superior proposal" of the type
described below and (B) in the case of the third bullet immediately
above, the party's board of directors concludes in good faith that there
is a reasonable likelihood that the takeover proposal could result in a
superior proposal;
(3) prior to providing any information or data to any person in connection
with a takeover proposal by that person, the party's board of directors
receives from that person an executed confidentiality agreement
containing terms at least as stringent as those contained in the
confidentiality agreement between Forest and Forcenergy; and
(4) prior to providing any information or data to any person or entering
into discussions or negotiations with any person, the party notifies the
other party promptly of such inquiries, proposals or offers received by,
any information requested from, or any discussions or negotiations sought
to be initiated or continued with, any of its representatives indicating,
in connection with the notice, the name of the person and the material
terms and conditions of any inquiries, proposals or offers.
Forest is permitted to engage in negotiations or discussions with, and can
provide information to, any other person with respect to possible transactions
contemplated to occur following the merger that would not otherwise delay or
impair the consummation of the merger.
As used herein,
- "takeover proposal" means any proposal or offer, or any expression of
interest by any third party relating to a party's willingness or ability
to receive or discuss a proposal or offer, in each
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case made prior to the vote at the Forcenergy stockholders meeting or the
Forest shareholders meeting, as the case may be, other than a proposal or
offer by the other party hereto or any of its subsidiaries, for a merger,
consolidation or other business combination involving, or any purchase of,
more than 35% of the assets or more than 35% of the voting securities of,
such party; and
- "superior proposal" means a bona fide unsolicited takeover proposal
(except that references to "35%" shall be deemed to be "50%") made by a
third party on terms that a majority of the members of the board of
directors of the party that is the subject of the proposal determines in
its good faith reasonable judgment (after considering the advice of an
independent financial advisor and outside counsel, taking into account,
among other things, all legal, financial, regulatory and other aspects of
the proposal) are more favorable to that party and to its stockholders
than the transactions contemplated hereby and for which any required
financing is committed or which, in the good faith reasonable judgment of
a majority of such members (after consultation with any independent
financial advisor), is reasonably capable of being financed by the third
party and which takeover proposal is reasonably capable of being
completed.
Each of us agreed to use our reasonable best efforts to promptly inform our
respective directors, officers, key employees, agents and representatives of the
obligations undertaken as described above.
STOCKHOLDERS AND SHAREHOLDERS MEETINGS
Subject to the terms and conditions of the merger agreement, Forcenergy
agreed to submit the merger agreement for approval to the holders of shares of
Forcenergy common stock at a meeting to be duly held by Forcenergy for that
purpose, and Forest agreed to submit the issuance of Forest common shares in
connection with the merger for approval to the holders of Forest common shares
at a meeting to be duly held by Forest for that purpose. Forest is also
permitted to submit for approval to the holders of Forest common shares at the
Forest shareholders meeting a proposal for a 1-for-2 reverse stock split of
Forest common shares, except that approval of the issuance of Forest common
shares is not conditioned on the approval of such proposal and if such proposal
is adopted the exchange ratio will be appropriately adjusted.
BOARD OF DIRECTORS COVENANT TO RECOMMEND
We have agreed that our respective boards of directors will recommend the
approval of the merger and the issuance of Forest common shares, as the case may
be, in connection with the merger and will not withdraw, modify or qualify (or
propose to withdraw, modify or qualify) in any manner adverse to the
recommendation or take any action or make any statement in connection with the
Forcenergy stockholders meeting or Forest shareholders meeting, as the case may
be, inconsistent with the recommendation.
However, each board is permitted to make a change in its recommendation as
described above under "--No Solicitation." Even if the board of directors
changes its recommendation, Forcenergy is still required to present the merger
to its stockholders and Forest is still required to present the issuance of
Forest common shares to its shareholders, in either case, unless the merger
agreement is otherwise terminated.
OPERATIONS OF THE COMPANIES PENDING CLOSING
We have each undertaken a separate covenant that places restrictions on
ourselves and our respective subsidiaries until either the effective time of the
merger or the termination of the merger agreement. In general, we and our
respective subsidiaries are required to conduct our business in the usual,
regular and ordinary course substantially in the same manner as previously
conducted and to use our reasonable best efforts to preserve intact our business
organizations and goodwill, keep available
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the services of our officers and employees as a group and maintain satisfactory
relationships with suppliers, distributors, customers and other third parties
having business relationships with us. We have also agreed to limitations,
prohibitions and other provisions relating to the conduct of our respective
businesses during the period from the date of the merger agreement to the
effective time of the merger or termination of the merger agreement with respect
to:
- conferring with each other's representatives to report material
operational matters;
- notifying each other of any emergency or other change in the normal course
of our businesses or in the operation of our properties and of any
complaints, investigations or hearings of any governmental body or
authority if the emergency, change, complaint, investigation or hearing
would have a material adverse effect;
- authorizing, declaring or paying any dividends on or making any
distribution with respect to our outstanding shares, except that
Forcenergy may pay regular dividends payable in kind on the Forcenergy
preferred stock in accordance with its terms;
- proposing or adopting any amendments to our respective certificates of
incorporation, by-laws or similar organizational documents or any plan of
complete or partial liquidation or other reorganization, except that
Forest may submit to its shareholders a proposal to effect a reverse split
with respect to its common shares;
- issuing any securities, other than pursuant to certain existing disclosed
obligations, or effecting any stock split or otherwise changing our
capitalization as it existed on June 30, 2000, except as contemplated by
the merger agreement and except that this restriction is limited to equity
securities with regard to Forest;
- granting, conferring or awarding any options, warrants, conversion rights
or other rights, not existing on the date of the merger agreement, to
acquire any shares of our capital stock, except, with respect to Forest,
for certain employee benefit plans or non-employee director plans;
- purchasing or redeeming any shares of our respective stock or any rights,
warrants or options to acquire any such shares, except in the ordinary
course of business in connection with employee incentive and benefit
plans, programs or arrangements in existence on the date of the merger
agreement;
- taking any actions that would, or would be reasonably likely to, prevent
Forest from accounting for the merger in accordance with the pooling of
interests method of accounting; and
- agreeing to take any action that would make our respective representations
or warranties untrue or incorrect in any material respect, or that would
result in the conditions to the merger not being satisfied, or, except as
otherwise allowed under the merger agreement, that could reasonably be
expected to prevent, impede, interfere with or significantly delay the
transactions contemplated by the merger agreement.
Forcenergy has agreed to additional limitations, prohibitions and other
provisions relating to the conduct of its business with respect to:
- entering into or amending any employment, severance or similar agreements
or arrangements with any of its directors or executive officers or
increasing the compensation, bonus or other benefits of any director,
officer or other employee or paying any benefit or amount not required by
any plan or arrangement as in effect on the date of the merger agreement
to any such person, except in the ordinary course of business consistent
with past practice with persons who are not directors or officers or as
otherwise provided in the merger agreement;
- (1) merging or consolidating with any other person, other than pursuant to
the merger, (2) acquiring assets beyond specified amounts, (3) making any
capital expenditure other than certain disclosed expenditures, except that
Forcenergy is permitted to substitute new projects for
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up to a specified amount without increasing the aggregate amount budgeted
or to increase budgeted projects up to a specified amount, (4) entering
into any farm-out or similar arrangement without the consent of Forest,
(5) otherwise selling or disposing of any assets, properties or securities
beyond a specified amount or (6) providing any release or relinquishment
of any rights in any material contract without consideration;
- amending in any significant respect its employee benefit plans, programs
or arrangements or any severance or similar agreements or arrangements in
existence on the date of the merger agreement, or adopting any new
employee benefit plans, programs or arrangements or any severance or
similar agreements or arrangements;
- entering into any material loan agreement or otherwise incurring any
indebtedness for borrowed money (except borrowings under Forcenergy's
revolving credit facility as in existence on the date of the merger
agreement) or guaranteeing any such indebtedness of another person,
issuing or selling any debt securities or warrants or other rights to
acquire debt securities, other than in each case in the ordinary course of
business consistent with past practice;
- making any material tax election or settling or compromising any material
tax liability, except that pursuant to Section 382(l)(5)(H) of the
Internal Revenue Code Forcenergy will elect not to have the provisions of
Section 382(l)(5) of the Internal Revenue Code apply, and providing Forest
with copies of any amended tax returns filed prior to the effective date
of the merger;
- (1) paying, discharging, settling or satisfying any claims, liabilities or
obligations or litigation beyond a specified amount, other than the
payment, discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with its terms, of
certain disclosed liabilities or liabilities incurred since the date of
financial statements included in various SEC filings, or (2) waiving the
benefits of, or agreeing to modify in any manner, terminating or releasing
any person from or failing to enforce confidentiality, standstill or
similar agreements;
- entering into any commitment or agreement to license or purchase seismic
data in excess of a specified amount other than pursuant to agreements or
commitments existing on the date of the merger agreement;
- changing any method of accounting or accounting practice, except for any
such change required by U.S. generally accepted accounting principles;
- taking any action that would give rise to a claim under the WARN Act or
any similar state law or regulation because of a "plant closing" or "mass
layoff", as defined in the WARN Act;
- (1) entering into any futures, hedge, swap, collar, put, call, floor, cap,
option or other contracts that are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
hydrocarbons, methanol or securities, other than contracts with a term of
90 days or less and at a fixed price based upon a standard industry
pricing reference or (2) entering into any fixed price commodity sales
agreements with a duration of more than three months;
- making any election under any of its stock option plans to pay cash in
exchange for terminating awards under such plans; and
- providing to Forest as soon as available Forcenergy's internal monthly
financial statements for each month ending after the date of the merger
agreement (beginning with the financial statements for June 2000) in the
forms prepared in the ordinary course of business.
Forest has agreed to additional limitations, prohibitions and other
provisions relating to mergers, consolidations or business combinations (other
than the merger with Forcenergy and any mergers, consolidations or business
combinations with Forest's subsidiaries entered into in the ordinary course of
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business consistent with past practice), individual sales of assets beyond a
specified amount, acquisitions of a material amount of assets or securities and
releases or relinquishments of any material contract rights not in the ordinary
course of business.
EMPLOYEE MATTERS
From and after the effective time of the merger, Forest will provide to the
retained employees who are employees of Forcenergy and its subsidiaries as of
the effective time plans that are comparable to the employee plans that Forest
provides to its similarly situated employees. Forest also will (1) cause any
Forest employee pension benefit plan that is intended to be qualified under
Section 401 of the Internal Revenue Code to be amended to provide that the
retained employees will receive credit for participation and vesting purposes
under the plan for their period of employment with Forcenergy and its
predecessors to the extent the predecessor employment was recognized by
Forcenergy for such purposes, and (2) credit the retained employees under each
other Forest employee benefit plan or policy for their period of employment with
Forcenergy or its predecessors to the extent the predecessor employment was
recognized by Forcenergy under its comparable plan or policy, but not in excess
of the maximum credit available to Forest's employees under such plan or policy.
Following the closing date of the merger, Forest will provide continuation
coverage, to the extent required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, to be offered to any employee of Forcenergy whose
employment has been or will be terminated. Forest will also cause the entity
surviving the merger to honor Forcenergy's obligations under certain designated
retention plan and employment and severance agreements.
TREATMENT OF FORCENERGY STOCK OPTIONS, INCENTIVE AND BENEFIT PLANS
FORCENERGY OPTIONS. Each outstanding option, and related stock appreciation
right, if any, to purchase or acquire shares of Forcenergy common stock under
the Forcenergy stock plans (other than the Forcenergy 1999 Employee Stock
Purchase Plan) will be converted into an option, together with a related stock
appreciation right, if applicable, to purchase the number of Forest common
shares equal to 1.6 (or 0.8 if the proposed 1-for-2 reverse stock split of the
Forest common shares is approved) multiplied by the number of shares of
Forcenergy common stock that could have been obtained immediately prior to the
effective time of the merger upon the exercise of each such option, at an
exercise price per share equal to (1) the aggregate exercise price for the
shares of Forcenergy common stock otherwise purchasable pursuant to the
Forcenergy stock option divided by (2) the aggregate number of Forest common
shares deemed purchasable pursuant to the option.
FORCENERGY 1999 EMPLOYEE STOCK PURCHASE PLAN. Each outstanding option to
purchase or acquire shares of Forcenergy common stock under the Forcenergy 1999
Employee Stock Purchase Plan will be converted into an option to purchase a
number of Forest common shares determined pursuant to the plan based upon a
purchase price per share equal to the lesser of (1) 85% of the "fair market
value" (determined under the plan) of a Forcenergy common share on the first day
of the "option period" (as such term is defined in the plan) during which the
effective time of the merger occurs divided by 1.6 (or 0.8 if the proposed
1-for-2 reverse stock split of the Forest common shares is approved) or (2) 85%
of the fair market value of a Forest common share on the last day of such option
period.
ASSUMPTION OF FORCENERGY OBLIGATIONS; FORM S-8. Forest will assume the
obligations of Forcenergy under the Forcenergy stock plans. The other terms of
each such option and Forcenergy stock appreciation right, and the plans under
which they were issued, shall continue to apply in accordance with their terms,
including any provisions providing for acceleration. Forest will use its
reasonable efforts to file with the SEC within 30 days after the effective time
a registration statement on Form S-8 or other appropriate form under the
Securities Act to register Forest common shares issuable upon exercise of the
options and Forcenergy stock appreciation rights assumed by Forest, and use its
reasonable efforts to cause the registration statement to remain effective until
the exercise or expiration of the options and rights.
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EMPLOYEE INCENTIVE PLANS. Each outstanding award (including restricted
stock, stock equivalents and stock units) under any employee incentive or
benefit plans, programs or arrangements and non-employee director plans
maintained by Forcenergy as of the date of the merger agreement that provide for
grants of equity-based awards will be amended or converted into a similar
instrument of Forest. The other terms of each Forcenergy award, and the plans or
agreements under which they were issued, will be assumed by Forest and will
continue to apply in accordance with their terms, including any provisions
providing for acceleration.
AMENDMENT OF PLANS. Our respective employee incentive or benefit plans,
programs and arrangements and non-employee director plans will be amended, to
the extent necessary and appropriate, to reflect the transactions contemplated
by the merger agreement.
RESERVATION AND ISSUANCE OF SHARES. Forest will (1) reserve for issuance
the number of Forest common shares that will become subject to the benefit
plans, programs and arrangements referred to above and (2) issue the appropriate
number of Forest common shares pursuant to these plans, programs and
arrangements, upon the exercise or maturation of rights existing thereunder on
the effective time of the merger or thereafter granted or awarded.
BOARD OF DIRECTORS OF FOREST FOLLOWING EFFECTIVE TIME
Forest has agreed to take all action necessary immediately following the
effective time of the merger to fix the number of directors constituting the
board of directors at 12 members and to nominate two designated members of
Forcenergy's board of directors as directors of Forest to a designated class of
directors. If an individual consents to serve as a director of Forest, then the
individual will be elected as a director (and will be assigned to the
appropriate class of directors), effective as of the effective time of the
merger, for a term expiring at Forest's next annual meeting of shareholders
following the effective time of the merger at which the term of the class to
which the director belongs expires, subject to being renominated as a director
at the discretion of Forest's board of directors.
OTHER COVENANTS
COOPERATION. Each of us agreed to cooperate in taking various actions,
including actions relating to:
- preparing and filing with the SEC, and having declared effective, this
joint proxy statement and registration statement with respect to the
Forest common shares issuable in the merger;
- state blue sky or securities laws;
- filing and approval of listing applications with the NYSE and other stock
exchanges covering the Forest common shares issuable in the merger or upon
exercise of Forcenergy stock options, warrants, conversion rights or other
rights or vesting or payment of other Forcenergy equity-based awards;
- injunctions or other impediments to the consummation of the transactions
contemplated by the merger agreement;
- opinions of Weil, Gotshal & Manges LLP, counsel to Forcenergy, and
Ernst & Young LLP, tax advisor to Forest, dated as of the effective time
of the merger, to the effect that the merger qualifies as a reorganization
under the provisions of Section 368(a) of the Internal Revenue Code;
- delivery of letters that each party received from its independent
accountants with respect to the qualification of the merger as a
pooling-of-interests for accounting purposes; and
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- facilitating the issuance of Forest common shares in lieu of shares of
Forcenergy common stock that might otherwise be issuable in accordance
with the terms of Forcenergy's plan of reorganization.
INVESTIGATION. We each have agreed, subject to applicable contracts,
licenses, laws or regulations, to afford to one another and one another's
representatives full and complete access until the effective time of the merger
or the date of termination of the merger agreement, to our, and our
subsidiaries', respective plants, properties, contracts, commitments, books and
records and any report, schedule or other document filed or received by us
pursuant to the requirements of federal or state securities laws. We also have
agreed to treat any such information in accordance with the existing
confidentiality agreement between Forcenergy and Forest.
AFFILIATE AGREEMENTS. We each have agreed to deliver to one another, prior
to the effective time of the merger, a list setting forth the names and
addresses of all persons who are, in the each party's reasonable judgment,
"affiliates" of that party (1) as to Forcenergy, for purposes of Rule 145 under
the Securities Act or (2) as to both parties, under applicable SEC accounting
releases with respect to pooling of interests accounting treatment. We each have
agreed to use our reasonable best efforts to cause each person who is identified
as an affiliate in this list to execute a written affiliate agreement in the
form attached to the merger agreement on or prior to the effective time of the
merger.
FILINGS; OTHER ACTION. We each agreed to (1) promptly make our respective
filings and thereafter make any other required submissions under the
Hart-Scott-Rodino Antitrust Improvements Act, (2) use reasonable efforts to
cooperate with one another in (A) determining whether any filings are required
to be made with, or consents, permits, authorizations or approvals are required
to be obtained from, any third party or governmental authority in connection
with the execution and delivery of the merger agreement and the consummation of
the transactions contemplated thereby and (B) timely making all such filings and
timely seeking all such consents, permits, authorizations or approvals and
(3) use reasonable efforts to take all other actions and do all other things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the merger agreement. However, Forest is not required to agree
to, or proffer to, divest or hold separate any assets or any portion of any
business of Forest, Forcenergy or any of their respective subsidiaries if the
board of directors of Forest determines that so doing would materially impair
the benefit intended to be obtained by Forest in the merger.
FURTHER ASSURANCES. We each have agreed that in case at any time after the
effective time of the merger any further action is necessary or desirable to
carry out the purposes of the merger agreement, our proper officers will take
all such necessary action.
TAKEOVER STATUTE. We each have agreed that if any "fair price",
"moratorium", "control share acquisition" or other form of antitakeover statute
or regulation becomes applicable to the transactions contemplated by the merger
agreement, we will grant approvals and take actions as are reasonably necessary
so that these transactions may be consummated as promptly as practicable on the
terms contemplated by the merger agreement and otherwise act to eliminate or
minimize the effects of the statute or regulation on the transactions
contemplated by the merger agreement.
INDEMNIFICATION AND INSURANCE. Forest and Forest Acquisition I Corporation
agreed that all rights to exculpation and indemnification for acts or omissions
occurring prior to the effective time of the merger existing as of the date of
the merger agreement in favor of the current or former directors or officers of
Forcenergy as provided in its certificate of incorporation or by-laws or in any
agreement will be assumed by Forest upon the effective time of the merger and
will survive the merger and will continue in full force and effect as direct
obligations of Forest in accordance with their terms. Forest agreed, for six
years from the effective time of the merger, to maintain in effect
(1) Forcenergy's directors' and officers' liability insurance covering those
persons who were covered by Forcenergy's
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directors' and officers' liability insurance policy as of the date of the merger
agreement and (2) Forest's directors' and officers' liability insurance covering
those persons who were covered by Forest's directors' and officers' liability
insurance policy as of the date of the merger agreement, except that Forest is
not required to spend beyond a specified amount for annual premiums.
ACCOUNTANTS' COMFORT LETTERS. We each agreed to use our reasonable best
efforts to cause to be delivered to each other letters from our respective
independent accountants, dated as of the effective date of the registration
statement of which this document forms of part, in form reasonably satisfactory
to the recipient and customary in scope for comfort letters delivered by
independent accountants in connection with a registration statement on Form S-4
under the Securities Act.
ADDITIONAL REPORTS. We each agreed to furnish to the other copies of
certain reports filed with the SEC on or after the date of the merger agreement
and we each represented and warranted that as of their respective dates, these
reports will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Any unaudited consolidated interim financial statements included
in these reports will fairly present the financial position of the respective
consolidated entities as of their respective dates and the results of operations
and changes in financial position or other information included therein for the
periods or as of the date then ended (subject, where appropriate, to normal
year-end adjustments), in each case in accordance with past practice and U.S.
generally accepted accounting principles consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto).
MANAGEMENT. Forest agreed that, commencing immediately after the effective
time of the merger, Richard G. Zepernick, Jr., currently President and Chief
Executive Officer of Forcenergy, will be appointed President and Chief Operating
Officer of Forest until the earlier of his resignation or removal or until his
successor is duly elected and qualified, as the case may be.
DISPUTED CLAIMS AND ALLOWED FORCENERGY EQUITY INTERESTS UNDER THE FORCENERGY
PLAN OF REORGANIZATION. If after the effective time of the merger a holder of a
disputed claim in connection with Forcenergy's plan of reorganization or a
holder of an allowed Forcenergy equity interest thereunder is entitled under the
plan of reorganization to receive shares of Forcenergy common stock, Forest
agreed to cause to be issued out of the reserve set aside for these claims and,
if necessary, to issue (in each case in lieu of the shares of Forcenergy common
stock) to the appropriate recipients Forest common shares in appropriate amounts
to reflect the common exchange ratio.
CONDITIONS
MUTUAL CONDITIONS
Our respective obligations to complete the merger are subject to the
satisfaction or waiver of various conditions, the most significant of which are
as follows:
- the merger agreement and the merger have been approved and adopted by
Forcenergy stockholders and the issuance of Forest common shares issuable
in the merger has been approved by Forest shareholders;
- no statute, rule, regulation, executive order, decree, ruling or
injunction has been enacted, entered, promulgated or enforced by any court
or governmental body to prohibit the consummation of the merger;
- the SEC has declared the registration statement effective under the
Securities Act, and no stop order or similar restraining order suspending
the effectiveness of the registration statement is in effect;
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- Forest common shares to be issued in the merger have been approved for
listing on the NYSE, which approval has been obtained, subject to official
notice of issuance;
- the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
relating to the merger has expired or terminated, which occurred on
, 2000, and any other approvals of any governmental authority
have been obtained; and
- Forest has received an opinion of its tax advisor, Ernst & Young LLP and
Forcenergy has received an opinion of its tax counsel, Weil, Gotshal &
Manges LLP, each to the effect that the merger will constitute a
"reorganization" under Section 368(a) of the Internal Revenue Code and
that Forest and Forcenergy will each be a party to that reorganization and
that none of Forest, Forest Acquisition I Corporation, Forcenergy, the
holders of Forcenergy common stock or the holders of Forcenergy preferred
stock shall recognize gain or loss for federal income tax purposes as a
result of the merger.
CONDITIONS TO OBLIGATIONS OF FORCENERGY TO COMPLETE THE MERGER
The conditions to Forcenergy's obligations to complete the merger include
the following:
- each of the representations and warranties of Forest and Forest
Acquisition I Corporation set forth in the merger agreement is true and
correct, as qualified for materiality;
- each of Forest and Forest Acquisition I Corporation has performed in all
material respects all of its obligations and agreements and has complied
in all material respects with all of its covenants under the merger
agreement; and
- Forest has delivered to Forcenergy a certificate dated the effective time
of the merger and signed by its Chairman of the Board and Chief Executive
Officer or a Senior Vice President, certifying both of the above.
CONDITIONS TO OBLIGATIONS OF FOREST AND FOREST ACQUISITION I CORPORATION TO
COMPLETE THE MERGER
The conditions to Forest's and Forest Acquisition I Corporation's
obligations to complete the merger include the following:
- each of the representations and warranties of Forcenergy set forth in the
merger agreement is true and correct, as qualified for materiality;
- Forcenergy has performed in all material respects all of its obligations
and agreements and has complied in all material respects with all of its
covenants under the merger agreement;
- Forcenergy has delivered to Forest a certificate dated the effective time
of the merger and signed by its Chairman of the Board and Chief Executive
Officer or a Senior Vice President, certifying both of the above, and
- Forcenergy's officers and directors have resigned their positions,
effective as of the effective time of the merger.
TERMINATION
TERMINATION BY FOREST OR FORCENERGY
The merger agreement may be terminated and the merger abandoned at any time
before the effective time of merger if:
- both of us agree to terminate by mutual written consent;
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- the merger has not been completed by December 31, 2000, except that the
right to terminate the merger agreement under this provision is not
available to any party whose failure to perform or observe in any material
respect any of its obligations under the merger agreement contributed to
the failure of the merger to occur on or before December 31, 2000;
- (1) a statute, rule, regulation or executive order has been enacted,
entered or promulgated prohibiting the consummation of the merger
substantially on the terms contemplated by the merger agreement or (2) an
order, decree, ruling or injunction has been entered permanently
restraining, enjoining or otherwise prohibiting the consummation of the
merger substantially on the terms contemplated by the merger agreement and
this order, decree, ruling or injunction has become final and
non-appealable, except that the party seeking to terminate the merger
agreement under this provision is required to use its reasonable best
efforts to remove the injunction, order or decree, or
- the Forest shareholders meeting to approve the issuance of Forest common
shares in the merger is held and the required vote of Forest shareholders
is not obtained for the approval, or the Forcenergy stockholders meeting
to approve the merger agreement and the merger is held and the required
vote of Forcenergy stockholders is not obtained for the approval.
TERMINATION BY FOREST
Forest may terminate the merger agreement and abandon the merger at any time
before the effective time of the merger if:
- there (1) has been a material breach by Forcenergy of any representation,
warranty, covenant or agreement in the merger agreement that could cause
any closing condition not to be satisfied and (2) the breach is not cured
within 30 days after written notice of the breach is given to Forcenergy
by Forest, except that the right to terminate the merger agreement under
this provision is not available to Forest if it, at that time, is in
material breach of any representation, warranty, covenant or agreement set
forth in the merger agreement that would permit Forcenergy similarly to
terminate the merger agreement;
- the Forcenergy board of directors has withdrawn, modified or failed to
give its approval or recommendation of the merger agreement or the merger,
or fails to call the Forcenergy stockholders meeting to approve the merger
agreement and the merger; or
- the board of directors of Forest authorizes Forest to enter into a written
agreement relating to a transaction that the Forest board of directors has
determined is a superior proposal compared to the merger, except that the
right to terminate under this provision is not available to Forest until
the expiration of five business days after Forcenergy's receipt of written
notice advising Forcenergy that Forest has received a superior proposal
and specifying the material terms and conditions of the proposal and
identifying the person or entity making the superior proposal. Forest is
required to provide Forcenergy with a reasonable opportunity during this
five-day period to make adjustments in the terms and conditions of the
merger agreement that would enable Forest to proceed with the merger on
the adjusted terms.
TERMINATION BY FORCENERGY
Forcenergy may terminate the merger agreement and abandon the merger at any
time before the effective time of the merger if:
- there (1) has been a material breach by Forest of any representation,
warranty, covenant or agreement in the merger agreement that could cause
any closing condition not to be satisfied and (2) the breach is not cured
within 30 days after written notice of the breach is given to Forest by
Forcenergy, except that the right to terminate the merger agreement under
this
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provision is not available to Forcenergy if it, at that time, is in
material breach of any representation, warranty, covenant or agreement set
forth in the merger agreement that would permit Forest similarly to
terminate the merger agreement;
- the Forest board of directors has withdrawn, modified or failed to give
its approval or recommendation of the issuance of Forest common shares in
connection with the merger, or fails to call the Forest shareholders
meeting to approve the issuance of the Forest common shares in the merger;
or
- the board of directors of Forcenergy authorizes Forcenergy to enter into a
written agreement relating to a transaction that the Forcenergy board of
directors has determined is a superior proposal compared to the merger,
except that the right to terminate under this provision is not available
to Forcenergy until the expiration of five business days after Forest's
receipt of written notice advising Forest that Forcenergy has received a
superior proposal and specifying the material terms and conditions of the
proposal and identifying the person or entity making the superior
proposal. Forcenergy is required to provide Forest with a reasonable
opportunity during this five-day period to make adjustments in the terms
and conditions of the merger agreement that would enable Forcenergy to
proceed with the merger on the adjusted terms.
EFFECT OF TERMINATION
If Forest or Forcenergy terminates the merger agreement as provided above,
the merger agreement terminates (except for certain confidentiality obligations
and the provisions in the merger agreement relating to termination fees and the
payment of costs and expenses), and there is no other liability on the part of
Forest or Forcenergy to the other except liability arising out of a willful
breach of the merger agreement or pursuant to the confidentiality obligations.
TERMINATION FEES
FEES PAYABLE BY FORCENERGY RELATING TO TERMINATION
Forcenergy has agreed to pay Forest a termination fee of $18 million if:
(1) an alternative takeover proposal is made to Forcenergy or any of its
subsidiaries or is made directly to the Forcenergy stockholders
generally or becomes publicly known or any person publicly announces
an intention (whether or not conditional) to make an alternative
takeover proposal, and
(2) following the takeover proposal,
(a) the merger agreement is terminated based on the failure of the
merger to be consummated by December 31, 2000 and following the
takeover proposal and prior to the termination of the merger
agreement, Forcenergy intentionally breaches (and does not cure
after notice thereof) any of its covenants or agreements in the
merger agreement in any material respect and this breach
materially contributes to the failure of the merger to be
consummated on or before the date of termination of the merger
agreement, or
(b) the merger agreement is terminated based on the failure to obtain
the requisite Forcenergy stockholder approval or, following a
change in Forcenergy's recommendation of the merger due to a
superior proposal with respect to Forcenergy, Forest terminates
the merger agreement based on the changed recommendation of
Forcenergy, unless, in either case, (X) at the time of the event
giving rise to the right of termination, a material adverse
effect occurred with respect to Forest or a change occurred in
Forest's recommendation of the merger to its
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shareholders, or (Y) Forest's shareholders have failed to approve
the issuance of Forest common shares after a vote on the
issuance, or
(c) Forcenergy terminates the merger agreement based on Forcenergy
entering a written agreement for a superior proposal.
Forcenergy, however, is not required to pay the termination fee if at the
time of any termination as described above, Forest is in breach of any of its
representations, warranties, covenants, obligations or agreements in the merger
agreement and as a result Forcenergy would be entitled to terminate the merger
agreement based on this uncured material breach. Forcenergy is not required to
pay the termination fee based on items 2(a) or 2(b) above unless and until
within 12 months of termination of the merger agreement as described in those
items, Forcenergy or any of its subsidiaries enters into a definitive agreement
with respect to, or consummates, any alternative takeover proposal.
FEES PAYABLE BY FOREST RELATING TO TERMINATION
Forest has agreed to pay Forcenergy a termination fee of $18 million if:
(1) an alternative takeover proposal is made to Forest or any of its
subsidiaries or is made directly to the Forest shareholders generally
or becomes publicly known or any person publicly announces an
intention (whether or not conditional) to make an alternative
takeover proposal, and
(2) following the takeover proposal,
(a) the merger agreement is terminated based on the failure of the
merger to be consummated by December 31, 2000 and following the
takeover proposal and prior to the termination of the merger
agreement, Forest intentionally breaches (and does not cure after
notice thereof) any of its covenants or agreements in the merger
agreement in any material respect and this breach materially
contributes to the failure of the merger to be consummated on or
before the date of termination of the merger agreement, or
(b) the merger agreement is terminated based on the failure to obtain
the requisite Forest shareholder approval of the issuance of
Forest common shares or, following a change in Forest's
recommendation of the merger due to a superior proposal with
respect to Forest, Forcenergy terminates the merger agreement
based on the changed recommendation of Forest, unless, in either
case, (X) at the time of the event giving rise to the right of
termination, a material adverse effect occurred with respect to
Forcenergy or a change occurred in Forcenergy's recommendation of
the merger to its stockholders, or (Y) Forcenergy's stockholders
have failed to approve the merger agreement and the merger after
a vote thereon, or
(c) Forest terminates the merger agreement based on Forest entering a
written agreement for a superior proposal.
Forest, however, is not required to pay the termination fee if at the time
of any termination as described above, Forcenergy is in breach of any of its
representations, warranties, covenants, obligations or agreements in the merger
agreement and as a result Forest would be entitled to terminate the merger
agreement based on this uncured material breach. Other than with respect to a
termination of the merger agreement by Forcenergy based on Forest's change in,
or failure to make, its recommendation of the issuance of the Forest common
shares in connection with the merger, Forest is not required to pay the
termination fee based on items 2(a) or 2(b) above unless and until within
12 months of termination of the merger agreement as described in those items,
Forest or any of its subsidiaries enters into a definitive agreement with
respect to, or consummates, any alternative
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takeover proposal. If Forcenergy terminates the merger agreement based on a
change in the recommendation of Forest's board of directors regarding the share
issuance, Forest must pay the termination fee to Forcenergy promptly upon the
date of the termination.
COSTS AND EXPENSES
If Forest or Forcenergy fails promptly to pay any termination fee due as
described above, and, in order to obtain payment of the termination fee, the
other party commences a suit that results in a final and nonappealable judgment
against the non-paying party for the termination fee, the non-paying party is
required to pay to the other party its costs and expenses actually incurred
(including reasonable attorneys' fees and expenses) in connection with the suit,
together with interest on the amount of the termination fee at the prime rate of
Citibank, N.A. in effect on the date payment of the termination fee was required
to be made.
AMENDMENT AND WAIVER
We may amend the merger agreement in writing at any time prior to the
effective time of the merger, but, after any approval of the matters presented
to the Forcenergy stockholders or the Forest shareholders relating to the
merger, we may not amend the provisions of the merger agreement regarding the
exchange ratio, which determines the amount of Forest common shares that
Forcenergy stockholders will receive upon completion of the merger, and we may
not make any amendment that by law requires further approval or authorization by
Forcenergy stockholders or Forest shareholders without their further approval or
authorization.
At any time before the effective time of the merger, Forest and Forcenergy
may:
- extend the time for the performance of any obligations or other acts of
the other company;
- waive any inaccuracies in the representations and warranties of the other
company contained in the merger agreement or in any document delivered
pursuant to the merger agreement; and
- waive compliance with any of the agreements or conditions of the other
company contained in the merger agreement.
Any agreement to any extension or waiver will be valid only if set forth in
a signed written instrument.
COSTS AND EXPENSES
Except as described under "--Effect of Termination," all costs and expenses
incurred in connection with the merger agreement will be paid by the party
incurring the expenses, except that the filing fee in connection with any
Hart-Scott-Rodino antitrust filing, the expenses and compensation of the
exchange agent and the expenses incurred in connection with the printing and
mailing of this joint proxy statement are shared equally by Forcenergy and
Forest. All transfer taxes are paid by Forcenergy.
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REGISTRATION RIGHTS AGREEMENT
Concurrently with the execution and delivery of the merger agreement, Forest
and Lehman, the Oaktree funds and The Anschutz Corporation, the principal
stockholders of Forcenergy, or holders, entered into a registration rights
agreement. This agreement provides that these holders will have the right to
require Forest to register the offer for resale of all or any portion of the
Forest common shares issued to these holders upon the closing of the merger.
These Forest common shares are referred to as "registrable securities." The
following is a summary of the material terms of the registration rights
agreement, a copy of which is attached as an exhibit to Annex A to this document
and is incorporated in this document by reference. This summary is qualified in
its entirety by reference to the registration rights agreement. You should
carefully read the registration rights agreement because it, and not this
document, is the legal document that governs the registration rights.
DEMAND REGISTRATIONS
Each of these holders may make, until the fifth anniversary of the date of
the registration rights agreement, one or more written requests for a "demand"
registration of the offer for resale of all or any part of its registrable
securities held by that holder, except that (1) Forest is not required to effect
more than two demand registrations for these holders in total in any 12-month
period, (2) each such demand registration must be in respect of registrable
securities with a fair market value of at least $25 million or all of the
registrable securities then held by the requesting holder if the aggregate fair
market value of all of such registrable securities is less than $25 million and
(3) such holder is not entitled to a demand registration if, during the
120 days preceding such request, any of the holders has requested a demand
registration unless Forest preempted the demand registration in accordance with
the registration rights agreement or Forest postponed the filing thereof in
accordance with the registration rights agreement and the requesting
stockholders withdrew the request for the demand registration. The demand
registration is subject to postponement by Forest for a limited period of time
if the registration would interfere with or require public disclosure of any
proposed acquisition, financing or other material event or transaction involving
Forest.
PIGGYBACK REGISTRATIONS
If Forest seeks to register any Forest common shares while this registration
rights agreement is in effect, the holders have the right to request that Forest
include any or all of their registrable securities in the proposed offering,
except that Forest will in no event be required to provide the holders with
notice of, and the holders will not be entitled to participate in, more than ten
piggyback registrations for any holder and its affiliates in total, and these
piggyback registration rights do not apply to registration statements on
Form S-4 or Form S-8. Subject to this limitation, Forest must provide each of
the holders with at least 15 business days notice prior to the filing of the
registration statement. The notice must advise the holders of their right to
have any or all of their registrable securities included in the registration. A
holder, if it provides Forest with a written request within seven business days
after receipt of the notice from Forest of the registration, may include its
registrable securities in the registration statement, subject to constraints of
marketability of the proposed offering, as determined by the managing
underwriter. In the event marketing constraints prevent the registration of all
registrable securities requested to be registered, the registrable securities
shall be registered, to the extent marketable, on a pro rata basis relative to
the respective holder's holding of registrable securities relative to the total
number of registrable securities requested to be included in the offering.
SHELF REGISTRATIONS
The holders also may, at any time after the 60th day after the effective
time of the merger or, if longer, after such period of time as would be required
not to prevent the treatment of the merger as a pooling of interests for
accounting purposes, make a written request that Forest file a shelf
registration
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statement to permit the delayed or continuous offering of all or a portion of
the registrable securities held by such holder pursuant to Rule 415 of the
Securities Act. Upon receipt of a request for a shelf registration, Forest is
required, within 10 business days, to give written notice of the proposed shelf
registration to all other holders, and all such holders have the right to
include registrable securities in the shelf registration. Each holder will have
seven business days after receipt of any such notice to notify Forest as to
whether it wishes to participate in a shelf registration, except that should a
holder fail to provide timely notice to Forest, the holder will forfeit any
rights to participate in that shelf registration. Forest also agreed to prepare
and publish, within 60 days after the effective time of the merger, results
covering at least 30 days of combined operations of Forest and Forcenergy, in
the form of a quarterly earnings report, an effective registration statement
filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K or any other
public filing or announcement that includes the combined results of operations.
EXPENSES
In connection with any registration effected under the registration rights
agreement, Forest will pay:
- registration and filing fees with the SEC and the National Association of
Securities Dealers, Inc.;
- fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the registrable securities);
- printing expenses;
- fees and expenses incurred in connection with the listing or quotation of
the registrable securities;
- fees and expenses of counsel to Forest and the reasonable fees and
expenses of independent certified public accountants for Forest (including
fees and expenses associated with the special audits or the delivery of
comfort letters);
- the reasonable fees and expenses of any additional experts retained by
Forest in connection with such registration;
- all "roadshow" costs and expenses not paid by the underwriter; and
- reasonable fees and expenses of one counsel for the selling holders not to
exceed $25,000.
INDEMNIFICATION
Forest agreed to indemnify the selling holders, their affiliates, their
respective officers, directors, partners, stockholders, members, employees,
agents and representatives, certain controlling persons and the prospective
underwriters of registrations of registrable securities for liabilities caused
by, arising out of, resulting from or related to any material misstatements and
omissions in the registration statement or prospectus relating to the
registrable securities, other than liabilities due to misstatements or omissions
based on information furnished to Forest by the respective selling holder or
underwriter specifically for use in the registration statement or prospectus or
liabilities due the respective selling holder's or underwriter's failure to
deliver a prospectus.
Likewise, each selling holder agreed to indemnify Forest, its officers and
directors and certain controlling persons, and the prospective underwriters of
registrations of registrable securities, for liabilities caused by, arising out
of, resulting from or related to any material misstatements and omissions in the
registration statement or prospectus relating to the registrable securities, but
only with reference to information furnished in writing by or on behalf of the
selling holder expressly for use in the registration statement or prospectus.
The liability of a selling holder is limited to an amount equal to the net
proceeds (after deducting the underwriting discount and expenses) received by
the selling holder from the sale of registrable securities by the selling
holder.
Contribution will also be available to any of the above parties in relation
to relative fault, to the extent that indemnification from an indemnifying party
to an indemnified party is unavailable.
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FORCENERGY STOCKHOLDERS AGREEMENT
The following summary of the Forcenergy stockholders agreement is qualified
in its entirety by reference to the complete text of the Forcenergy stockholders
agreement, which is incorporated by reference and attached as an exhibit to
Annex A to this joint proxy statement/prospectus. We urge you to read the full
text of the Forcenergy stockholders agreement.
In connection with the execution and delivery of the merger agreement,
Forest entered into a Forcenergy stockholders agreement with Lehman, the Oaktree
funds and The Anschutz Corporation under which these stockholders agreed to vote
their shares of Forcenergy common stock in favor of the adoption of the merger
agreement. As of the record date for the special meeting, these stockholders
owned shares of Forcenergy common stock representing approximately % of
the total voting power of the outstanding Forcenergy common stock. A majority
vote of Forcenergy stockholders is sufficient to approve the merger on behalf of
Forcenergy. Therefore, because these principal stockholders agreed to vote in
favor of the merger, the merger will be approved by the Forcenergy stockholders
unless the merger agreement is terminated before the Forcenergy special meeting
is held.
These Forcenergy stockholders agreed to waive their appraisal rights with
regard to their shares of Forcenergy preferred stock and also agreed not to
solicit, initiate or encourage the submission of any takeover proposal for
Forcenergy or participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to any takeover proposal for Forcenergy. The
Forcenergy stockholders agreement prohibits, subject to limited exceptions, any
stockholder from selling, transferring, pledging, encumbering, assigning or
otherwise disposing of any shares of Forcenergy common stock or preferred stock,
except to a family member or charitable institution who agrees in writing to be
bound by the terms of the Forcenergy stockholders agreement. The Forcenergy
stockholders agreement terminates upon the earlier to occur of the completion of
the merger and the termination of the merger agreement in accordance with its
terms.
FOREST SHAREHOLDERS AGREEMENT
The following summary of the Forest shareholders agreement is qualified in
its entirety by reference to the complete text of the Forest shareholders
agreement, which is incorporated by reference and attached as an exhibit to
Annex A to this joint proxy statement/prospectus. We urge you to read the full
text of the Forest shareholders agreement.
In connection with the execution and delivery of the merger agreement,
Forcenergy entered into a Forest shareholders agreement with The Anschutz
Corporation under which The Anschutz Corporation agreed to vote its Forest
common shares in favor of the share issuance. As of the record date for the
special meeting, The Anschutz Corporation owned Forest common shares
representing approximately % of the total voting power of the outstanding
shares of Forest capital stock.
The Anschutz Corporation agreed not to solicit, initiate or encourage the
submission of any takeover proposal for Forest or participate in any discussions
or negotiations regarding, or to furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to any
takeover proposal for Forest. The Forest shareholders agreement prohibits,
subject to limited exceptions, The Anschutz Corporation from selling,
transferring, pledging, encumbering, assigning or otherwise disposing of any
shares of Forest capital stock, except to a family member or charitable
institution who agrees in writing to be bound by the terms of the Forest
shareholders agreement. The Forest shareholders agreement terminates upon the
earlier to occur of the completion of the merger and the termination of the
merger agreement in accordance with its terms.
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THE COMPANIES
BUSINESS OF FORCENERGY INC
Forcenergy Inc is an independent oil and gas company engaged in the
exploration, acquisition, development, exploitation and production of oil and
natural gas. Forcenergy and its predecessors have been engaged in the oil and
gas exploration and production business since 1982, the year in which it was
founded by its current Chairman of the Board, Stig Wennerstrom. The Anschutz
Corporation currently owns approximately 25% of the outstanding shares of
Forcenergy common stock.
Forcenergy's overall business strategy has generally been to increase
reserves and cash flows through continuing development of existing properties
while selectively acquiring additional properties with upside potential.
Forcenergy's primary focus is currently its activities in the Gulf of Mexico and
the Cook Inlet area in Alaska. At December 31, 1999, Forcenergy had net
estimated proved reserves of approximately 115 million barrels of oil
equivalents (690 billion cubic feet of natural gas equivalents), 52% of which
were located in the Gulf of Mexico and 24% of which were located in Alaska.
Approximately 56% of Forcenergy's net estimated proved reserves on such date
were oil and approximately 71% of these proved reserves were classified as
proved developed. Forcenergy currently operates approximately 70% of its Gulf of
Mexico production. Forcenergy has also acquired interests in certain undeveloped
international leasehold acreage in Gabon, Africa and Australia.
On March 21, 1999, Forcenergy and its wholly-owned subsidiary, Forcenergy
Resources Inc., filed voluntary petitions for relief under Chapter 11 of Title
11 of the United States Code. The filings were made in the United States
Bankruptcy Court for the Eastern District of Louisiana in New Orleans,
Louisiana. Forcenergy and its subsidiary operated their businesses as
debtors-in-possession subject to the jurisdiction of the bankruptcy court from
the date of filing to February 15, 2000. Forcenergy's plan of reorganization was
confirmed by the bankruptcy court on January 19, 2000 and was effective on
February 15, 2000.
During 1999, as a result of the bankruptcy proceedings and the related
restrictions on the use of cash, Forcenergy focused on minimizing production
declines on existing producing properties, through workovers and the drilling of
lower risk exploitation wells, and on performing detailed reviews of both
producing fields and its prospect inventory for purposes of adding to its
present list of drillable projects.
As of June 30, 2000, Forcenergy had 255 full time employees, 20 of whom are
located in Miami, Florida and 96 of whom are located at Forcenergy's corporate
headquarters in Metairie, Louisiana and in its regional offices in Lafayette and
Intracoastal City Louisiana, and Anchorage, Alaska. One hundred twenty employees
work offshore in the Gulf of Mexico and 12 work in other field locations.
Forcenergy's corporate headquarters is located at 3838 North Causeway Blvd.,
Lakeway Three, Suite 2300, Metairie, Louisiana 70002 and its telephone number is
(504) 838-7022.
Additional information concerning Forcenergy and its subsidiaries is
included in the Forcenergy documents filed with the SEC, which are incorporated
by reference in this document. See "Where You Can Find More Information."
BUSINESS OF FOREST OIL CORPORATION
Forest is an independent oil and gas company engaged in the acquisition,
exploration, development, production and marketing of natural gas and liquids.
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. The Anschutz
Corporation currently owns approximately 37% of Forest's outstanding common
shares.
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Forest's estimated proved reserves were 718 billion cubic feet of natural
gas equivalents (120 million barrels of oil equivalents) at December 31, 1999 of
which approximately 73% was natural gas. As of December 31, 1999, Forest's
estimated proved developed reserves were approximately 81% of total estimated
proved reserves. Forest's principal reserves and producing properties are all
located in North America. At December 31, 1999, approximately 73% of Forest's
oil and gas reserves were in the United States and approximately 27% were in
Canada. Approximately 74% of total production in 1999 was in the United States
and approximately 26% was in Canada. During 1999, Forest produced approximately
241 million cubic feet of natural gas equivalents per day.
Forest's operations are carried out by five business units. In the United
States, business units operate in three areas: offshore Gulf of Mexico, onshore
Gulf of Mexico, and the Western United States. A fourth business unit is in
Canada, where oil and gas operations are conducted by Forest's wholly owned
subsidiary, Canadian Forest Oil Ltd. A fifth business unit consists of interests
in various other countries, including South Africa, Thailand, Italy, Switzerland
and Tunisia.
Forest operates from production offices located in Lafayette, Louisiana;
Denver, Colorado; and Calgary, Alberta and runs its international business
(other than Canada) from an office located in Houston, Texas. Forest's corporate
headquarters is located at 1600 Broadway, Suite 2200, Denver, Colorado 80202. As
of June 30, 2000, Forest had 271 employees, of whom 209 were salaried and 62
were hourly. Of the salaried employees, 16 were employed by ProMark, Forest's
marketing and processing subsidiary.
Forest currently intends to maintain Forcenergy as a wholly-owned subsidiary
but may at some point in the future merge with Forcenergy.
Additional information concerning Forest and its subsidiaries is included in
the Forest documents filed with the SEC, which are incorporated by reference in
this document. See "Where You Can Find More Information."
FOREST ACQUISITION I CORPORATION
Forest Acquisition I Corporation, a Delaware corporation, is a newly-formed,
wholly-owned subsidiary of Forest Oil Corporation formed for the purpose of
effecting the merger. Forest Acquisition I Corporation has no employees.
Forest Acquisition I Corporation's headquarters are located at
1600 Broadway, Suite 2200, Denver, Colorado 80202, and its telephone number is
(303) 812-1400.
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FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
On July 10, 2000, Forest and Forcenergy jointly announced a proposed merger.
Under the merger agreement, Forcenergy common stockholders will receive 1.6
Forest common shares for each share of Forcenergy common stock they own. Forest
will also exchange its common shares for Forcenergy's outstanding preferred
stock, at a ratio of 68.6141 Forest common shares for each $1,000 stated value
amount of Forcenergy preferred stock. The exchange ratios are subject to
adjustment if the 1-for-2 reverse stock split of Forest common shares is
approved. The transaction is subject to approval by the shareholders of both
companies and to customary regulatory approval.
The unaudited condensed pro forma combined financial statements included
below are presented as if the merger was effective as of December 31, 1999, the
effective date of Forcenergy's reorganization and fresh start reporting. These
unaudited condensed pro forma combined financial statements combine the
historical consolidated balance sheets of Forest and Forcenergy as of March 31,
2000 and December 31, 1999 and the consolidated statements of operations of
Forest and Forcenergy for the three months ended March 31, 2000. The unaudited
condensed pro forma combined balance sheets include pro forma adjustments to
give effect to the merger. These statements are prepared on the pooling of
interests method of accounting for the merger. Under the pooling of interests
method, the results of operations of Forcenergy prior to the reorganization and
fresh start reporting will not be included in the financial statements of the
combined company. The pro forma combined financial statements are based on the
assumptions set forth in the notes thereto.
The information shown below should be read in conjunction with the
consolidated historical financial statements of Forest and Forcenergy, which are
incorporated by reference in this document and the unaudited pro forma combined
per share financial information which appears elsewhere in this document. The
pro forma financial statements are presented for informational purposes only and
are not necessarily indicative of the combined financial position or results of
operations which would have been realized had the merger been effective during
the periods presented or the financial position or results of operations of the
combined companies in the future.
Upon consummation of the merger, the actual financial position and results
of operations of Forest will differ, perhaps materially, from the pro forma
amounts reflected herein due to a variety of factors, including changes in
operating results between the dates of the pro forma financial information and
the time of the merger and thereafter, as well as the factors discussed in the
"RISK FACTORS" section.
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FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ADJUSTMENTS COMBINED
FOREST FORCENERGY (NOTE B) FOREST
--------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 96 2,442 -- 2,538
Accounts receivable........................... 70,580 37,333 -- 107,913
Other current assets.......................... 3,702 32,990 -- 36,692
--------- ------- ---------- ---------
Total current assets........................ 74,378 72,765 -- 147,143
Net property and equipment, at cost............. 703,947 527,278 -- 1,231,225
Goodwill and other intangible assets, net....... 21,527 -- -- 21,527
Other assets.................................... 8,641 6,570 -- 15,211
--------- ------- ---------- ---------
$ 808,493 606,613 -- 1,415,106
========= ======= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 61,378 27,586 30,000 (2) 118,964
Accrued interest.............................. 3,057 -- -- 3,057
Other current liabilities..................... 2,114 40,639 -- 42,753
--------- ------- ---------- ---------
Total current liabilities................... 66,549 68,225 30,000 164,774
Long-term debt.................................. 391,802 238,149 -- 629,951
Other liabilities............................... 14,065 -- -- 14,065
Deferred income taxes........................... 9,221 -- -- 9,221
Redeemable preferred stock...................... -- 29,201 (29,201)(1) --
Shareholders' equity:
Common stock.................................. 5,388 240 3,874 (1) 9,502
Capital surplus............................... 722,386 258,407 20,427 (1) 1,001,220
Retained earnings (deficit)................... (386,118) 12,391 (25,100)(2) (398,827)
Accumulated other comprehensive loss.......... (11,534) -- -- (11,534)
Treasury stock, at cost....................... (3,266) -- -- (3,266)
--------- ------- ---------- ---------
Total shareholders' equity.................. 326,856 271,038 (799) 597,095
--------- ------- ---------- ---------
$ 808,493 606,613 -- 1,415,106
========= ======= ========== =========
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
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FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ADJUSTMENTS COMBINED
FOREST FORCENERGY (NOTE B) FOREST
--------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 3,155 96,506 -- 99,661
Accounts receivable............................ 64,719 41,332 -- 106,051
Other current assets........................... 3,484 18,862 -- 22,346
--------- ------- ------ ---------
Total current assets......................... 71,358 156,700 -- 228,058
Net property and equipment, at cost.............. 697,616 512,000 -- 1,209,616
Goodwill and other intangible assets, net........ 22,092 -- -- 22,092
Other assets..................................... 8,986 6,701 -- 15,687
--------- ------- ------ ---------
$ 800,052 675,401 -- 1,475,453
========= ======= ====== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 72,589 82,535 -- 155,124
Accrued interest............................... 10,105 20,917 -- 31,022
Other current liabilities...................... 3,481 17,476 -- 20,957
--------- ------- ------ ---------
Total current liabilities.................... 86,175 120,928 -- 207,103
Long-term debt................................... 371,680 314,473 -- 686,153
Other liabilities................................ 14,262 -- -- 14,262
Deferred income taxes............................ 8,951 -- -- 8,951
Shareholders' equity:
Common stock................................... 5,381 240 3,600 (1) 9,221
Capital surplus................................ 721,832 239,760 (3,600)(1) 957,992
Accumulated deficit............................ (396,007) -- -- (396,007)
Accumulated other comprehensive loss........... (11,774) -- -- (11,774)
Treasury stock, at cost........................ (448) -- -- (448)
--------- ------- ------ ---------
Total shareholders' equity................... 318,984 240,000 -- 558,984
--------- ------- ------ ---------
$ 800,052 675,401 -- 1,475,453
========= ======= ====== =========
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
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FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- COMBINED
FOREST FORCENERGY FOREST
-------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenue:
Marketing and processing.................................. $44,002 -- 44,002
Oil and gas sales......................................... 54,509 76,770 131,279
Other..................................................... -- 196 196
------- ------ -------
Total revenue........................................... 98,511 76,966 175,477
Operating expenses:
Marketing and processing.................................. 43,048 -- 43,048
Oil and gas production.................................... 9,671 21,803 31,474
General and administrative................................ 3,633 3,150 6,783
Depreciation and depletion................................ 22,111 27,627 49,738
Impairment of oil and gas properties...................... -- -- --
------- ------ -------
Total operating expenses.............................. 78,463 52,580 131,043
------- ------ -------
Earnings from operations.................................. 20,048 24,386 44,434
Other income and expense:
Other income, net....................................... (96) (1,181) (1,277)
Interest expense........................................ 9,076 5,320 14,396
Translation loss on subordinated debt................... 713 -- 713
------- ------ -------
Total other income and expense........................ 9,693 4,139 13,832
------- ------ -------
Earnings before income taxes and extraordinary item....... 10,355 20,247 30,602
Income tax expense........................................ 466 7,685 8,151
------- ------ -------
Earnings from continuing operations....................... $ 9,889 12,562 22,451
======= ====== =======
Earnings (loss) from continuing operations attributable to
common stock............................................ $ 9,889 12,391 22,280
======= ====== =======
Basic and diluted weighted average number of common shares
outstanding............................................. 53,697 94,853
======= =======
Basic and diluted earnings per share from continuing
operations.............................................. $ .18 .23
======= =======
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
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FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited condensed pro forma combined balance sheets and
unaudited condensed pro forma combined statements of operations are presented as
if the merger of Forest and Forcenergy was effective as of December 31, 1999,
the effective date of the reorganization and fresh start reporting for
Forcenergy. Under the terms of the merger agreement, Forest shareholders will
retain their shares and each share of Forcenergy common stock will be exchanged
for 1.6 Forest common shares. In addition, each $1,000 stated value of
Forcenergy preferred stock will receive 68.6141 Forest common shares. The
exchange ratios are subject to adjustment if the 1-for-2 reverse stock split of
Forest's common shares is approved. It is expected that the merger will be
accounted for as a pooling of interests.
In the opinion of Forest management, these pro forma statements include all
adjustments necessary for a fair presentation of pro forma financial statements.
Accounting policies used in the preparation of the pro forma statements are
those disclosed in Forest's and Forcenergy's consolidated financial statements
which are incorporated by reference herein. Adjustments to conform the
accounting policies of Forest and Forcenergy are insignificant.
The pro forma statements are not necessarily indicative either of the
results that actually would have been achieved if the transactions reflected
therein had been effective during the periods presented or of results which may
be obtained in the future. In preparing these pro forma statements, no
adjustments have been made to reflect transactions which have occurred since the
dates of the pro forma financial statements.
The pro forma statements should be read in conjunction with the description
of the merger of Forest and Forcenergy elsewhere in this document, the
historical financial statements and related notes of Forest, incorporated by
reference in this document, and the historical financial statements and related
notes of Forcenergy incorporated by reference in this document.
B. PRO FORMA ADJUSTMENTS
These pro forma financial statements give effect to the following
assumptions and adjustments:
1. The issuance by Forest of 1.6 Forest common shares for each share of
Forcenergy common stock and the issuance of 68.6141 Forest common shares
for each $1,000 stated value of Forcenergy preferred stock.
2. Transaction costs, including fees for advisors, attorneys and other
consultants and incremental direct costs of completing the merger, are
estimated to be approximately $30 million (approximately $25 million
after tax) and will be charged to expense upon consummation of the
merger. For the purposes of the pro forma financial statements, these
transaction costs, net of the related income tax effect, have been
recorded as an increase in accumulated deficit at March 31, 2000.
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COMPARISON OF SHAREHOLDERS' AND STOCKHOLDERS' RIGHTS
As a result of the merger, the stockholders of Forcenergy will become
shareholders of Forest. As shareholders of Forest, their rights will be governed
by the New York Business Corporation Law and by Forest's restated certificate of
incorporation and by-laws. The following are summaries of certain material
differences between the rights of Forest shareholders and Forcenergy
stockholders. This section does not include a complete description of all
differences among the rights of these holders, nor does it include a complete
description of the specific rights of these holders. In addition, the
identification of some of the differences in the rights of these holders as
material is not intended to indicate that other differences that are equally
important do not exist.
Forest is organized under the laws of the State of New York and Forcenergy
is organized under the laws of the State of Delaware. The following discussion
summarizes certain differences between the Forest certificate of incorporation
and the Forest by-laws and the Forcenergy certificate of incorporation and the
Forcenergy by-laws and between certain provisions of New York law and Delaware
law affecting stockholders' rights.
AUTHORIZED CAPITAL
The total number of authorized shares of capital stock of Forest is
210,000,000, consisting of 200,000,000 Forest common shares, par value $0.10 per
share, and 10,000,000 preferred shares, par value $0.01 per share. The preferred
stock is classified into two classes, senior preferred stock and junior
preferred stock, both of which are issuable into one or more series. Forest
currently has no outstanding preferred stock.
The total number of authorized shares of capital stock of Forcenergy is
110,000,000, consisting of 100,000,000 shares of Forcenergy common stock, par
value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01
per share. 40,000 shares of the 10,000,000 shares of preferred stock are
designated as Series A Preferred Stock, all of which are issued and outstanding.
DIRECTORS
The board of directors of Forest has 10 members and will be increased to 12
members after the merger. The Forest by-laws provide that the Forest board of
directors will consist of a number of directors, not less than six nor more than
15, to be fixed from time to time by resolution of the Forest board of
directors. The Forest board of directors is divided into three separate classes,
consisting, as nearly as possible, of equal numbers of directors, with one class
being elected annually. Members of the Forest board of directors are elected to
serve a term of three years, and until their successors are elected and
qualified. The Forcenergy board has eight members and is not divided into
separate classes.
AMENDMENT OF BY-LAWS
The Forest by-laws may be amended or repealed, or new by-laws may be
adopted, at any meeting of the Forest board of directors. In addition, under New
York law the by-laws of a New York corporation may be adopted, amended or
repealed by holders of a majority of the outstanding capital stock entitled to
vote for directors. However, the Forest certificate of incorporation provides
that affirmative vote of the holders of 66 2/3% of the outstanding shares
entitled to vote thereon is required to adopt, amend or repeal any Forest by-law
or portion of the Forest certificate of incorporation related to (1) the number,
classification and terms of office of directors, (2) the removal of directors
without cause or (3) the power of the board of directors to adopt, amend or
repeal the Forest by-laws or the vote of the Forest board required for any such
adoption, amendment or repeal.
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The Forcenergy certificate of incorporation provides that the Forcenergy
board of directors has the power by vote of the majority of the directors to
adopt, amend or repeal the by-laws. The by-laws adopted by the Forcenergy board
may be amended or repealed by the affirmative vote of the holders of a majority
of the total voting power of all shares of Forcenergy stock entitled to vote in
the election of directors. Delaware law requires that stockholders always have
the power to make, alter or repeal by-laws, even when the directors are also
delegated such power.
AMENDMENT OF CERTIFICATE
Under New York law and Delaware law, an amendment to the certificate of
incorporation requires the approval of the corporation's board of directors and
the affirmative vote of a majority of the outstanding shares entitled to vote.
In addition, amendments that make changes relating to the capital stock by
increasing or decreasing the par value or the aggregate number of authorized
shares of a class, or otherwise adversely affecting the rights of such class,
must be approved by the majority vote of each class or series of stock affected,
even if such stock would not otherwise have such voting rights.
CLASS VOTING
While New York law does not require class voting of any kind, it allows a
corporation to specify within its certificate of incorporation that any class or
classes of shares shall vote as a class in connection with the transaction of
any business at a shareholder meeting, including amendments to the certificate
of incorporation. When voting as a class is required in the certificate of
incorporation, and no proportionate vote is provided, the vote is assumed to
require, for the election of directors, a plurality of votes of such class
entitled to vote and, for any other corporate action, a majority of votes. The
Forest certificate of incorporation does not require class voting.
Delaware law requires voting by separate classes only with respect to
certificate of incorporation amendments that adversely affect the holders of
those classes or that increase or decrease the aggregate number of authorized
shares or the par value of the shares of any of those classes. The Forcenergy
certificate of incorporation does not otherwise provide for class voting, except
that the Forcenergy preferred stock can vote separately as a single class (and
to the exclusion of all other classes of Forcenergy stock) to elect two new
members to the Forcenergy board of directors in the event that Forcenergy
either: (1) fails to declare and pay any dividend on the preferred stock for any
two consecutive quarters or (2) fails to declare and pay any dividend on the
preferred stock for any six quarters in the aggregate. The two new directors
would comprise a separate class of directors and would be entitled to cast a
number of votes on matters considered by the board of directors equal to the sum
of the number of votes entitled to be cast by all other directors plus two.
CUMULATIVE VOTING
Under New York law and Delaware law, stockholders do not have cumulative
voting rights for the election of directors unless the corporation's certificate
of incorporation so provides. Neither the Forest certificate nor the Forcenergy
certificate provides for cumulative voting for directors.
REMOVAL OF DIRECTORS
Under the Forest by-laws, a director may be removed for cause by a majority
vote of the other directors then in office. A director may be removed without
cause by the affirmative vote of two-thirds of the outstanding shares entitled
to vote for such purpose. New York law provides that any or all directors may be
removed for cause by vote of the holders of a majority of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote thereon.
Additionally, New York law allows an action to procure a judgment removing a
director for cause to be brought by the attorney general or by the holders of
10% of the outstanding shares, whether or not entitled to vote.
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Under the Forcenergy certificate of incorporation and Delaware law, any or
all directors may be removed from office at any time with or without cause, but
only by the affirmative vote of the holders of a majority of the outstanding
shares then entitled to vote in the election of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Pursuant to the Forest by-laws, any vacancy on the Forest board of directors
caused by removal with cause or newly created directorships resulting from an
increase in the number of directors may be filled by a majority of the directors
then in office, even if less than a quorum. If the director vacancy was caused
by removal without cause, the directorship will be filled at a special meeting
by election of shareholders entitled to vote on the matter. Under the Forcenergy
by-laws, any vacancy in the board of directors, whether by an increase in the
number of directors or removal with or without cause, may be filled either by a
majority of the directors then in office, even if less than a quorum, or by
election of the stockholders at the next annual or special meeting.
SHAREHOLDER AND STOCKHOLDER MEETINGS AND PROVISIONS FOR NOTICES; PROXIES
The Forest by-laws provide that a special meeting of shareholders for any
purpose or purposes may be called by the Chairman of the Board, the President or
the board of directors. Under New York law, shareholders may not call a special
meeting unless there is a failure to elect a sufficient number of directors to
conduct the business of the corporation or unless specifically authorized to do
so by the corporation's certificate of incorporation or by-laws. Neither the
Forest certificate of incorporation nor the Forest by-laws authorizes the
shareholders to call a special meeting. The Forcenergy certificate of
incorporation provides that special meetings of stockholders may be called by
the President and shall be called by the Secretary either at the request of a
majority of the Forcenergy board of directors or at the written request of
stockholders holding together a majority of the shares entitled to vote at the
meeting. Special meetings of the stockholders may not be called by any other
person or persons.
Under the Forest by-laws, written notice of the time and place of annual or
special meetings of shareholders shall be mailed no less than 10 days and no
more than 50 days before the date of such annual or special meeting to each
shareholder as of the record date. For special meetings, the purpose or purposes
for such meeting must also be stated in the notice. Pursuant to the Forcenergy
by-laws, written notice of the annual meeting of stockholders stating the place,
date and time of the annual or special meeting shall be given to each
stockholder entitled to vote at such meeting between 10 and 60 days before the
date of such meeting. Every notice of a special meeting shall state the purpose
or purposes for which the meeting is called.
Under New York law, a proxy is valid for 11 months from its date, unless the
proxy provides otherwise. Under Delaware law, a proxy is valid for three years
from its date, unless the proxy provides for a longer period.
QUORUM
Under the Forest by-laws, a quorum for the transaction of business at any
regular or special meeting of the Forest board of directors consists of:
(1) two directors if there are six directors or fewer on the entire board or
(2) one-third of the directors whenever there are more than six directors. Under
the Forcenergy by-laws, a quorum for the transaction of business at any regular
or special meeting of the Forcenergy board of directors consists of a majority
of the directors of the entire Forcenergy board of directors.
Under the Forest by-laws, a quorum for the transaction of business at any
shareholder meeting consists of a number of persons representing a majority of
the shares of voting capital stock issued and outstanding. However, New York law
provides that in the case of a special meeting for the election of directors
called by the shareholders, the shareholders attending, in person or by proxy,
and entitled to
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<PAGE>
vote in an election of directors, constitute a quorum solely for the purpose of
electing directors. Under the Forcenergy by-laws, a quorum for the transaction
of business at any stockholder meeting consists of a number of persons
representing the majority of the capital stock issued and outstanding and
entitled to vote thereat present in person or represented by proxy.
PREEMPTIVE RIGHTS
Under New York law, shareholders of a corporation formed prior to 1997 have
preemptive rights, subject to certain limitations, unless the certificate of
incorporation provides otherwise. The Forest certificate does not provide for
preemptive rights. Under Delaware law, stockholders have no preemptive rights
unless such rights are provided for in the certificate of incorporation. The
Forcenergy certificate does not provide for preemptive rights.
VOTING BY SHAREHOLDERS AND STOCKHOLDERS
Under the Forest by-laws, except as required by law, the Forest certificate
of incorporation or Forest by-laws, action by Forest shareholders is taken by
the vote of the holders of a majority of the shares represented and entitled to
vote at a meeting of shareholders at which a quorum is present. Pursuant to the
Forcenergy by-laws, action by Forcenergy stockholders is taken by the vote of
the holders of a majority of the stock represented and entitled to vote at a
stockholders meeting at which a quorum is present, subject to applicable law,
the Forcenergy certificate of incorporation or the Forcenergy by-laws. For
approval of a plan of merger adopted by a Delaware corporation's board of
directors, the vote of a majority of all outstanding shares entitled to vote
thereon is required.
Under New York law, corporate action generally must be authorized by a
majority of the votes cast at a meeting of shareholders by the holders of shares
entitled to vote thereon. New York law provides that directors are elected by a
plurality of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote in such election. Additionally, New York law requires
the vote of two-thirds of all outstanding shares entitled to vote thereon for a
plan of merger or consolidation adopted by the board of directors of a New York
corporation, a guarantee given by a New York corporation not in furtherance of
its corporate purposes, a disposition of substantially all the assets of a New
York corporation if not made in the usual course of business, or the dissolution
of a New York corporation.
Under New York law, but not under Delaware law, the issuance, by a
corporation to its directors, officers or employees of rights or options (other
than substituted rights or options issued in connection with a business
combination) to purchase from the corporation any of its shares, as an incentive
to service or continued service with the corporation, or the adoption of a plan
providing for such issuance, must be authorized by the vote of the holders of a
majority of all outstanding shares entitled to vote thereon.
New York law prohibits a New York corporation from making loans to its
directors without authorization by vote of the shareholders (excluding from such
vote the affected director's shares). Delaware law has no comparable voting
requirement but instead permits loans to, and guarantees on behalf of officers
and employees of a Delaware corporation, including those officers and employees
who are also directors of the corporation, if, in the judgment of the board,
such loan or guarantee may reasonably be expected to benefit the corporation.
MERGER WITHOUT STOCKHOLDER APPROVAL
Under Delaware law, no vote of stockholders of the surviving corporation in
a merger is required (and no dissenters' rights are available to such
stockholders) if the agreement of merger does not amend in any respect the
certificate of incorporation of the surviving corporation, there is no change in
the outstanding shares of the surviving corporation as a result of the merger,
and the number of common shares issued or issuable in the merger does not exceed
20% of the issuer common shares
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outstanding immediately prior to the merger. Delaware law further provides that
no stockholder approval is required in a merger of a corporation with or into a
single direct or indirect wholly-owned subsidiary of such corporation for the
purpose of effecting a holding company reorganization, if certain conditions are
met, including:
- as a result of the merger, the corporation or its successor becomes a
direct or indirect wholly-owned subsidiary of the new holding company;
- stockholders of the corporation receive in the merger the same number of
shares of the new holding company as they owned in the corporation prior
to the merger, which stock has the same designations, rights, powers and
preferences, and the qualifications, limitations and restrictions thereof,
with respect to the holding company as such stock had with respect to the
corporation prior to the merger;
- the certificate of incorporation and by-laws of the new holding company
contain provisions identical to the certificate of incorporation and
by-laws of the corporation immediately prior to the effective time of the
merger (except for provisions that could have been amended or deleted
without stockholder approval);
- the directors of the new holding company will be the same as the directors
of the corporation immediately prior to the merger;
- the certificate of incorporation of the corporation or its successor
immediately following the merger is identical in all substantive respects
to the certificate of incorporation of the corporation immediately prior
to the merger, provided that the certificate of incorporation of the
corporation or its successor shall be amended in the merger to contain a
provision requiring that any act or transaction by or involving such
corporation that requires for its adoption under Delaware law or its
certificate of incorporation the approval of the stockholders of such
corporation shall require, in addition, the approval of the stockholders
of the new holding company or any successor thereto by merger; and
- the merger is tax-free for Federal income tax purposes to the stockholders
of the corporation.
New York does not have a comparable provision.
STOCKHOLDER ACTION WITHOUT A MEETING
Under New York law, shareholders may take any action on which they are
required or permitted to vote without a meeting by written consent of all
outstanding shares unless the certificate provides that the written consent of
less than all outstanding shares is sufficient for corporate action. The Forest
certificate does not provide that the written consent of less than all
outstanding shares is sufficient for corporate action.
The Forcenergy certificate of incorporation prohibits stockholder action by
written consent.
RIGHTS PLAN
In October 1993, Forest adopted a shareholder rights plan and entered into a
rights agreement with ChaseMellon Shareholder Services, L.L.C. (successor to
Mellon Securities Trust Company) as rights agent. Under the Forest rights
agreement, one right, referred to as a Forest right, attaches to each
outstanding Forest common share. Each Forest right, when exercisable, entitles
its registered holder to purchase from Forest one one-hundredth of a share of
First Series Junior Preferred Stock at an exercise price of $30.00 subject to
adjustment. The Forest rights become exercisable only if a person or group
acquires 20% or more of Forest common shares or announces a tender offer for 20%
or more of Forest common shares, subject to certain exceptions specified in the
Forest rights agreement. The rights agreement has been amended to exclude
acquisitions of Forest common shares by The Anschutz
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Corporation as triggering events under the plan. Neither the execution of the
merger agreement nor the consummation of the transactions contemplated thereby
will result in the Forest rights being exercised, distributed or triggered.
The Forest rights have certain anti-takeover effects. The Forest rights will
cause substantial dilution to a person or group that attempts to acquire, or
merge with, Forest without conditioning the offer on the Forest rights being
rendered inapplicable.
Forcenergy has not adopted a rights plan.
BUSINESS COMBINATIONS
Under Section 912 of the New York Business Corporation Law, an interested
shareholder, defined generally as a person owning 20% or more of a corporation's
outstanding voting stock, is prevented from engaging in a business combination
with the corporation for five years after becoming an interested shareholder,
unless:
- the board approved the transaction in which the interested shareholder
became an interested shareholder; or
- the board approves the business combination before the shareholder becomes
an interested shareholder.
Forest's board approved the transactions by which The Anschutz Corporation
became an interested shareholder. Therefore, Section 912 would not prevent The
Anschutz Corporation from acquiring additional Forest common shares.
Under the business combination statute of Delaware law, a corporation is
prohibited from engaging in any business combination with an interested
stockholder who, together with its affiliates or associates, owns, or who is an
affiliate or associate of the corporation and within a three-year period did
own, 15% or more of the corporation's voting stock for a three-year period
following the time the stockholder became an interested stockholder, unless:
- prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
- the interested stockholder owned at least 85% of the voting stock of the
corporation, excluding specified shares, upon consummation of the
transaction that resulted in the stockholder becoming an interested
stockholder; or
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote, at an
annual or special meeting and not by written consent, of at least 66 2/3%
of the outstanding voting shares of the corporation, excluding shares held
by that interested stockholder.
A business combination generally includes:
- mergers, consolidations and sales or other dispositions of 10% or more of
the assets of a corporation to or with an interested stockholder;
- specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
- other transactions resulting in a disproportionate financial benefit to an
interested stockholder.
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The provisions of the Delaware business combination statute do not apply to
a corporation if, subject to certain requirements, the certificate of
incorporation or by-laws of the corporation contain a provision expressly
electing not to be governed by the provisions of the statute or the corporation
does not have voting stock listed on a national securities exchange, authorized
for quotation on an inter-dealer quotation system of a registered national
securities association or held of record by more than 2,000 stockholders.
Because Forcenergy has adopted a provision in its amended and restated
certificate of incorporation to opt-out of the Delaware business combination
statute, the statute will be inapplicable to business combinations involving
Forcenergy one year after the date of adoption of this provision. The Delaware
business combination statute is not applicable to the business combination of
Forcenergy and Forest because the Forcenergy board has approved this
transaction.
INDEMNIFICATION AND LIMITATION OF LIABILITY
New York and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with certain exceptions, corporations to adopt a
provision in their certificate of incorporation eliminating the liability of a
director to the corporation or its stockholders for monetary damages for breach
of the director's fiduciary duty of care. There are, nonetheless, certain
differences between the laws of the two states respecting indemnification and
limitation of liability.
A New York corporation is allowed to indemnify any person who is, or is
threatened to be made, a party in any civil or criminal proceeding (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another entity, against judgments, fines, amounts paid in settlement
and reasonable expenses (including attorneys' fees) actually and necessarily
incurred by such person as a result of such action or proceeding or any appeal
therein.
With respect to actions by or in the rights of the corporation, a New York
corporation may indemnify any such person against reasonable expenses including
attorneys' fees and amounts paid in settlement. To be entitled to
indemnification, a person must have acted in good faith, for a purpose that he
reasonably believed to be in, or in the case of service for another
organization, not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, in addition, had no reasonable
cause to believe his conduct was unlawful. Court approval is required as a
prerequisite to indemnification of expenses in respect of any claim as to which
a person has been adjudged liable to the corporation.
New York law requires indemnification against expenses actually and
reasonably incurred by any director, officer, employee or agent in connection
with a proceeding against such person for action in such capacity to the extent
that the person has been successful on the merits or otherwise. Advancement of
expenses prior to a determination on the merits is permitted, but not required,
under New York law, which further requires that any director or officer must
undertake to repay such expenses if it is ultimately determined that he is not
entitled to indemnification. The disinterested members of the board of directors
(or independent legal counsel or the shareholders) must determine, in each
instance where indemnification is not required under New York law, that such
director, officer, employee or agent is entitled to indemnification. Under New
York law, the indemnification provided by statute is not exclusive.
The Forest certificate of incorporation provides that the directors of
Forest are not personally liable to the corporation or its shareholders for
damages for breach of duty as a director, except where a judgment or other final
adjudication establishes that the acts or omissions that are the subject of the
cause of action:
- were taken in bad faith or involved intentional misconduct or a knowing
violation of law;
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- resulted in the director personally obtaining a financial profit or
advantage to which the director was not legally entitled; or
- involved the declaration of unlawful dividends, unlawful stock
repurchases, unlawful distribution of assets to shareholders after a
dissolution or the making of unlawful loans.
The Forest by-laws provide that Forest shall, to the fullest extent
permitted by law, indemnify any director or elected officer made or threatened
to be made a party to any action or proceeding, whether civil or criminal,
including an action by or in the right of the corporation, by reason of the fact
that he, his testator or intestate, is or was a director or elected officer of
Forest or is serving or served such other organization in any capacity, against
judgments, fines, penalties, amounts paid in settlement, and reasonable
expenses, including attorneys' fees, or any appeal therein. Forest may indemnify
any other person to whom Forest is permitted to provide indemnification or the
advancement of expenses by applicable law.
Delaware law authorizes a Delaware corporation to indemnify any person who
is, or is threatened to be made, a party in any civil, criminal, administrative
or investigative, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another entity, against judgments, fines, amounts paid in settlement
and expenses (including attorneys' fees), actually and reasonably incurred by
such person in connection with any threatened, pending or completed action, suit
or proceeding. With respect to actions by or in the right of the corporation,
Delaware law authorizes indemnification of such person against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit. To be entitled
to indemnification, a person must have acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful with respect to actions
taken by or in the right of the corporation. With respect to actions by or in
the right of the corporation, court approval is required as a prerequisite to
indemnification of expenses in respect of any claim as to which a person has
been adjudged liable to the corporation.
Delaware law requires indemnification against expenses actually and
reasonably incurred by any director, officer, employee or agent in connection
with a proceeding against such person for actions in such capacity to the extent
that the person has been successful on the merits or otherwise. Advancement of
expenses prior to a determination on the merits is permitted, but not required,
by Delaware law, which further requires that any director or officer must
undertake to repay such expenses if it is ultimately determined that he is not
entitled to indemnification. The disinterested members of the board of directors
(or independent legal counsel or the stockholders) must determine, in each
instance where indemnification is not required by Delaware law, that such
director, officer, employee or agent is entitled to indemnification. Delaware
law provides that the indemnification provided by statute is not exclusive.
The Forcenergy certificate of incorporation provides that no director will
be personally liable for monetary damages for breach of fiduciary duties, except
for liability for (a) any breach of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (c) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or
(d) transactions from which the director derived any improper personal benefit.
The Forcenergy by-laws provide that Forcenergy shall indemnify any
authorized representative (i.e., director, officer or trustee) who was or is
made, or threatened to be made, a party to any third party or corporate
proceeding (defined as any threatened, pending or completed action, suit or
proceeding, whether civil or criminal or otherwise) by reason of the fact that
the authorized representative is or was
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an authorized representative of Forcenergy against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred in connection with the third party or corporate
proceeding. The provisions of the Forcenergy by-laws do not affect any rights to
indemnification to which employees other than directors and officers may be
entitled by law.
DISSENTERS' RIGHTS
New York law provides dissenters' rights to holders entitled to vote thereon
for (1) certain mergers and consolidations; (2) dispositions of assets requiring
shareholder approval; and (3) certain amendments to the certificate of
incorporation which adversely affect the rights of such shareholders. The
procedures for perfecting dissenters' rights are similar under Delaware law and
New York law, except that New York law provides a procedure for the corporation
to make a written offer prior to the commencement of litigation to each
dissenting shareholder to pay cash for his or her shares at a specified, uniform
price that the corporation considers to be the fair value of the shares. If the
effective date of the corporate action dissented from has occurred, the offer
must be accompanied by an 80% advance payment of the offer price to each
dissenting shareholder who has submitted his or her stock certificates. If the
effective date has not yet occurred, such advance payment shall be sent
forthwith upon its occurrence. If the corporation and a dissenting shareholder
agree upon a price to be paid for such dissenting shareholder's shares within
30 days after the making of the offer, payment in full must be made by the
corporation within 60 days of the date on which the offer was made or within
60 days of the effective date, whichever is later. If any dissenting shareholder
fails to agree with the corporation during the aforesaid 30-day period, or if an
offer is not made within a specified period of time, only then may a proceeding
for judicial appraisal be commenced.
Under Delaware law, a stockholder of a corporation who does not vote in
favor of certain merger transactions and who demands appraisal of his shares in
connection therewith may, under varying circumstances, be entitled to
dissenters' rights pursuant to which the stockholder may receive cash in the
amount of the fair value of his shares of stock (as determined by a Delaware
court) in lieu of the consideration he would otherwise receive in the
transaction. Unless the corporation's certificate of incorporation provides
otherwise, such dissenters' rights are not available in certain circumstances,
including without limitation (1) the sale, lease or exchange of all or
substantially all of the assets of a corporation, (2) the merger or
consolidation by a corporation the shares of which are either listed on a
national securities exchange or the Nasdaq National Market or are held of record
by more than 2,000 holders if such stockholders receive only shares of the
surviving corporation or shares of any other corporation which are either listed
on a national securities exchange or the Nasdaq National Market or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares or
(3) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is an identical outstanding or treasury share after the merger and the
number of shares to be issued in the merger does not exceed 20% of the shares of
the surviving corporation outstanding immediately prior to the merger and if
certain other conditions are met.
The concept of "fair value" in payment for shares upon exercise of
dissenters' rights is different under New York law and Delaware law. Under
Delaware law, "fair value" must be determined exclusive of any element of value
arising from the accomplishment or expectation of the relevant transaction. New
York law does not exclude such element of value but mandates that the court
should consider the nature of the transaction, its effect on the corporation and
its shareholders, and the concepts and methods of valuation then customary in
the relevant financial and securities markets.
The procedures that holders of Forcenergy preferred stock must follow to
perfect their dissenters' rights are set forth under Section 262 of the Delaware
General Corporation Law.
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DISSOLUTION
Under New York law, the attorney general of the State of New York may bring
a dissolution action if the corporation was fraudulently formed or subsequent to
formation, has acted or conducted business in an abusive, unlawful or fraudulent
manner.
New York law also provides that either the corporation's board of directors
or its shareholders (at a shareholders' meeting called by the holders of at
least 10% of all outstanding shares entitled to vote thereon) may adopt a
resolution stating that the corporation is insolvent or that dissolution would
be beneficial to the shareholders. If a majority of either the board or the
shareholders of the corporation adopt such a resolution, such adopting group may
present a petition for the judicial dissolution of the corporation.
New York law further provides that shareholders entitled to cast at least
50% of all the votes entitled to be cast in the election of directors may
petition for judicial dissolution of the corporation on the ground that (1) the
directors are so divided respecting the management of the corporation's affairs
that the votes required for action by the board cannot be obtained, (2) the
shareholders are so divided that the votes required for the election of
directors cannot be obtained or (3) that there is internal dissension and two or
more factions of shareholders are so divided that dissolution would be
beneficial to the shareholders. Any shareholder entitled to vote in the election
of directors of a corporation may present a petition for dissolution on the
ground that the shareholders are so divided that they have failed, for a period
which includes at least two consecutive annual meeting dates, to elect
successors to directors whose terms have expired or would have expired upon the
election and qualification of their successors.
Under Delaware law, unless the board of directors approves the proposal to
dissolve, dissolution of the corporation must be approved by the written consent
of all stockholders entitled to vote thereon. Only if the dissolution is
initiated by the board of directors may it be approved by a majority of the
corporation's stockholders. The Court of Chancery, upon application by any
stockholder, may appoint a custodian and, if the corporation is insolvent, a
receiver.
DIVIDENDS
Under New York law, a corporation may declare and pay dividends, or make
other distributions in cash, its bonds or its property, on its outstanding
shares except when the corporation is insolvent or would thereby be made
insolvent, or when the declaration, payment or distribution would be contrary to
any restrictions contained in the certificate of incorporation. The Forest
certificate of incorporation contains no such restrictions, except that common
stock dividends are subject to the preferential dividend right applicable to
shares of any series of Forest preferred stock.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if it has no surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares if such redemption or repurchase
would not impair the capital of the corporation or if it repurchases shares
having a preference upon the distribution of any of its assets and retires such
shares upon acquisition (and provided, that after any reduction in capital made
in connection with such retirement of shares, the corporation's remaining assets
are sufficient to pay any debts for which payment has not otherwise been
provided).
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RIGHT TO EXAMINE SHAREHOLDER AND STOCKHOLDER LISTS
Under New York law, any person who shall have been a shareholder of record,
upon at least five days' written demand, shall have the right to examine in
person or by agent or attorney, during usual business hours, the corporation's
minutes of proceedings of its shareholders and record of shareholders.
Shareholders may inspect these records for any purpose reasonably related to
such person's interests as a shareholder.
In compliance with Delaware law, the Forcenergy by-laws provide that
stockholders have a right for a period of at least ten days prior to every
stockholder meeting and during such meeting to examine a list of stockholders of
Forcenergy, arranged in alphabetical order and showing the address and the
number of shares held by such stockholder, for any purpose germane to such
meeting. Further, under Delaware law, any stockholder, following a written
request, has the right to inspect the corporation's books and records, including
the stockholder list, during usual business hours for a proper purpose.
INTERESTED DIRECTOR TRANSACTIONS
Under both New York law and Delaware law, certain contracts or transactions
in which one or more of a corporation's directors has an interest are not void
or voidable solely by reason of such interest provided that one of the following
conditions is met: (1) the contract or transaction is approved by the
stockholders or by a majority of disinterested members of the board of directors
(under New York law, if a quorum of the board is not present at such time, a
unanimous vote of the disinterested directors is required) or, in certain
circumstances, a committee thereof if the material facts are disclosed (under
New York law, in good faith) or known thereto or (2) the contract or transaction
was fair (and, under New York law, reasonable) to the corporation at the time it
was approved.
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PROPOSED AMENDMENT TO FOREST'S RESTATED
CERTIFICATE OF INCORPORATION
Forest's board of directors has approved a proposal authorizing an amendment
to Forest's restated certificate of incorporation to effect a reverse stock
split of Forest's common shares. The certificate of amendment to effect this
reverse stock split is in the form attached to this joint proxy statement/
prospectus as Annex E. Approval of the reverse stock split by shareholders
requires the affirmative vote of the holders of a majority of Forest's
outstanding common shares.
GENERAL
Forest is currently authorized to issue up to 210,000,000 shares of stock,
of which 200,000,000 are common shares, $0.10 par value, and 10,000,000 are
preferred shares, $0.01 par value. Each two outstanding Forest common shares
would be reclassified into one new common share. If the reverse stock split is
approved, Forest's stated capital would be reduced, but the authorized number of
common shares would not change.
PRINCIPAL EFFECTS OF REVERSE STOCK SPLIT
The principal effects of the reverse stock split proposal will be:
- Approval of the reverse stock split would decrease Forest's outstanding
common shares by 50%. As of August , 2000, Forest had old common
shares outstanding. This number would become new common shares (or
Forest common shares if the merger is approved and after giving
effect to the shares issued in the merger). The reverse split will not
affect any shareholder's proportionate equity interest in Forest, subject
to the provisions for the elimination of fractional shares as described
below and subject to approval of the merger.
- Forest is authorized under its restated certificate of incorporation to
issue up to 200,000,000 common shares. We are not proposing to reduce the
amount of our authorized common shares. If the reverse split is approved,
the new common shares issued and outstanding will represent approximately
% of Forest's authorized common shares (or % of Forest's authorized
common shares if the merger is approved and after giving effect to the
shares issued in the merger) whereas the existing common shares currently
issued and outstanding represents approximately % of the authorized
common shares (or % of Forest's authorized common shares if the merger
is approved and after giving effect to the shares issued in the merger).
After giving effect to this proposal, approximately common shares
will be available for future issuance by the board of directors without
further action by the shareholders.
- As of August , 2000, there were outstanding options to purchase an
aggregate of shares of old common stock under Forest's Stock
Incentive Plan. All of the outstanding options include provisions for
adjustments in the number of shares covered thereby, and the exercise
price thereof, in the event of a reverse stock split. If the reverse split
is approved and effected, there would be reserved for issuance upon
exercise of all outstanding options a total of approximately shares
of new common stock. Each of the outstanding options would thereafter
evidence the right to purchase 50% of the shares of common stock
previously covered thereby, and the exercise price per share would be two
times the previous exercise price.
Assuming the reverse stock split is approved and implemented, the
certificate of amendment amending Forest's restated certificate of incorporation
will be filed with the Secretary of State of New York as promptly as practicable
thereafter. The reverse stock split would become effective as of the close of
business on the date of such filing.
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REASONS FOR THE REVERSE STOCK SPLIT
The adoption of the reverse stock split would decrease the number of shares
outstanding and presumably increase the per share market price for the new
common shares. Theoretically, the number of shares outstanding should not, by
itself, affect the marketability of the stock, the type of investor who acquires
it or Forest's reputation in the financial community, but in practice this is
not necessarily the case.
Moreover, many leading brokerage firms are reluctant to recommend
lower-priced securities to their clients and a variety of brokerage house
policies and practices currently tend to discourage individual brokers within
firms from dealing in lower-priced stocks. Some of those policies and practices
pertain to the payment of brokers' commissions and to time-consuming procedures
that function to make the handling of lower-priced stocks unattractive to
brokers from an economic standpoint. In addition, the structure of trading
commissions also tends to have an adverse impact upon holders of lower-priced
stocks because the brokerage commission on a sale of a lower-priced stock
generally represents a higher percentage of the sales price than the commission
on a relatively higher-priced issue.
Although we cannot assure you that the price of Forest's shares after the
reverse split will actually increase in an amount proportionate to the decrease
in the number of outstanding shares, the reverse split is intended to result in
a price level for the new common stock that will broaden investor interest and
provide a market that will more closely reflect Forest's underlying values.
As a growth-oriented independent oil and gas exploration and production
company, Forest has extensively relied on outside sources of funds, including
the proceeds from the sale of equity and debt securities, to fund its capital
expenditures in the past. Forest expects to continue to rely on outside sources
of funds in the future, and believes that the reverse stock split may enhance
Forest's ability to obtain such capital on favorable terms.
EXCHANGE OF STOCK CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
As soon as practicable after the reverse split becomes effective, Forest
shareholders will be notified and requested to surrender their old common stock
certificates for new certificates representing the number of shares of new
common stock after the reverse split. Until so surrendered, each current
certificate representing shares of old common stock will be deemed for all
corporate purposes after such effective date to evidence ownership of new common
stock in the appropriately reduced number. Chase Mellon Shareholder Services
will be appointed exchange agent to act for shareholders in effecting the
exchange of their certificates.
In cases in which the reverse split results in any shareholder holding a
fraction of a share, Forest will pay the shareholder for such fractional
interest on the basis of the average closing market price on the NYSE for the 10
trading days immediately preceding the effective date of such reverse split.
Because the price of Forest common stock fluctuates, the amount to be paid for
fractional shares cannot be determined until such date and may be greater or
lesser than the price on the date that any shareholder executes his proxy.
There were approximately shareholders of record of Forest as of
August , 2000. The reverse split, if approved, is not expected to cause a
significant change in the number of shareholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the proposed reverse split. This summary does not purport to be complete and
does not address the tax consequences to holders that are subject to special tax
rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, foreign entities, nonresident alien
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individuals, broker-dealers and tax-exempt entities. This summary is based on
the Internal Revenue Code of 1986, as amended, Treasury regulations and proposed
regulations, court decisions and current administrative rulings and
pronouncements of the Internal Revenue Service, all of which are subject to
change, possibly with retroactive effect, and assumes that the new common stock
will be held as a "capital asset" (generally, property held for investment) as
defined in the Code. Holders of old common stock are advised to consult their
own tax advisors regarding the federal income tax consequences of the proposed
reverse stock split in light of their personal circumstances and the
consequences under state, local and foreign tax laws.
- The reverse split will qualify as a recapitalization described in
Section 368(a)(1)(E) of the Internal Revenue Code.
- No gain or loss will be recognized by Forest in connection with the
reverse split.
- No gain or loss will be recognized by a shareholder who exchanges all of
his shares of old common stock solely for shares of new common stock.
- The aggregate basis of the new common shares to be received in the reverse
split (including any fractional share deemed received) will be the same as
the aggregate basis of the old common shares surrendered in exchange
therefor.
- The holding period of the new common shares to be received in the reverse
split (including any fractional share deemed received) will include the
holding period of the old common shares surrendered in exchange therefor.
- A holder of common stock receiving cash in lieu of a fractional shares
will be treated as receiving the payment in connection with a redemption
of the fractional share, with the tax consequences of the redemption
determined under Section 302 of the Internal Revenue Code. As such, a
holder of common stock will generally recognize gain or loss upon such
payment equal to the difference, if any, between such shareholder's basis
in the fractional share (as described above) and the amount of cash
received. Such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the shareholder's holding period (as
described above) exceeds one year. A holder of common stock receiving cash
in lieu of a fractional share may be subject to dividend treatment on such
payment if the redemption of the fractional share is "essentially
equivalent to a dividend" under Section 302 of the Internal Revenue Code.
However, based on a published IRS ruling, dividend treatment is unlikely
if, taking into account the constructive ownership rules set forth in
Section 318 of the Internal Revenue Code, (a) the shareholder's relative
stock interest in Forest is minimal, (b) the shareholder exercises no
control over Forest's affairs and (c) there is a reduction in the
shareholder's proportionate interest in Forest.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH HOLDER OF FOREST COMMON SHARES IS URGED TO CONSULT WITH HIS, HER OR ITS OWN
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK
SPLIT, INCLUDING THE APPLICATION AND EFFECT OF THE LAW OF ANY STATE, MUNICIPAL,
FOREIGN OR OTHER TAXING JURISDICTION.
LEGAL AND TAX MATTERS
The validity of the Forest common shares to be issued in the merger will be
passed upon for Forest by Vinson & Elkins L.L.P., special counsel to Forest.
Weil, Gotshal & Manges LLP, counsel to Forcenergy, will render an opinion
that the merger will qualify as a "reorganization" within the meaning of
Section 368 (a) of the Internal Revenue Code.
Ernst & Young LLP, tax advisor to Forest, will render an opinion that the
merger will qualify as a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code.
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EXPERTS
The consolidated financial statements of Forest as of December 31, 1999 and
1998, and for each of the years in the three-year period ended December 31,
1999, have been incorporated by reference in reliance upon the report of KPMG
LLP, independent certified accountants, which is incorporated by reference, and
upon that firm as experts in accounting and auditing.
The consolidated financial statements of Forcenergy as of December 31, 1999
and 1998, and for each of the years in the three-year period ended December 31,
1999 incorporated by reference herein, have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as stated in their
report with respect thereto, and have been so incorporated in reliance upon
their authority as experts in accounting and auditing.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of KPMG LLP, current independent certified accountants of
Forest, expect to be present at the Forest special meeting and will be available
to respond to appropriate questions from Forest shareholders in attendance.
Although these representatives have stated that they do not intend to make any
statements at the Forest special meeting, they will have the opportunity to do
so.
Representatives of PricewaterhouseCoopers LLP, current independent public
accountants of Forcenergy, expect to be present at the Forcenergy special
meeting and will be available to respond to appropriate questions from
Forcenergy stockholders in attendance. Although these representatives have
stated that they do not intend to make any statements at the Forcenergy special
meeting, they will have the opportunity to do so.
OTHER MATTERS
Pursuant to the Forest by-laws, the business that may be conducted at the
Forest special meeting is confined to the purpose described in the notice of
special meeting of shareholders that accompanies this document.
Pursuant to Forcenergy's by-laws, the business that may be conducted at the
Forcenergy special meeting is confined to the purpose described in the notice of
special meeting of stockholders that accompanies this document.
SHAREHOLDER AND STOCKHOLDER PROPOSALS
Any Forest shareholder who intends to present a proposal at Forest's 2001
annual meeting of shareholders for inclusion in the proxy statement and form of
proxy relating to that meeting is advised that the proposal must be received by
Forest at its principal executive offices not later than December 1, 2000.
Forest will not be required to include in its proxy statement a form of proxy or
stockholder proposal that is received after that date or that otherwise fails to
meet the requirements for shareholder proposals established by regulations of
the SEC.
Any Forcenergy stockholder who intends to present a proposal at Forcenergy's
2001 annual meeting of stockholders for inclusion in the proxy statement and
form of proxy relating to that meeting is advised that the written proposal and
any written statement in support of the proposal must be received by the
Secretary of Forcenergy at its principal executive offices not later than
December 30, 2000. Stockholders can present other proposals from the floor of
the annual meeting only if, in general, the corporate secretary receives proper
notice and certain information not less than 60 days nor more than 90 days prior
to the meeting. Any stockholder who wishes to introduce a proposal should
consult Forcenergy's certificate of incorporation and by-laws and the applicable
proxy rules of the SEC. Forcenergy will not be required to include in its proxy
statement a form of proxy or stockholder proposal that is received after that
date or that otherwise fails to meet the requirements for
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stockholder proposals established by regulations of the SEC. If the merger is
consummated as currently contemplated, there will be no 2001 annual meeting of
Forcenergy stockholders.
WHERE YOU CAN FIND MORE INFORMATION
Forest has filed with the SEC a registration statement on Form S-4 under the
Securities Act that registers the issuance of the Forest common shares in the
merger to Forcenergy stockholders. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
Forest and Forcenergy. The rules and regulations of the SEC allow us to omit
certain information included in the registration statement from this document.
In addition, Forest and Forcenergy file reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934, as amended.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may read and copy this information at the following
locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois
60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet website that
contains reports, proxy statements and other information about issuers, like
Forest and Forcenergy, who file electronically with SEC. The address of that
website is http://www.sec.gov. You can also inspect reports, proxy statements
and other information about Forest at the offices of the NYSE, 20 Broad Street,
New York, New York 10005 and about Forcenergy at the offices of the National
Association of Securities Dealers, 1735 K Street, Washington, D.C. 20006.
The SEC allows Forest and Forcenergy to incorporate by reference information
into this document. This means that the companies can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this document, except for any information that is superseded by information that
is included directly in this document.
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This document incorporates by reference the documents listed below that
Forest and Forcenergy have previously filed with the SEC. They contain important
information about our companies and their financial condition. Some of these
filings have been amended by later filings, which are also listed.
<TABLE>
<CAPTION>
FOREST COMMISSION FILINGS
(FILE NO. 1-13515) DESCRIPTION OR PERIOD
--------------------------------------------- ---------------------------------------------
<S> <C>
Current Report on Form 8-K, filed July 13, Press release announcing merger agreement
2000 between Forest and Forcenergy
Quarterly Report on Form 10-Q, filed on Quarter Ended March 31, 2000
May 15, 2000
Proxy Statement on Schedule 14A, filed on For Forest's 2000 annual meeting of
March 29, 2000 shareholders held May 10, 2000
Annual Report on Form 10-K, filed on Year Ended December 31, 1999
March 24, 2000
Current Report on Form 8-K, filed on Summary of year-end operations and plans for
February 22, 2000 2000 for Canadian, Gulf of Mexico, Western
and International business units
Registration Statement on Form 8-A, filed on Description of Forest preferred share
October 20, 1997 purchase rights and common stock
</TABLE>
<TABLE>
<CAPTION>
FORCENERGY COMMISSION FILINGS
(FILE NO. 1-13095) DESCRIPTION OR PERIOD
--------------------------------------------- ---------------------------------------------
<S> <C>
Quarterly Report on Form 10-Q, filed on Quarter Ended March 31, 2000
May 15, 2000
Proxy Statement on Schedule 14A, filed on For Forcenergy's 2000 annual meeting of
April 26, 2000 stockholders held June 7, 2000
Annual Report on Form 10-K, filed on Year Ended December 31, 1999
March 30, 2000
Current Report on Form 8-K, filed on Consummation of First Amended Joint Plan of
February 16, 2000 Reorganization
</TABLE>
Forest and Forcenergy incorporate by reference additional documents that
either company may file with the SEC between the date of this document and the
dates of the Forest special meeting and the Forcenergy special meeting. These
documents include periodic reports, such as annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, as well as proxy
statements.
You can obtain any of the documents incorporated by reference in this
document through Forest or Forcenergy, as the case may be, or from the SEC
through the SEC's website at the address described above. Documents incorporated
by reference are available from the companies without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in this document. You can obtain documents incorporated
by reference as an
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exhibit in this document by requesting them in writing or by telephone from the
appropriate company at the following address:
<TABLE>
<S> <C>
FOR FOREST SHAREHOLDERS: FOR FORCENERGY STOCKHOLDERS:
Forest Oil Corporation Forcenergy Inc
1600 Broadway, Suite 2200 3838 North Causeway Blvd., Lakeway Three,
Suite 2300
Denver, CO 80202 Metairie, LA 70002
(303) 812-1400 (504) 838-7022
</TABLE>
If you would like to request documents, please do so promptly to receive
them before the special meetings. If you request any incorporated documents from
us, we will mail them to you by first class mail, or another equally prompt
means, within one business day after we receive your request.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE MERGER OR OUR COMPANIES THAT DIFFERS FROM OR ADDS TO
THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS OUR COMPANIES
HAVE PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION IN WHICH IT IS UNLAWFUL TO OFFER TO EXCHANGE
OR SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
121
<PAGE>
ANNEX A
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AGREEMENT AND PLAN OF MERGER
AMONG
FOREST OIL CORPORATION
FOREST ACQUISITION I CORPORATION
AND
FORCENERGY INC
DATED AS OF JULY 10, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
<TABLE>
<S> <C> <C>
ARTICLE I THE MERGER............................................... 1
1.1. THE MERGER.................................................. 1
1.2. CLOSING..................................................... 2
1.3. EFFECTIVE TIME.............................................. 2
1.4. EFFECTS OF THE MERGER....................................... 2
1.5. CERTIFICATE OF INCORPORATION AND BY-LAWS.................... 2
1.6. DIRECTORS................................................... 2
ARTICLE II EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.............................. 2
2.1. EFFECT ON STOCK............................................. 2
2.2. EXCHANGE OF CERTIFICATES.................................... 4
ARTICLE III STOCKHOLDER APPROVAL; BOARD OF DIRECTORS OF PARENT..... 7
3.1. STOCKHOLDER APPROVAL........................................ 7
3.2. BOARD OF DIRECTORS OF PARENT................................ 8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 8
4.1. ORGANIZATION, QUALIFICATION, ETC............................ 8
4.2. STOCK....................................................... 9
4.3. CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO
VIOLATION................................................. 10
4.4. REPORTS AND FINANCIAL STATEMENTS............................ 10
4.5. NO UNDISCLOSED LIABILITIES.................................. 11
4.6 NO VIOLATION OF LAW......................................... 11
4.7. ENVIRONMENTAL LAWS AND REGULATIONS.......................... 11
4.8. ABSENCE OF CHANGES IN BENEFIT PLANS......................... 12
4.9. ERISA COMPLIANCE............................................ 12
ABSENCE OF CERTAIN CHANGES OR EVENTS........................
4.10. 13
INVESTIGATIONS; LITIGATION..................................
4.11. 14
4.12 JOINT PROXY STATEMENT; REGISTRATION STATEMENT; OTHER
INFORMATION............................................... 14
COMPANY RIGHTS PLAN.........................................
4.13. 15
LACK OF OWNERSHIP OF PARENT COMMON STOCK....................
4.14. 15
TAX MATTERS.................................................
4.15. 15
OPINION OF FINANCIAL ADVISOR................................
4.16. 16
REQUIRED VOTE OF COMPANY STOCKHOLDERS.......................
4.17. 16
POOLING OF INTERESTS........................................
4.18. 16
INSURANCE...................................................
4.19. 16
LABOR MATTERS; EMPLOYEES....................................
4.20. 16
RESERVE REPORTS.............................................
4.21. 17
MATERIAL CONTRACTS..........................................
4.22. 18
PERMITS.....................................................
4.23. 19
INTELLECTUAL PROPERTY.......................................
4.24. 19
HEDGING.....................................................
4.25. 20
SECTION 203 OF THE DGCL NOT APPLICABLE......................
4.26. 20
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB......... 20
5.1. ORGANIZATION, QUALIFICATION, ETC............................ 20
5.2. CAPITAL STOCK............................................... 21
5.3. CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO
VIOLATION................................................. 22
5.4. REPORTS AND FINANCIAL STATEMENTS............................ 22
5.5. NO UNDISCLOSED LIABILITIES.................................. 23
5.6. NO VIOLATION OF LAW......................................... 23
5.7. ENVIRONMENTAL LAWS AND REGULATIONS.......................... 23
5.8. ABSENCE OF CHANGES IN BENEFIT PLANS......................... 24
5.9. ERISA COMPLIANCE............................................ 24
ABSENCE OF CERTAIN CHANGES OR EVENTS........................
5.10. 25
INVESTIGATIONS; LITIGATION..................................
5.11. 25
JOINT PROXY STATEMENT; REGISTRATION STATEMENT; OTHER
5.12. INFORMATION............................................... 26
LACK OF OWNERSHIP OF COMPANY COMMON STOCK...................
5.13. 26
PARENT RIGHTS PLAN..........................................
5.14. 26
TAX MATTERS.................................................
5.15. 26
OPINION OF FINANCIAL ADVISOR................................
5.16. 27
REQUIRED VOTE OF PARENT STOCKHOLDERS........................
5.17. 27
POOLING OF INTERESTS........................................
5.18. 27
INSURANCE...................................................
5.19. 27
LABOR MATTERS; EMPLOYEES....................................
5.20. 28
RESERVE REPORTS.............................................
5.21. 28
MATERIAL CONTRACTS..........................................
5.22. 29
PERMITS.....................................................
5.23. 30
INTELLECTUAL PROPERTY.......................................
5.24. 30
HEDGING.....................................................
5.25. 30
CSI LETTER..................................................
5.26. 31
ARTICLE VI. COVENANTS AND AGREEMENTS............................... 31
6.1. CONDUCT OF BUSINESS BY THE COMPANY OR PARENT................ 31
6.2. INVESTIGATION............................................... 35
6.3. COOPERATION................................................. 35
6.4. AFFILIATE AGREEMENTS........................................ 36
6.5. EMPLOYEE STOCK OPTIONS, INCENTIVE AND BENEFIT PLANS......... 36
6.6. FILINGS; OTHER ACTION....................................... 38
6.7. FURTHER ASSURANCES.......................................... 38
6.8. TAKEOVER STATUTE............................................ 38
6.9. NO SOLICITATION............................................. 38
PUBLIC ANNOUNCEMENTS........................................
6.10. 39
INDEMNIFICATION AND INSURANCE...............................
6.11. 39
ACCOUNTANTS' "COMFORT" LETTERS..............................
6.12. 40
ADDITIONAL REPORTS..........................................
6.13. 40
EMPLOYEE MATTERS............................................
6.14. 40
MANAGEMENT..................................................
6.15. 41
DISPUTED CLAIMS AND ALLOWED COMPANY EQUITY INTERESTS UNDER
6.16. THE COMPANY PLAN OF REORGANIZATION........................ 41
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII. CONDITIONS TO THE MERGER.............................. 41
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER.................................................... 41
7.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER.................................................... 42
7.3. CONDITIONS TO OBLIGATIONS OF PARENT TO EFFECT THE MERGER.... 42
ARTICLE VIII. TERMINATION, WAIVER, AMENDMENT AND CLOSING........... 43
8.1. TERMINATION OR ABANDONMENT.................................. 43
8.2. TERMINATION FEE............................................. 44
8.3. AMENDMENT OR SUPPLEMENT..................................... 45
8.4. EXTENSION OF TIME, WAIVER, ETC.............................. 46
ARTICLE IX. MISCELLANEOUS.......................................... 46
9.1. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES............... 46
9.2. EXPENSES.................................................... 46
9.3. COUNTERPARTS; EFFECTIVENESS................................. 46
9.4. GOVERNING LAW............................................... 46
9.5. NOTICES..................................................... 46
9.6. ASSIGNMENT; BINDING EFFECT.................................. 47
9.7. SEVERABILITY................................................ 47
9.8 ENFORCEMENT OF AGREEMENT.................................... 47
9.9. MISCELLANEOUS............................................... 48
HEADINGS....................................................
9.10. 48
SUBSIDIARIES; SIGNIFICANT SUBSIDIARIES; AFFILIATES..........
9.11. 48
FINDERS OR BROKERS..........................................
9.12. 48
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
---------------------
<C> <S>
A Company Stockholders Agreement
B Parent Shareholders Agreement
C Registration Rights Agreement
6.4(a) Company Affiliate Agreement
6.4(b) Parent Affiliate Agreement
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
---------------------
<C> <S>
6.14(c) Severance Plans/Employment Agreements
6.15 Executive Officers
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of July 10, 2000 (this "Agreement"),
among Forest Oil Corporation, a New York corporation ("Parent"), Forest
Acquisition I Corporation, a Delaware corporation ("Sub"), and Forcenergy Inc, a
Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
(i) have approved and have declared advisable the merger of Sub with and into
the Company (the "Merger"), upon the terms and subject to the conditions set
forth herein, whereby (a) each issued and outstanding share of Company Common
Stock (as defined in Section 4.2) not owned directly by the Company or Parent
will be converted into the right to receive 1.6 shares of Parent Common Stock
(as defined in Section 5.2) as set forth in Section 2.1 (subject to adjustment
as provided in Section 3.1) and (b) each issued and outstanding share of Company
Series A Preferred Stock (as defined in Section 4.2) not owned directly by the
Company or Parent will be converted into the right to receive 68.6141 shares of
Parent Common Stock as set forth in Section 2.1 (subject to adjustment as
provided in Section 3.1), and (ii) have determined that the Merger and the other
transactions contemplated hereby are consistent with, and in furtherance of,
their respective business strategies and goals;
WHEREAS, simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to the willingness of Parent and Sub to enter
into this Agreement, Parent and certain principal stockholders of the Company
(the "Principal Company Stockholders") are entering into the Company
Stockholders Agreement dated the date hereof (the "Company Stockholders
Agreement") in the form of EXHIBIT A hereto pursuant to which the Principal
Company Stockholders will agree to vote to adopt this Agreement and to take
certain other actions in furtherance of the Merger;
WHEREAS, simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to the willingness of the Company to enter
into this Agreement, the Company and The Anschutz Corporation ("TAC") are
entering into the Parent Shareholders Agreement dated the date hereof (the
"Parent Shareholders Agreement") in the form of EXHIBIT B hereto pursuant to
which TAC will agree to vote to approve the issuance of Parent Common Stock and
to take certain other actions in furtherance of the Merger;
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Parent and the Principal Company Stockholders are entering into the Registration
Rights Agreement dated the date hereof (the "Registration Rights Agreement") in
the form of Exhibit C hereto;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
THE MERGER
Section 1.1. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Sub shall be merged with and into the Company at the Effective
Time (as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of Sub shall cease and the Company shall be the surviving
corporation (the "Surviving Corporation"), shall succeed to and assume all the
rights and obligations of Sub in accordance with the DGCL and shall become a
wholly owned subsidiary of Parent.
<PAGE>
Section 1.2. CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VII (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions), unless another time or date
is agreed to by the parties hereto. The Closing will be held at the offices of
Vinson & Elkins L.L.P., 17th Floor, 1325 Avenue of the Americas, New York, New
York 10019.
Section 1.3. EFFECTIVE TIME. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the DGCL.
The Merger shall become effective at such time as the Certificate of Merger is
filed with the Secretary of State of the State of Delaware, or at such
subsequent date or time as Parent and the Company shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
Section 1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
Section 1.5. CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The certificate of incorporation of Sub, as in effect immediately
prior to the Effective Time, shall be the certificate of incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The by-laws of Sub, as in effect immediately prior to Effective
Time, shall be the by-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
Section 1.6. DIRECTORS. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until the
next annual meeting of stockholders of the Surviving Corporation (or their
earlier resignation or removal) and until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II.
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT ON STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or the holders of
any securities of the Company or Sub:
(a) CANCELLATION OF COMPANY-OWNED STOCK AND PARENT-OWNED STOCK. Each
share of Company Common Stock and Company Series A Preferred Stock that is
owned directly by the Company or by Parent or any of their Subsidiaries, if
any, shall automatically be cancelled and retired and shall cease to exist,
and no consideration shall be delivered in exchange therefor.
(b) CONVERSION OF COMPANY COMMON STOCK AND COMPANY SERIES A PREFERRED
STOCK. Subject to Sections 2.1(e) and 2.2(e), each issued and outstanding
share of Company Common Stock, including without limitation shares held in
the reserve created pursuant to Section 5.3(h) of the Company's plan of
reorganization (the "Reserve") (other than shares to be cancelled in
accordance with Section 2.1(a)) shall be converted into the right to receive
1.6 (the "Common Exchange Ratio") fully paid and non-assessable shares of
Parent Common Stock (the "Common Stock Merger Consideration") and (ii) each
issued and outstanding share of Company Series A Preferred Stock (other than
shares to be cancelled as provided in Section 2.1(a)) with a stated
2
<PAGE>
value of $1,000 shall be converted into the right to receive 68.6141 (the
"Preferred Exchange Ratio", and collectively with the Common Exchange Ratio,
the "Exchange Ratio") fully paid and non-assessable shares of Parent Common
Stock (and all accrued and unpaid dividends on each such outstanding share
of Company Series A Preferred Stock (other than shares to be cancelled as
aforesaid), whether or not declared, shall be converted into the right to
receive such number of fully paid and nonassessable shares of Parent Common
Stock as shall equal the product of the Preferred Exchange Ratio and a
fraction, the numerator of which shall equal the amount of such accrued and
unpaid dividends on such share and the denominator of which is $1,000) (the
"Preferred Stock Merger Consideration", and collectively with the Common
Stock Merger Consideration, the "Merger Consideration"). As of the Effective
Time and without any action on the part of the holders thereof, all such
shares of Company Common Stock and Company Series A Preferred Stock shall no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock or Company Series A Preferred Stock (the
"Certificates") shall cease to have any rights with respect thereto, except
the right to receive (i) the applicable Merger Consideration, (ii) certain
dividends and other distributions in accordance with Section 2.2(c) and
(iii) cash in lieu of fractional shares of Parent Common Stock or Company
Preferred Stock in accordance with Section 2.2(e), without interest.
(c) CONVERSION OF COMMON STOCK OF SUB. Each issued and outstanding
share of common stock, par value $0.01 per share, of Sub shall be converted
into and become 24,000 validly issued, fully paid and nonassessable shares
of common stock of the Surviving Corporation.
(d) COMPANY WARRANTS. (i) Each outstanding warrant (the "Company
Warrants") to purchase or acquire a share of Company Common Stock under the
warrant agreements listed on the Company Disclosure Letter (collectively,
the "Company Warrant Agreements") shall be converted into a warrant to
purchase the number of shares of Parent Common Stock equal to the Common
Exchange Ratio times the number of shares of Company Common Stock that could
have been obtained immediately prior to the Effective Time upon the exercise
of such Company Warrant at an exercise price per share equal to the
aggregate exercise price for shares of Company Common Stock subject to such
Company Warrant under the applicable Company Warrant Agreement divided by
the aggregate number of shares of Parent Common Stock deemed purchasable
pursuant to such Company Warrant, and all references in such warrant
agreement to the Company shall be deemed to refer to Parent, where
appropriate, and (ii) Parent shall assume the obligations of the Company
under the Company Warrant Agreements. The other terms of each such Company
Warrant and the applicable Company Warrant Agreement under which it was
issued shall continue to apply.
(e) Notwithstanding anything in this Agreement to the contrary, any
issued and outstanding shares of Company Series A Preferred Stock held by a
person (a "Dissenting Stockholder") who objects to the Merger and complies
with all provisions of Delaware law concerning the right of holders of
Company Series A Preferred Stock to dissent from the Merger and require
appraisal of their shares of Company Series A Preferred Stock ("Dissenting
Shares") shall not be converted as described in Section 2.1(b), but shall
become the right to receive such consideration as may be determined to be
due to such Dissenting Stockholder pursuant to the laws of the State of
Delaware. If, after the Effective Time, such Dissenting Stockholder
withdraws his demand for appraisal or fails to perfect or otherwise loses
his right of appraisal, in any case pursuant to the DGCL, his shares of
Company Series A Preferred Stock shall be deemed to be converted as of the
Effective Time into the right to receive the Preferred Stock Merger
Consideration. The Company shall give Parent (i) prompt notice of any
demands for appraisal of shares of Company Series A Preferred Stock received
by the Company and (ii) the opportunity to participate in and direct all
negotiations and proceedings with respect to any such demands. The Company
shall not, without
3
<PAGE>
the prior written consent of Parent, make any payment with respect to, or
settle, offer to settle or otherwise negotiate, any such demands.
Section 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall enter
into an agreement with such bank or trust company as may be designated by
Parent and as shall be reasonably satisfactory to the Company to act as
exchange agent for the purpose of exchanging Certificates for the applicable
Merger Consideration (the "Exchange Agent"). At or prior to the Effective
Time, Parent shall deposit with the Exchange Agent, for the benefit of the
holders of shares of Company Common Stock and Company Series A Preferred
Stock, for exchange in accordance with this Article II, through the Exchange
Agent, (i) Parent certificates representing the number of whole shares of
Parent Common Stock issuable pursuant to Section 2.1 in exchange for
outstanding shares of Company Common Stock and (ii) Parent certificates
representing the number of whole shares of Parent Common Stock issuable
pursuant to Section 2.1 in exchange for outstanding shares of Company
Series A Preferred Stock. Any certificates of Parent Common Stock or cash
deposited with the Exchange Agent shall hereinafter be referred to as the
"Exchange Fund." Parent shall make available to the Exchange Agent, from
time to time as required after the Effective Time, cash necessary to pay
dividends and distributions in accordance with Section 2.2(c) and to make
payments in lieu of any fractional shares in accordance with
Section 2.2(e).
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, but no later than 10 days thereafter, the Exchange Agent
shall mail to each holder of record of a Certificate whose shares were
converted into the applicable Merger Consideration pursuant to Section 2.1
(including without limitation the trustee of the Reserve), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the applicable Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a Parent certificate
representing that number of whole shares of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of this
Article II, certain dividends or other distributions in accordance with
Section 2.2(c) and cash in lieu of any fractional share in accordance with
Section 2.2(e) and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Company Common Stock
or Company Series A Preferred Stock that is not registered in the transfer
records of the Company a certificate representing the proper number of
shares of Parent Common Stock may be issued to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay any transfer or
other non-income taxes required by reason of the issuance of shares of
Parent Common Stock to a person other than the registered holder of such
Certificate or establish to the satisfaction of Parent that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the applicable Merger Consideration that the holder thereof has the right to
receive pursuant to the provisions of this Article II, if applicable,
certain dividends or other distributions in accordance with Section 2.2(c)
and, if applicable, cash in lieu of any fractional share in accordance with
Section 2.2(e). No interest will be paid or will accrue on any cash payable
to holders of Certificates pursuant to the provisions of this Article II.
4
<PAGE>
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby, and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to Section 2.2(e), and all such dividends, other
distributions and cash in lieu of fractional shares of Parent Common Stock
shall be paid by Parent to the Exchange Agent and shall be included in the
Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of applicable escheat
or similar laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificate representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock and the amount of any cash payable in
lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of
Parent Common Stock. Parent shall make available to the Exchange Agent cash
for these purposes.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK OR COMPANY
SERIES A PREFERRED STOCK. All shares of Parent Common Stock issued upon the
surrender for exchange of Certificates in accordance with the terms of this
Article II shall be deemed to have been issued in full satisfaction of all
rights pertaining to the shares of Company Common Stock or Company Series A
Preferred Stock theretofore represented by such Certificates, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
that may have been authorized or made by the Company on such shares of
Company Common Stock or Company Series A Preferred Stock that remain unpaid
at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock or Company Series A Preferred Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be cancelled and exchanged as
provided in this Article II, except as otherwise provided by law.
(e) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Parent shall relate to such
fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Parent.
(ii) As promptly as practicable following the Effective Time, Parent
shall pay to the Exchange Agent an amount in cash equal to the product
obtained by multiplying (A) the fractional share interest to which each
former holder of Company Common Stock or Company Series A Preferred Stock
(after taking into account all shares of Company Common Stock or Company
Series A Preferred Stock, as the case may be, held at the Effective Time
by such holder) would otherwise be entitled by (B) the closing price for
a share of Parent Common Stock as reported on the New York Stock
Exchange, Inc. ("NYSE") Composite Transaction Tape (as reported in The
Wall Street Journal, or, if not reported thereby, any other authoritative
source) on the Closing Date.
(iii) As soon as practicable after the determination of the amount of
cash to be paid to holders of Company Common Stock or Company Series A
Preferred Stock with respect to any
5
<PAGE>
fractional share interests, the Exchange Agent will make available such
amounts to such holders subject to and in accordance with the terms of
Section 2.2(c).
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
that remains undistributed to the holders of the Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to Parent for payment of their claim
for Merger Consideration, any cash in lieu of fractional shares of Parent
Common Stock and any dividends or distributions with respect to Parent
Common Stock.
(g) NO LIABILITY. None of Parent, the Company, Sub or the Exchange
Agent shall be liable to any person in respect of any shares of Parent
Common Stock (or dividends or distributions with respect thereto) or cash
from the Exchange Fund in each case delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law. If any
Certificate shall not have been surrendered prior to seven years after the
Effective Time (or immediately prior to such earlier date on which any
Merger Consideration, any cash payable to the holder of such Certificate
pursuant to this Article II or any dividends or distributions payable to the
holder of such Certificate would otherwise escheat to or become the property
of any governmental body or authority) any such Merger Consideration or
cash, dividends or distributions in respect of such Certificate shall, to
the extent permitted by applicable law, become the property of Parent, free
and clear of all claims or interest of any person previously entitled
thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Parent, on a daily basis.
Any interest and other income resulting from such investments shall be paid
to Parent.
(i) LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration and, if applicable, any
cash in lieu of fractional shares, and unpaid dividends and distributions on
shares of Parent Common Stock deliverable in respect thereof, in each case
pursuant to this Agreement.
(j) WITHHOLDING RIGHTS. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock or Company Series A Preferred Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment under the
Code and the rules and regulations promulgated thereunder, or any provision
of state, local or foreign tax law. To the extent that amounts are so
withheld by the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock or
Company Series A Preferred Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may
be.
(k) FURTHER ASSURANCES. At and after the Effective Time, the officers
and directors of the Surviving Corporation shall be authorized to execute
and deliver, in the name and on behalf of the Company or Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and
on behalf of the Company or Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any
and all right, title and interest in, to and under any of the rights,
properties or assets acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger.
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ARTICLE III.
STOCKHOLDER APPROVAL; BOARD
OF DIRECTORS OF PARENT
Section 3.1. STOCKHOLDER APPROVAL.
(a) Subject to the terms and conditions contained herein, (i) this
Agreement shall be submitted for approval to the holders of shares of
Company Common Stock at a meeting to be duly held for this purpose by the
Company (the "Company Stockholders Meeting"), and (ii) the issuance of
Parent Common Stock in connection with the Merger (the "Share Issuance"),
shall be submitted for approval to the holders of shares of Parent Common
Stock at a meeting to be duly held for this purpose by Parent (the "Parent
Shareholders Meeting"). The Company and Parent shall coordinate and
cooperate with respect to the timing of such meetings and shall endeavor to
hold such meetings on the same day and as soon as practicable after the date
hereof. Parent may also submit for approval to the holders of shares of
Parent Common Stock at the Parent Shareholders Meeting a proposal for a
1-for-2 consolidation (the "Reverse Stock Split") of the Parent Common
Stock; provided, however, that approval of the Share Issuance shall not be
conditioned on the approval of such proposal; and provided, further, that if
such proposal is adopted and the Reverse Stock Split is effected on or prior
to the Effective Time, the Common Exchange Ratio and the Preferred Exchange
Ratio shall be automatically adjusted to be 0.8 and 34.30705, respectively,
without the necessity of further action.
(b) The Board of Directors of the Company shall recommend adoption of
this Agreement by the stockholders of the Company (the "Company
Recommendation"), and shall not withdraw, modify or qualify (or propose to
withdraw, modify or qualify) (a "Change") in any manner adverse to such
recommendation or take any action or make any statement in connection with
the Company Stockholders Meeting inconsistent with such recommendation
(collectively, a "Change in the Company Recommendation"); provided the
foregoing shall not prohibit accurate disclosure (and such disclosure shall
not be deemed to be a Change in the Company Recommendation) of factual
information regarding the business, financial condition or results of
operations of the Company or the fact that a Takeover Proposal (as
hereinafter defined) has been made, the identity of the party making such
proposal or the material terms of such proposal (provided, that the Board of
Directors of the Company does not withdraw, modify or qualify (or propose to
withdraw, modify or qualify) in any manner adverse to Parent its
recommendation) in the Form S-4 or the Joint Proxy Statement/Prospectus or
otherwise, to the extent such information, facts, identity or terms is
required to be disclosed under applicable law; and, provided further, that
the Board of Directors of the Company may make a Change in the Company
Recommendation pursuant to Section 6.9 hereof. Notwithstanding any Change in
the Company Recommendation, this Agreement shall be submitted to the
stockholders of the Company at the Company Stockholders Meeting for the
purpose of adopting the Agreement and approving the Merger; provided that
this Agreement shall not be required to be submitted to the stockholders of
the Company at the Company Stockholders Meeting if this Agreement has been
terminated pursuant to Section 8.1 hereof.
(c) The Board of Directors of Parent shall recommend approval of the
Share Issuance by the shareholders of Parent (the "Parent Recommendation"),
and shall not Change in any manner adverse to such recommendation or take
any action or make any statement in connection with the Parent Shareholders
Meeting inconsistent with such recommendation (collectively, a "Change in
the Parent Recommendation"); provided the foregoing shall not prohibit
accurate disclosure (and such disclosure shall not be deemed to be a Change
in the Parent Recommendation) of factual information regarding the business,
financial condition or results of operations of Parent or the fact that a
Takeover Proposal has been made, the identity of the party making such
proposal or the material terms of such proposal (provided, that the Board of
Directors of Parent does not
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withdraw, modify or qualify (or propose to withdraw, modify or qualify) in
any manner adverse to the Company its recommendation) in the Form S-4 or the
Joint Proxy Statement/Prospectus or otherwise, to the extent such
information, facts, identity or terms is required to be disclosed under
applicable law; and, provided further, that the Board of Directors of Parent
may make a Change in the Parent Recommendation pursuant to Section 6.9
hereof. Notwithstanding any Change in the Parent Recommendation, this
Agreement shall be submitted to the shareholders of Parent at the Parent
Shareholders Meeting for the purpose of approving the Share Issuance;
provided that the Share Issuance shall not be required to be submitted to
the shareholders of Parent at the Parent Shareholders Meeting if this
Agreement has been terminated pursuant to Section 8.1 hereof.
Section 3.2. BOARD OF DIRECTORS OF PARENT. The Board of Directors of
Parent shall take all action necessary immediately following the Effective Time
to fix the number of directors constituting the Board of Directors at twelve
members. Attachment 3.2 to the Company Disclosure Letter lists names of the two
current members of the Board of Directors of the Company who will be nominated
as directors of Parent and the class of directors to which each such individual
will be nominated. If an individual so selected consents to serve as a director,
such individual shall be elected as a director of Parent (and shall be assigned
to such class of directors as specified in the preceding sentence), effective as
of the Effective Time, for a term expiring at Parent's next annual meeting of
stockholders following the Effective Time at which the term of the class to
which such director belongs expires, subject to being renominated as a director
at the discretion of Parent's Board of Directors.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as expressly set forth on a disclosure letter, dated as of the date
hereof and referencing applicable sections of this Agreement and provided to
Parent prior to the execution of this Agreement (the "Company Disclosure
Letter"), the Company represents and warrants to Parent and Sub that:
Section 4.1. ORGANIZATION, QUALIFICATION, ETC. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect (as hereinafter defined) on the
Company. As used in this Agreement, any reference to any state of facts, event,
change or effect having a "Material Adverse Effect" on or with respect to the
Company or Parent, as the case may be, means such state of facts, event,
development, change or effect (including the incurrence of any liabilities of
any nature, whether or not accrued, contingent (or otherwise)) that has had, or
would reasonably be expected to have, a material adverse effect on the business,
assets, properties, prospects, results of operations or financial condition of
the Company and its Subsidiaries (as defined in Section 9.11), taken as a whole,
or Parent and its Subsidiaries, taken as a whole, as the case may be. The copies
of the Company's certificate of incorporation and by-laws attached to the
Company Disclosure Letter are complete and correct and in full force and effect
on the date hereof. The Company does not have any Significant Subsidiaries (as
defined in Section 9.11). All the outstanding shares of capital stock of, or
other ownership interests in, the Company's Subsidiaries are validly issued,
fully paid and non-assessable and are owned by the Company, directly or
indirectly, free and clear of all liens, claims, charges or encumbrances. There
are no existing options, rights of first refusal, preemptive rights, calls or
commitments of any character relating to the issued or unissued capital stock or
other securities of, or other ownership interests in, any Subsidiaries of the
Company (other than rights of first refusal, preemptive rights or similar rights
held by the Company with respect to certain of such Subsidiaries).
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Section 4.2. CAPITAL STOCK. The authorized stock of the Company consists
of 100,000,000 shares of common stock, par value $0.01 per share ("Company
Common Stock"), and 10,000,000 shares of preferred stock, par value $.01 per
share ("Company Preferred Stock"). As of June 30, 2000, 24,161,000 shares of
Company Common Stock and 41,571 shares of Company Preferred Stock, all of which
shares of Company Preferred Stock having been designated as 14% Series A
Cumulative Preferred Stock ("Company Series A Preferred Stock"), were issued and
outstanding and no shares of Company Common Stock were held in treasury. All the
outstanding shares of Company Common Stock and Company Series A Preferred Stock
have been validly issued and are fully paid and non-assessable. No "Event of
Noncompliance" has occurred under the terms of the Company Series A Preferred
Stock. As of June 30, 2000, there were no outstanding subscriptions, options,
warrants, rights or other arrangements or commitments obligating the Company to
issue any shares of its stock other than:
(a) Warrants to acquire an aggregate of 180,000 shares of Company Common
Stock at an exercise price of $16.67 per share expiring February 15, 2004;
(b) Warrants to acquire an aggregate of 197,000 shares of Company Common
Stock at an exercise price of $20.83 per share expiring February 15, 2005;
(c) Warrants to purchase in the aggregate 1,775,000 shares of Company
Common Stock, which Warrants were originally issued in connection with the
issuance of the Company Series A Preferred Stock, each such warrant
entitling the holder to acquire 45 shares of Common Stock at an exercise
price of $10.00 per share expiring upon the earlier of the occurrence of
certain events or February 15, 2010; and
(d) Options and other rights to receive or acquire 1,605,384 shares of
Company Common Stock granted on or prior to June 30, 2000, pursuant to
employee incentive or benefit plans, programs and arrangements and
non-employee director plans currently maintained by the Company
(collectively the "Company Stock Plans").
No changes in Company Common Stock or Company Preferred Stock have occurred
since June 30, 2000. Attachment 4.2 to the Company Disclosure Letter sets forth
a complete and correct list, as of June 30, 2000 of (i) the name of each holder
of outstanding stock options or other rights to purchase or to receive Company
Common Stock granted under the Company Stock Plans (collectively, the "Company
Stock Options"), (ii) the number of shares of Company Common Stock subject to
each Company Stock Option, (iii) the exercise prices thereof and (iv) the name
of the Company Stock Plan pursuant to which such Company Stock Options were
issued. Attachment 4.2 to the Company Disclosure Letter sets forth a complete
and correct list, as of June 30, 2000 of (i) the name of each record holder of
outstanding Company Warrants, (ii) the number of shares of Company Common Stock
subject to each such Company Warrant and (iii) the exercise prices thereof.
Except as set forth in this Section 4.2, including in connection with the
issuance or pursuant to the conversion or exercise of the securities referred to
above, (x) there are not issued, reserved for issuance or outstanding (A) any
shares of capital stock or other voting securities of the Company or any of its
Subsidiaries (other than shares of capital stock or other voting securities of
such Subsidiaries that are directly or indirectly owned by the Company),
(B) any securities of the Company or any of its Subsidiaries convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of, or other ownership interests in, the Company or any of its
Subsidiaries or (C) any warrants, calls, options or other rights to acquire from
the Company or any of its Subsidiaries, and no obligation of the Company or any
of its Subsidiaries to issue, any capital stock or other voting securities of,
or other ownership interests in, or any securities convertible into or
exchangeable or exercisable for any capital stock or other voting securities of,
or ownership interests in, the Company or any of its Subsidiaries, (y) there are
not any outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any such securities or to issue, deliver
or sell, or cause to be issued, delivered or sold,
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any such securities and (z) the Company is not a party to any voting agreement
or registration rights agreement with respect to any of its securities.
Section 4.3. CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO
VIOLATION. The Company has the requisite corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Company and, except for the approval of its stockholders in the
case of the Merger, no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement and the transactions contemplated
hereby. The Board of Directors of the Company has determined that the
transactions contemplated by this Agreement are in the best interest of the
Company and its stockholders and to recommend to such stockholders that they
vote in favor thereof. This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement constitutes a valid and
binding agreement of the other parties hereto, this Agreement constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms (except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). The Company is not subject to or obligated
under any charter or bylaw provision, or subject to any order or decree, that
would be breached or violated by its executing or, subject to the approval of
its stockholders in the case of the Merger, carrying out this Agreement. The
execution and carrying out of this Agreement by the Company will not breach or
violate any contract provision or agreement evidencing indebtedness or any
license, franchise or permit, except for any breaches or violations that would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. Other than in connection with or in compliance with the provisions of
the DGCL, the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), Section 4043 of ERISA (as defined in Section 4.9) and the securities or
blue sky laws of the various states (collectively, the "Company Required
Approvals"), no authorization, consent or approval of, or filing with, any
governmental body or authority or any non-governmental third party is necessary
for the consummation by the Company of the transactions contemplated by this
Agreement, except for such authorizations, consents, approvals or filings, the
failure to obtain or make which would not, individually or in the aggregate,
have a Material Adverse Effect on the Company or substantially impair or delay
the consummation of the transactions contemplated hereby.
Section 4.4. REPORTS AND FINANCIAL STATEMENTS. (a) The Company has
previously made available to Parent true and complete copies of:
(i) the Company's Annual Reports on Form 10-K filed with the
Securities and Exchange Commission (the "SEC") for each of the years
ended December 31, 1997 through 1999;
(ii) the Company's Quarterly Report on Form 10-Q filed with the SEC
for the quarter ended March 31, 2000;
(iii) Each definitive proxy statement filed by the Company with the
SEC since December 31, 1997;
(iv) Each final prospectus filed by the Company with the SEC since
December 31, 1997; and
(v) All Current Reports on Form 8-K filed by the Company with the SEC
since December 31, 1999.
As of their respective dates, such reports, proxy statements and
prospectuses (collectively, the "Company SEC Reports") (i) complied as to form
in all material respects with the applicable
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requirements of the Securities Act, the Exchange Act and the rules and
regulations promulgated thereunder and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information in any Company SEC Report has been revised or superseded in a
later filed Company SEC Report, none of the Company SEC Reports contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the Company SEC Reports (including any related notes and
schedules) complied as to form, as of their respective dates of filing with the
SEC, in all material respects with all applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with past practice and generally accepted accounting
principles in the United States ("GAAP") consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto) and fairly
presented the financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods or as of the dates then ended (subject, where appropriate,
to normal year-end adjustments). Except as set forth in the Company Disclosure
Letter, since December 31, 1997, the Company has timely filed all reports and
other filings required to be filed by it with the SEC under the rules and
regulations of the SEC.
(b) The Company has furnished to Parent true and complete copies of its
internal monthly financial statements (containing production history) for
all complete months in 2000 (which internal financial statements were
prepared in accordance with past practice).
Section 4.5. NO UNDISCLOSED LIABILITIES. Neither the Company nor any of
its Subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the Company SEC Reports filed and publicly available prior
to the date hereof and (b) liabilities or obligations that would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Section 4.6. NO VIOLATION OF LAW. The businesses of the Company and its
Subsidiaries have not been, and are not being, conducted in violation of any
law, ordinance or regulation of any governmental body or authority (provided
that no representation or warranty is made in this Section 4.6 with respect to
Environmental Laws (as hereinafter defined)) except (a) as described in any of
the Company SEC Reports filed and publicly available prior to the date hereof
and (b) for violations or possible violations that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
Section 4.7. ENVIRONMENTAL LAWS AND REGULATIONS. Except as described on
Attachment 4.7 to the Company Disclosure Letter or in the Company SEC Reports
filed and publicly available prior to the date hereof:
(a) The Company and each of its Subsidiaries and their properties and
operations are in compliance with all applicable Environmental Laws in all
material respects;
(b) Neither the Company nor any of its Subsidiaries, nor any of their
properties or operations, are subject to any existing, pending or, to the
knowledge of the Company, threatened action, suit, investigation, inquiry or
proceeding by or before any governmental authority or court under any
Environmental Law;
(c) All Permits (as defined in Section 4.23 below) required to be
obtained or filed by the Company or any of its Subsidiaries under any
Environmental Law in connection with the business, properties or operations
of the Company and its Subsidiaries have been obtained or filed and are
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valid and currently in full force and effect, except for those Permits the
absence of which would not have a Material Adverse Effect on the Company;
(d) There has not been any release of any Hazardous Substance, pollutant
or contaminant into the environment by the Company or any of its
Subsidiaries or in connection with their properties or operations in any
location or concentration that could give rise to any potentially material
remedial obligations under any Environmental Law;
(e) There has not been any exposure of any person or property to any
Hazardous Substance, pollutant or contaminant in connection with the
business, properties and operations of the Company and its Subsidiaries that
could give rise to any potentially material claims for damages or
compensation; and
(f) To its knowledge, the Company has made available to Parent all
internal and external environmental audits, studies and all correspondence
on substantial environmental matters relevant to the Company in the
possession of the Company and its Subsidiaries.
For purposes of this Agreement, "Environmental Laws" shall mean any and all
laws, statues, ordinances, rules, regulations, or orders of any governmental
authority pertaining to health or the environment in effect as of the date
hereof, including, without limitation, the federal Clean Air Act, Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), Water
Pollution Control Act (the "Clean Water Act"), Occupational Safety and Health
Act, Resource Conservation and Recovery Act, Toxic Substances Control Act,
Hazardous Materials Transportation Act, and Oil Pollution Act, all as amended
through the date hereof, any state or local laws implementing any of the
foregoing federal laws, and any state or local laws pertaining to the handling
of oil and gas exploration and production wastes, naturally occurring
radioactive materials, or petroleum and petroleum products, or the use,
maintenance, and closure of pits and impoundments, and all other environmental
conservation or protection laws. For purposes of this Agreement, the term
"Hazardous Substance" shall have the meaning specified in CERCLA; provided,
however, that to the extent that the laws of a state or locality establish a
meaning for "hazardous substance" that is broader than the meaning specified in
CERCLA, such broader meaning shall apply.
Section 4.8. ABSENCE OF CHANGES IN BENEFIT PLANS. Except as described on
Attachment 4.8 to the Company Disclosure Letter, since the date of the most
recent audited financial statements included in the Company SEC Reports filed
and publicly available prior to the date hereof, there has not been (i) any
adoption or amendment by the Company or any of its Subsidiaries of any
employment agreement with any director, officer or employee of the Company or
any of its Subsidiaries or of any collective bargaining agreement or (ii) any
adoption or amendment of any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical, welfare benefit or other plan, arrangement or
understanding providing compensation or benefits to any current or former
director, officer or employee of the Company or any of its Subsidiaries
(collectively, the "Company Benefit Plans"), or any change in any actuarial or
other assumption used to calculate funding obligations with respect to any
Company pension plans, or any change in the manner in which contributions to any
Company pension plans are made or the basis on which such contributions are
determined.
Section 4.9. ERISA COMPLIANCE.
(a) Attachment 4.9(a) to the Company Disclosure Letter provides a list
of each of the Company Benefit Plans. True, correct, and complete copies of
each of the Company Benefit Plans, and related trusts, if applicable,
including all amendments thereto, have been furnished to Parent. There has
also been made available to Parent, with respect to each Company Benefit
Plan
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required to file such report and description, the most recent report on
Form 5500 and the summary plan description.
(b) The Company and its Subsidiaries do not contribute to or have an
obligation to contribute to, and have not at any time within six years prior
to the date of this Agreement contributed to or had an obligation to
contribute to, a plan subject to Section 412 of the Code, Section 302 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Title IV of ERISA (including, without limitation, a multiemployer plan
within the meaning of Section 3(37) of ERISA).
(c) The Company and its Subsidiaries have substantially performed all
obligations, whether arising by operation of law or by contract, required to
be performed by them in connection with the Company Benefit Plans, and to
the knowledge of the Company there have been no defaults or violations by
any other party to the Company Benefit Plans, except, in each case, for any
failure to perform, default or violation that individually or in the
aggregate are not reasonably likely to have a Material Adverse Effect on the
Company. With respect to the Company Benefit Plans, no liability has been
incurred and, to the knowledge of the Company, there exists no condition or
circumstances in connection with which the Company or any of its
Subsidiaries could be subject to any liability that individually or in the
aggregate is reasonably likely to have a Material Adverse Effect on the
Company.
(d) Each Company Benefit Plan has been operated and administered in
compliance with its governing documents and applicable law, except for any
failures so to operate or administer any Company Benefit Plan that
individually or in the aggregate are not reasonably likely to have a
Material Adverse Effect on the Company.
(e) There are no actions, suits, or claims pending (other than routine
claims for benefits) or, to the knowledge of the Company, threatened
against, or with respect to, any of the Company Benefit Plans or their
assets.
(f) To the knowledge of the Company, there is no matter pending (other
than routine qualification determination filings) with respect to any of the
Company Benefit Plans before the Internal Revenue Service, the Department of
Labor, or other governmental authority.
(g) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not (i) require the Company or any
of its Subsidiaries to make a larger contribution to, or pay greater
benefits or provide other rights under, any Company Benefit Plan than it
otherwise would, whether or not some other subsequent action or event would
be required to cause such payment or provision to be triggered, or
(ii) create or give rise to any additional vested rights or service credits
under any Company Benefit Plan (other than acceleration of vesting of
options in accordance with their terms).
Section 4.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Other than as
disclosed on Attachment 4.10 to the Company Disclosure Letter and in the Company
SEC Reports filed and publicly available prior to the date hereof, since
December 31, 1999 in the case of (i) below and February 15, 2000 in the case of
(ii) through (vii) below, the businesses of the Company and its Subsidiaries
have been conducted in all material respects in the ordinary course and there
has not been (i) any event, occurrence, development or state of circumstances or
facts that has had, or would be reasonably likely to have, a Material Adverse
Effect on the Company, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of the Company's capital stock, except for dividends or other
distributions declared, set aside or paid by the Company as required by and in
accordance with the respective terms of such capital stock as of the date
hereof, (iii) any split, combination or reclassification of any of the Company's
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in
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substitution for shares of the Company's capital stock, (iv) (A) any granting by
the Company or any of its Subsidiaries to any current or former director,
executive officer or other employee of the Company or its Subsidiaries of any
increase in compensation, bonus or other benefits, except for normal increases
in cash compensation in the ordinary course of business consistent with past
practice or as was required under any employment agreements in effect as of the
date of the most recent audited financial statements included in the Company SEC
Reports filed and publicly available prior to the date hereof, (B) any granting
by the Company or any of its Subsidiaries to any such current or former
director, executive officer or employee of any increase in severance or
termination pay, (C) any entry by the Company or any of its Subsidiaries into,
or any amendments of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, executive officer or employee or (D) any amendment to, or
modification of, any Company Stock Option or Company Warrant, (v) any damage,
destruction or loss, whether or not covered by insurance, that individually or
in the aggregate would be reasonably likely to have a Material Adverse Effect on
the Company, (vi) except insofar as may have been required by a change in GAAP,
any change in accounting methods, principles or practices by the Company or any
of its Subsidiaries or (vii) any tax election or any settlement or compromise of
any income tax liability that individually or in the aggregate is reasonably
likely to adversely affect the tax liability or tax attributes of the Company or
any of its Subsidiaries in any material respect or any settlement or compromise
of any material income tax liability.
Section 4.11. INVESTIGATIONS; LITIGATION. Except as described on
Attachment 4.11 to the Company Disclosure Letter or in any of the Company SEC
Reports filed and publicly available prior to the date hereof:
(a) No investigation or review by any governmental body or authority
with respect to the Company or any of its Subsidiaries that, individually or
in the aggregate, is reasonably likely to have a Material Adverse Effect on
the Company is pending nor has any governmental body or authority notified
the Company of an intention to conduct the same, nor is there any reasonable
basis therefor;
(b) There are no actions, suits or proceedings pending (or, to the
Company's knowledge, threatened) against or affecting the Company or its
Subsidiaries, or any of their respective properties at law or in equity, or
before any federal, state, local or foreign governmental body or authority,
that, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on the Company, nor is there any reasonable basis
therefor;
(c) There is no judgment, decree, injunction, rule or order of any
governmental entity or arbitrator outstanding against the Company or any of
its Subsidiaries having, or that individually or in the aggregate is
reasonably likely to have, a Material Adverse Effect on the Company; and
(d) There are no facts, circumstances or conditions that are reasonably
likely to give rise to any liability of, or form the basis of a claim
against, the Company or any of its Subsidiaries under any applicable
statutes, laws, ordinances, rules or regulations, which liability or claim
is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
Section 4.12. JOINT PROXY STATEMENT; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to the Company or its
Subsidiaries to be included in the Joint Proxy Statement or the Registration
Statement (as defined in Section 6.3(a)) will, in the case of the Joint Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Joint Proxy Statement or any amendments or supplements thereto,
and at the time of the Company Meeting and the Parent Meeting, or, in the case
of the Registration Statement, at the time it becomes effective, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is made by the Company
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with respect to information supplied in writing by Parent or any affiliate of
Parent specifically for inclusion in the Joint Proxy Statement. The Joint Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated thereunder. The
letters to stockholders, notices of meeting, joint proxy statement and forms of
proxies to be distributed to stockholders in connection with the Merger, the
Share Issuance and any schedules required to be filed with the SEC in connection
therewith are collectively referred to herein as the "Joint Proxy Statement".
Section 4.13. COMPANY RIGHTS PLAN. The Company does not have, and the
Board of Directors of the Company has not approved, any stockholder rights plan.
Section 4.14. LACK OF OWNERSHIP OF PARENT COMMON STOCK. Neither the
Company nor any of its Subsidiaries owns any shares of Parent Common Stock or
other securities convertible into shares of Parent Common Stock (exclusive of
any shares owned by the Company's employee benefit plans).
Section 4.15. TAX MATTERS.
(a) All federal, state, local and foreign Tax Returns required to be
filed by or on behalf of the Company, each of its Subsidiaries, and each
affiliated, combined, consolidated or unitary group of which the Company or
any of its Subsidiaries is (i) a member (a "Current Company Group") or
(ii) has been a member within six years prior to the date hereof but is not
currently a member, but only insofar as any such Tax relates to a taxable
period ending on a date within the last six years (a "Past Company Group",
together with Current Company Groups, a "Company Affiliated Group") have
been timely filed, and all returns filed are complete and accurate. All
Taxes due and owing by the Company, any Subsidiary of the Company or any
Company Affiliated Group have been paid, or adequately reserved for. There
is no audit examination, deficiency, refund litigation, proposed adjustment
or matter in controversy with respect to any Taxes due and owing by the
Company, any Subsidiary of the Company or any Company Affiliated Group. All
assessments for Taxes due and owing by the Company, any Subsidiary of the
Company or any Company Affiliated Group with respect to completed and
settled examinations or concluded litigation have been paid. As soon as
practicable after the public announcement of the Merger Agreement, the
Company will provide Parent with written schedules of (i) the taxable years
of the Company for which the statutes of limitations with respect to federal
income Taxes have not expired, and (ii) with respect to federal income Taxes
those years for which examinations have been completed, those years for
which examinations are presently being conducted, and those years for which
examinations have not yet been initiated. The Company and each of its
Subsidiaries has complied in all material respects with all rules and
regulations relating to the withholding of Taxes.
(b) Neither the Company nor any of its Subsidiaries knows of any fact or
has taken, or will take, any action that could reasonably be expected to
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(c) Any amount or other entitlement that could be received (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any employee benefit plan or other compensation
arrangement currently in effect would not be characterized as an "excess
parachute payment" or a "parachute payment" (as such terms are defined in
Section 280G(b)(1) of the Code).
For purposes of this Agreement: (i) "Taxes" means any and all federal,
state, local, foreign or other taxes of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any taxing authority, including, without limitation,
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts,
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property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth, and taxes or
other charges in the nature of excise, withholding, ad valorem or value added,
and (ii) "Tax Return" means any return, report or similar statement (including
the attached schedules) required to be filed with respect to any Tax, including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
Section 4.16. OPINION OF FINANCIAL ADVISOR. The Board of Directors of the
Company has received the opinion of Petrie Parkman & Co., Inc. dated as of the
date hereof, to the effect that, as of such date, the Common Exchange Ratio is
fair to holders of Company Common Stock from a financial point of view. A copy
of such written opinion will be delivered to Parent as soon as practicable after
the date of this Agreement.
Section 4.17. REQUIRED VOTE OF COMPANY STOCKHOLDERS. The affirmative vote
of the holders of a majority of the outstanding shares of Company Common Stock
(the "Company Stockholder Approval") is required to approve the Merger. No other
vote of the stockholders of the Company is required by law, the certificate of
incorporation or by-laws of the Company or otherwise in order for the Company to
consummate the Merger and the transactions contemplated hereby.
Section 4.18. POOLING OF INTERESTS. To the knowledge of the Company and
based upon the advice of its independent accountants, neither it nor any of its
Subsidiaries has taken any action or failed to take any action which action or
failure (without giving effect to any actions or failures to act by Parent or
any of its Subsidiaries) would prevent the treatment of the Merger as a pooling
of interests for accounting purposes.
Section 4.19. INSURANCE. The Company has all insurance policies that it
reasonably believes are required in connection with the operation of the
businesses of the Company and its Subsidiaries. The Company has made available
to Parent true and correct summaries of each of the insurance policies relating
to the Company or its Subsidiaries that are currently in effect. With respect to
each such insurance policy none of the Company, any of its Subsidiaries or, to
the knowledge of the Company, any other party to the policy is in breach or
default thereunder (including with respect to the payment of premiums or the
giving of notices), and the Company does not know of any occurrence or any event
which (with notice or the lapse of time or both) would constitute such a breach
or default or permit termination, modification or acceleration under the policy,
except for such breaches or defaults which, individually or in the aggregate,
would not result in an Material Adverse Effect on the Company. The Company
Disclosure Letter describes any self-insurance arrangements affecting the
Company or its Subsidiaries.
Section 4.20. LABOR MATTERS; EMPLOYEES. Except where the failure of any of
the following statements to be true, individually or in the aggregate, would not
have a Material Adverse Effect on the Company:
(a) (i)There is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries and, during the
past five years, there has not been any such action, (ii) none of the
Company or any of its Subsidiaries is a party to or bound by any collective
bargaining or similar agreement with any labor organization, or work rules
or practices agreed to with any labor organization or employee association
applicable to employees of the Company or any of its Subsidiaries,
(iii) none of the employees of the Company or any of its Subsidiaries are
represented by any labor organization and none of the Company or any of its
Subsidiaries have any knowledge of any current union organizing activities
among the employees of the Company or any of its Subsidiaries nor does any
question concerning representation exist concerning such employees,
(iv) the Company and its Subsidiaries have each at all times been in
material compliance with all applicable laws respecting employment and
employment practices, including Title VII of the Civil
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Rights Act of 1964, the Civil Rights Act of 1991, 42 U.S.C. Section 1981,
the Americans With Disabilities Act, the Fair Labor Standards Act, ERISA,
the Occupational Safety and Health Act, the Family Medical Leave Act, the
Immigration Reform and Control Act, the National Labor Relations Act, and
any other law, ordinance or regulation respecting the terms and conditions
of employment, including authorization to work in the United States, equal
employment opportunity (including prohibitions against discrimination,
harassment, and retaliation), payment of wages, hours of work, occupational
safety and health, and labor practices, (v) there is no unfair labor
practice charge or complaint against any of the Company or any of its
Subsidiaries pending or, to the knowledge of the Company, threatened before
the National Labor Relations Board or any similar state or foreign agency,
(vi) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure relating to the
Company or any of its Subsidiaries pending, or to the knowledge of the
Company, threatened, before the National Labor Relations Board or any
similar state or foreign agency, (vii) neither the Occupational Safety and
Health Administration nor any corresponding state agency is threatening to
file any citation, and there are no pending citations, relating to the
Company or any of its Subsidiaries, and (viii) there are no pending or, to
the knowledge of the Company, threatened claims by any current or former
employee of the Company or any employment-related claims or investigations
by any governmental entity, including any charges to the Equal Employment
Opportunity Commission or state employment practice agency, investigations
regarding compliance with federal, state or local wage and hour laws, audits
by the Office of Federal Contractor Compliance Programs, complaints of
sexual harassment or any other form of unlawful harassment, discrimination,
or retaliation.
(b) Since the enactment of the Worker Adjustment and Retraining
Notification Act of 1988 ("WARN Act"), none of the Company or any of its
Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of any of the Company or any
of its Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act)
affecting any site of employment or facility of the Company or any of its
Subsidiaries, nor has the Company or any of its Subsidiaries been affected
by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state or local
law, in each case that could reasonably be expected to have a Material
Adverse Effect on the Company.
Section 4.21. RESERVE REPORTS.
(a) All information (including, without limitation, the statement of the
percentage of reserves from the oil and gas wells and other interests
evaluated therein to which the Company or its Subsidiaries are entitled and
the percentage of the costs and expenses related to such wells or interests
to be borne by the Company or its Subsidiaries) supplied to Netherland
Sewell & Associates, Inc. and Collarini Engineering, Inc. by or on behalf of
the Company and its Subsidiaries that was material to such firms' estimates
of proved oil and gas reserves attributable to the Oil and Gas Interests (as
hereinafter defined) of the Company and its Subsidiaries in connection with
the preparation of the proved oil and gas reserve reports concerning the Oil
and Gas Interests of the Company and its Subsidiaries as of December 31,
1999 by such engineering firms (collectively, the "Company Reserve Report")
was (at the time supplied or as modified or amended prior to the issuance of
the Company Reserve Report) true and correct in all material respects and
the Company has no knowledge of any material errors in such information that
existed at the time of such issuance. For purposes of this Agreement "Oil
and Gas Interests" means direct and indirect interests in and rights with
respect to oil, gas, mineral, and related properties and assets of any kind
and nature, direct or indirect, including working, leasehold and mineral
interests and operating rights and royalties, overriding royalties,
production payments, net profit interests and other nonworking interests and
nonoperating interests; all interests in rights with respect to oil,
condensate, gas, casinghead gas and other liquid or gaseous hydrocarbons
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(collectively, "Hydrocarbons") and other minerals or revenues therefrom, all
contracts in connection therewith and claims and rights thereto (including
all oil and gas leases, operating agreements, unitization and pooling
agreements and orders, division orders, transfer orders, mineral deeds,
royalty deeds, oil and gas sales, transportation, marketing, exchange and
processing contracts and agreements, and in each case, interests
thereunder), surface interests, fee interests, reversionary interests,
reservations, and concessions; all easements, rights of way, licenses,
permits, leases, and other interests associated with, appurtenant to, or
necessary for the operation of any of the foregoing; and all interests in
equipment and machinery (including wells, well equipment and machinery), oil
and gas production, gathering, transmission, treating, processing, and
storage facilities (including tanks, tank batteries, pipelines, and
gathering systems), pumps, water plants, electric plants, gasoline and gas
processing plants, methanol plants, refineries, and other tangible personal
property and fixtures associated with, appurtenant to, or necessary for the
operation of any of the foregoing. Except for changes (including changes in
commodity prices) generally affecting the oil and gas industry and normal
depletion by production in the ordinary course of business, there has been
no change in respect of the matters addressed in the Company Reserve Report
that would have a Material Adverse Effect on the Company.
(b) Attachment 4.21(b) to the Company Disclosure Letter includes a list
of all material Oil and Gas Interests that have been disposed of since
January 1, 2000.
Section 4.22. MATERIAL CONTRACTS.
(a) Attachment 4.22 of the Company Disclosure Letter sets forth a list
of each contract, lease, indenture, agreement, license, arrangement or
understanding to which the Company or any of its Subsidiaries is a party or
subject that would be required to be included as an exhibit to a Form S-1
Registration Statement pursuant to the rules and regulations of the SEC if
such a registration statement were to be filed by the Company on the date
hereof and no previous filings had been made (the "Company Material
Contracts").
(b) The Oil and Gas Interests of the Company and its Subsidiaries are
not subject to (i) any instrument or agreement evidencing or related to
indebtedness for borrowed money, whether directly or indirectly, or
(ii) any agreement not entered into in the ordinary course of business in
which the amount involved is in excess of $500,000. Except for such matters
as would not have a Material Adverse Effect on the Company; (A) all Company
Material Contracts are in full force and effect and are the valid and
legally binding obligations of the Company and, to the knowledge of the
Company, the other parties thereto and are enforceable in accordance with
their respective terms against the Company and, to the knowledge of the
Company, the other parties thereto; (B) the Company is not in breach of or
default under (nor does there exist any condition which upon the passage of
time or the giving of notice or both would cause such a breach of or default
under), and to the knowledge of the Company, no other party to any Company
Material Contract is in breach of or default under (nor does there exist any
condition which upon the passage of time or the giving of notice or both
would cause such a breach of or default under), its obligations thereunder,
including with respect to payments or otherwise; (C) no party to any Company
Material Contract has given notice of any action to terminate, cancel,
rescind or procure a judicial reformation thereof; (D) no Company Material
Contract contains any provision that prevents the Company or any of its
Subsidiaries from owning, managing and operating the Oil and Gas Interests
of the Company and its Subsidiaries substantially in accordance with
historical practices and (E) the execution of this Agreement and the
Stockholders Agreement and the consummation of the transactions contemplated
hereby and thereby will not breach, conflict with, result in a violation of
or a default under (with or without notice or lapse of time, or both),
invoke any penalty under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or to increased, additional, accelerated or guaranteed
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rights or entitlements of any person under (including the receipt of any
consideration), any provision of any Company Material Contract.
(c) As of the date of this Agreement, (i) with respect to authorizations
for expenditure executed on or after May 31, 2000, there are no outstanding
calls for payments in excess of $1 million in any one case that are due or
which the Company or its Subsidiaries are committed to make that have not
been recorded in the Company's financial records; (ii) since December 31,
1999 there are no material operations on any material Oil and Gas Interest
with respect to which the Company or its Subsidiaries have become a
non-consenting party and (iii) there are no commitments for the expenditure
of funds for drilling or other capital projects in excess of $5 million that
are not included in the Company 2000 capital program reflected in Attachment
4.22(c) of the Disclosure Letter.
(d) (i) Except as reflected in the Company Reserve Report, there are no
provisions applicable to the material Oil and Gas Interests of the Company
and its Subsidiaries that increase the royalty percentage of the lessor
thereunder and (ii) none of the material Oil and Gas Interests of the
Company and its Subsidiaries are limited by terms fixed by a certain number
of years (other than primary terms under oil and gas leases).
(e) Except for such agreements or obligations as would not have a
Material Adverse Effect on the Company, neither the Company nor any of its
Subsidiaries is a party to or bound by any noncompetition agreement or
similar agreement or obligation (other than area of mutual interest and
similar agreements entered into in the ordinary course of business) that
purports to limit in any respect the manner in which, or the localities in
which, all or any portion of the business of the Company and its
Subsidiaries is conducted.
(f) The execution and carrying out of this Agreement and the
Stockholders Agreement and the consummation of the transactions contemplated
hereby and thereby will not breach, conflict with, result in a violation of
or a default under (with or without notice or lapse of time, or both),
invoke any penalty under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or to increased, additional, accelerated or guaranteed rights or
entitlements of any person under (including the receipt of any
consideration), any license or right to use the seismic data and no consent,
authorization or approval of any third party is necessary to maintain any
license or right to use such seismic data following the consummation of the
transactions contemplated by this Agreement.
Section 4.23. PERMITS. The Company or its Subsidiaries hold all material
permits, licenses, certificates, consents, approvals, entitlements, plans,
surveys, relocation plans, environmental impact reports and other authorizations
of any governmental bodies or authorities ("Permits") required or necessary to
construct, run, operate, use and/or maintain their properties and conduct their
operations as presently conducted. The Company and its Subsidiaries are in
compliance with the terms of such Permits, except for such failure to hold or
instances of noncompliance, that, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
Section 4.24. INTELLECTUAL PROPERTY. The Company or its Subsidiaries own,
or are licensed or otherwise have the right to use, all patents, patent rights,
trademarks, rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs ("Intellectual Property")
currently used in the conduct of the business of the Company and its
Subsidiaries, except where the failure to so own or otherwise have the right to
use such intellectual property would not, individually or in the aggregate, have
a Material Adverse Effect on the Company. No Person has notified either the
Company or any of its Subsidiaries that their use of the Intellectual Property
infringes on the rights of any Person, subject to such claims and infringements
as do not, individually or in the aggregate, give rise to any liability on the
part of the Company and its Subsidiaries that could have a Material Adverse
Effect on the
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Company, and, to the Company's knowledge, no person is infringing on any right
of the Company or any of its Subsidiaries with respect to any such Intellectual
Property. No claims are pending or, to the Company's knowledge, threatened that
the Company or any of its Subsidiaries is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property
that, individually or in the aggregate, would give rise to a Material Adverse
Effect on the Company.
Section 4.25. HEDGING. (a) The Company does not, and each of its
Subsidiaries does not, have any outstanding obligations for the delivery of
Hydrocarbons attributable to any of the properties of the Company or any of its
Subsidiaries in the future on account of prepayment, advance payment,
take-or-pay or similar obligations without then or thereafter being entitled to
receive full value therefor.
(b) Attachment 4.25(b) of the Company Disclosure Letter sets forth, as
of the date of this Agreement, all futures, hedge, swap, collar, put, call,
floor, cap, option or other contracts that are intended to benefit from,
relate to or reduce or eliminate the risk of fluctuations in the price of
commodities, including Hydrocarbons or securities, to which the Company or
any of its Subsidiaries is bound.
Section 4.26. SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of
Directors of the Company has approved the terms of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement under the provisions of Section 203(a)(1) at the DGCL. To the
knowledge of the Company, no state takeover statute or similar statute or
regulation applies or purports to apply to this Agreement, the Stockholders
Agreement, the Merger or any of the other transaction documents contemplated by
this Agreement or the Stockholders Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Except as expressly set forth on a disclosure letter, dated as of the date
hereof and referencing applicable sections of this Agreement and provided to the
Company prior to the execution of this Agreement (the "Parent Disclosure
Letter"), Parent and Sub represent and warrant to the Company that:
Section 5.1. ORGANIZATION, QUALIFICATION, ETC. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, has the corporate power and authority to
own its properties and assets and to carry on its business as it is now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect on Parent. The copies of
Parent's Restated Certificate of Incorporation and by-laws attached to the
Parent Disclosure Letter are complete and correct and in full force and effect
on the date hereof. Each of Parent's Significant Subsidiaries is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, has the power and authority to own its properties and to carry on
its business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
would not, individually or in the aggregate, have a Material Adverse Effect on
Parent. The copies of the organizational documents attached to the Parent
Disclosure Letter of each of Parent's Significant Subsidiaries are complete and
correct and in full force and effect on the date hereof. All the outstanding
shares of capital stock of, or other ownership interests in, Parent's
Significant Subsidiaries and Sub are validly issued, fully paid and
non-assessable and are owned by Parent, directly or indirectly, free and clear
of all liens, claims, charges or encumbrances. There are no existing options,
rights of first refusal,
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preemptive rights, calls or commitments of any character relating to the issued
or unissued capital stock or other securities of, or other ownership interests
in, any Significant Subsidiary of Parent or Sub (other than rights of first
refusal, preemptive rights or similar rights held by Parent with respect to
certain of such Subsidiaries).
Section 5.2. CAPITAL STOCK. The authorized capital stock of Parent
consists of 200,000,000 shares of voting common stock, par value $.10 per share
("Parent Common Stock"), and 10,000,000 shares of preferred stock, par value
$.01 per share ("Parent Preferred Stock"), of which 1,000,000 shares were
designated as First Series Junior Preferred Stock ("Parent First Series
Preferred Stock"). The shares of Parent Common Stock to be issued in the Merger
or upon the exercise of Company stock options, warrants, conversion rights or
other rights or vesting or payment of other Company equity-based awards
thereafter will, when issued, be validly issued, fully paid and non-assessable.
As of May 31, 2000, 54,050,338 shares of Parent Common Stock were issued, of
which 335,862 shares of Parent Common Stock were held in Parent's treasury.
There were no shares of Parent Preferred Stock outstanding. All the outstanding
shares of Parent Common Stock have been validly issued and are fully paid and
non-assessable. Except as set forth on Attachment 5.2 to the Parent Disclosure
Letter, as of May 31, 2000, there were no outstanding subscriptions, options,
warrants, rights or other arrangements or commitments obligating Parent to issue
any shares of its capital stock other than:
(a) Rights ("Parent Rights") to acquire shares of Parent First Series
Preferred Stock pursuant to the Rights Agreement, dated as of October 14,
1993, between Parent and Mellon Securities Trust Company, as amended by
Amendment No. 1 dated as of July 27, 1995, Amendment No. 2 dated as of
June 25, 1998, Amendment No. 3 dated of September 1, 1998 and Amendment
No. 4 dated as of the date hereof (collectively, the "Parent Rights Plan");
and
(b) Options and other rights to receive or acquire 3,477,260 shares of
Parent Common Stock granted on or prior to May 31, 2000, pursuant to
employee incentive or benefit plans, programs and arrangements and
non-employee director plans currently maintained by Parent (collectively,
the "Parent Stock Plans").
No changes in Parent Common Stock or Parent Preferred Stock have occurred
since May 31, 2000 except as follows: (i) 55,400 shares of Parent Common Stock
were issued pursuant exercise of stock options; (ii) 8,100 shares of Parent
Common Stock were issued in payment of director compensation; and (iii) options
to purchase 7,500 shares of Parent Common Stock were granted. Attachment 5.2 to
the Parent Disclosure Letter sets forth a complete and correct list, as of
May 31, 2000 of (i) the name of each holder of outstanding stock options or
other rights to purchase or to receive Parent Common Stock granted under the
Parent Stock Plans (collectively, the "Parent Stock Options"), (ii) the number
of shares of Parent Common Stock subject to each Parent Stock Option and
(iii) the exercise prices thereof. As of June 26, 2000, there were no
outstanding Parent Warrants. Except as set forth in this Section 5.2 and in
Attachment 5.2 to the Parent Disclosure Letter, including pursuant to the
conversion or exercise of the securities referred to above, (x) there are not
issued, reserved for issuance or outstanding (A) any shares of capital stock or
other voting securities of Parent or any of its Subsidiaries (other than shares
of capital stock or other voting securities of such Subsidiaries that are
directly or indirectly owned by Parent), (B) any securities of Parent or any of
its Subsidiaries convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities of, or other ownership interests in,
Parent or any of its Subsidiaries or (C) any warrants, calls, options or other
rights to acquire from Parent or any of its Subsidiaries, and no obligation of
Parent or any of its Subsidiaries to issue, any capital stock or other voting
securities of, or other ownership interests in, or any securities convertible
into or exchangeable or exercisable for any capital stock or other voting
securities of, or ownership interests in, Parent or any of its Subsidiaries,
(y) there are not any outstanding obligations of Parent or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any such securities or
to issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities and (z) Parent is not a party to any voting agreement or registration
rights agreement with respect to any of its securities.
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Section 5.3. CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO
VIOLATION. Each of Parent and Sub has the requisite corporate power and
authority to enter into this Agreement and, in the case of Parent, the
Registration Rights Agreement and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Registration
Rights Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized by the Boards of Directors of
Parent and Sub (as appropriate) and, except for the approval of the shareholders
of Parent of the Share Issuance, no other corporate proceedings on the part of
Parent or Sub are necessary to authorize this Agreement or the Registration
Rights Agreement and the transactions contemplated thereby. The Board of
Directors of Parent has taken all appropriate action to ensure that the Company
will not be an interested shareholder within the meaning of Section 912 of the
New York Business Corporation Law ("NYBCL") by virtue of this Agreement or the
transactions contemplated hereby. The Board of Directors of Parent has
determined that the transactions contemplated by this Agreement are in the best
interest of Parent and its shareholders and to recommend to such shareholders
that they vote in favor of the Share Issuance. This Agreement and the
Registration Rights Agreement have been duly and validly executed and delivered
by Parent and Sub, as applicable, and, assuming this Agreement and the
Registration Rights Agreement constitute valid and binding agreements of the
other parties hereto, this Agreement and the Registration Rights Agreement
constitute valid and binding agreements of Parent and Sub (as appropriate),
enforceable against them in accordance with their respective terms (except
insofar as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).
Neither Parent nor Sub is subject to or obligated under any charter, by-law or
contract provision or agreement evidencing indebtedness or any license,
franchise or permit, or subject to any order or decree, that would be breached
or violated by its executing or, subject to the approval by the shareholders of
Parent of the Share Issuance, carrying out this Agreement, except for any
breaches or violations that would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Other than in connection with or in
compliance with the provisions of the DGCL, the NYBCL, the Securities Act, the
Exchange Act, the HSR Act, Section 4043 of ERISA, any non-United States
competition, antitrust and investments laws and the securities or blue sky laws
of the various states and other than any necessary approvals of the United
States government or any agencies, departments or instrumentalities thereof
(collectively, the "Parent Required Approvals"), no authorization, consent or
approval of, or filing with, any governmental body or authority or any
non-governmental third party is necessary for the consummation by Parent of the
transactions contemplated by this Agreement, except for such authorizations,
consents, approvals or filings, the failure to obtain or make which would not,
individually or in the aggregate, have a Material Adverse Effect on Parent or
substantially impair or delay the consummation of the transactions contemplated
hereby.
Section 5.4. REPORTS AND FINANCIAL STATEMENTS. Parent has previously made
available to the Company true and complete copies of:
(a) Parent's Annual Reports on Form 10-K filed with the SEC for each of
the years ended December 31, 1997 through 1999;
(b) Parent's Quarterly Report on Form 10-Q filed with the SEC for the
quarter ended March 31, 2000;
(c) Each definitive proxy statement filed by Parent with the SEC since
December 31, 1997;
(d) Each final prospectus filed by Parent with the SEC since
December 31, 1997; and
(e) All Current Reports on Form 8-K filed by Parent with the SEC since
December 31, 1999.
As of their respective dates, such reports, proxy statements and
prospectuses (collectively, "Parent SEC Reports") (i) complied as to form in all
material respect with the applicable requirements of the
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Securities Act, the Exchange Act, and the rules and regulations promulgated
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information in any Parent SEC
Report has been revised or superseded in a later filed Parent SEC Report, none
of the Parent SEC Reports contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited consolidated interim financial statements included in the Parent SEC
Reports (including any related notes and schedules) complied as to form, as of
their respective dates of filing with the SEC, in all material respects with all
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with past practice and
GAAP consistently applied during the periods involved (except as otherwise
disclosed in the notes thereto) and fairly presented the financial position of
Parent and its consolidated Subsidiaries as of the dates thereof and the results
of their operations and their cash flows for the periods or as of the dates then
ended (subject, where appropriate, to normal year-end adjustments). Since
December 31, 1997, Parent has timely filed all material reports and other
filings required to be filed by it with the SEC under the rules and regulations
of the SEC.
Section 5.5. NO UNDISCLOSED LIABILITIES. Neither Parent nor any of its
Subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the Parent SEC Reports filed and publicly available prior to
the date hereof and (b) liabilities or obligations that would not, individually
or in the aggregate, have a Material Adverse Effect on Parent.
Section 5.6. NO VIOLATION OF LAW. The businesses of Parent and its
Subsidiaries have not been, and are not being, conducted in violation of any
law, ordinance or regulation of any governmental body or authority (provided
that no representation or warranty is made in this Section 5.6 with respect to
Environmental Laws) except (a) as described in any of the Parent SEC Reports
filed and publicly available prior to the date hereof and (b) for violations or
possible violations that would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
Section 5.7. ENVIRONMENTAL LAWS AND REGULATIONS. Except as described in
the Parent SEC Reports filed and publicly available prior to the date hereof:
(a) Parent and each of its Subsidiaries and their properties and
operations are in compliance with all applicable Environmental Laws in all
material respects;
(b) Neither Parent nor any of its Subsidiaries, nor any of their
properties or operations, are subject to any existing, pending or, to the
knowledge of Parent, threatened action, suit, investigation, inquiry or
proceeding by or before any governmental authority or court under any
Environmental Law;
(c) All Permits required to be obtained or filed by Parent or any of its
Subsidiaries under any Environmental Law in connection with the business,
properties or operations of Parent and its Subsidiaries have been obtained
or filed and are valid and currently in full force and effect except for
those Permits, the absence of which would not have a Material Adverse Effect
on the Company;
(d) There has not been any release of any Hazardous Substance, pollutant
or contaminant into the environment by Parent or any of its Subsidiaries or
in connection with their properties or operations in any location or
concentration that could give rise to any potentially material remedial
obligations under any Environmental Law;
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(e) There has not been any exposure of any person or property to any
Hazardous Substance, pollutant or contaminant in connection with the
business, properties and operations of Parent and its Subsidiaries that
could give rise to any potentially material claims for damages or
compensation; and
(f) To its knowledge, Parent has made available to the Company all
internal and external environmental audits, studies and all correspondence
on substantial environmental matters relevant to Parent in the possession of
Parent and its Subsidiaries.
Section 5.8. ABSENCE OF CHANGES IN BENEFIT PLANS. Since the date of the
most recent audited financial statements included in the Parent SEC Reports
filed and publicly available prior to the date hereof, there has not been
(i) any adoption or amendment by Parent or any of its Subsidiaries of any
employment agreement with any director, officer or employee of Parent or any of
its Subsidiaries or of any collective bargaining agreement or (ii) any adoption
or amendment of any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, welfare benefit or other plan, arrangement or
understanding providing compensation or benefits to any current or former
director, officer or employee of Parent or any of its Subsidiaries
(collectively, the "Parent Benefit Plans"), or any change in any actuarial or
other assumption used to calculate funding obligations with respect to any
Parent pension plans, or any change in the manner in which contributions to any
Parent pension plans are made or the basis on which such contributions are
determined.
Section 5.9. ERISA COMPLIANCE.
(a) Attachment 5.9 to the Parent Disclosure Letter provides a list of
each of the Parent Benefit Plans. True, correct, and complete copies of each
of the Parent Benefit Plans, and related trusts, if applicable, including
all amendments thereto, have been furnished to the Company. There has also
been made available to the Company, with respect to each Parent Benefit Plan
required to file such report and description, the most recent report on
Form 5500 and the summary plan description.
(b) Parent and its Subsidiaries do not contribute to or have an
obligation to contribute to, and have not at any time within six years prior
to the date of this Agreement contributed to or had an obligation to
contribute to, a plan subject to Section 412 of the Code, Section 302 of
ERISA, or Title IV of ERISA (including, without limitation, a multiemployer
plan within the meaning of Section 3(37) of ERISA).
(c) Parent and its Subsidiaries have substantially performed all
obligations, whether arising by operation of law or by contract, required to
be performed by them in connection with the Parent Benefit Plans, and to the
knowledge of Parent there have been no defaults or violations by any other
party to the Parent Benefit Plans, except, in each case, for any failure to
perform, default or violation that individually or in the aggregate are not
reasonably likely to have a Material Adverse Effect on Parent. With respect
to the Parent Benefit Plans, no liability has been incurred and, to the
knowledge of Parent, there exists no condition or circumstances in
connection with which Parent or any of its Subsidiaries could be subject to
any liability that individually or in the aggregate is reasonably likely to
have a Material Adverse Effect on Parent.
(d) Each Parent Benefit Plan has been operated and administered in
compliance with its governing documents and applicable law, except for any
failures so to operate or administer any Parent Benefit Plan that
individually or in the aggregate are not reasonably likely to have a
Material Adverse Effect on Parent.
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(e) There are no actions, suits, or claims pending (other than routine
claims for benefits) or, to the knowledge of Parent, threatened against, or
with respect to, any of the Parent Benefit Plans or their assets.
(f) To the knowledge of Parent, there is no matter pending (other than
routine qualification determination filings) with respect to any of the
Parent Benefit Plans before the Internal Revenue Service, the Department of
Labor, or other governmental authority.
(g) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not (i) require Parent or any of
its Subsidiaries to make a larger contribution to, or pay greater benefits
or provide other rights under, any Parent Benefit Plan than it otherwise
would, whether or not some other subsequent action or event would be
required to cause such payment or provision to be triggered, or (ii) create
or give rise to any additional vested rights or service credits under any
Parent Benefit Plan (other than acceleration of vesting of options in
accordance with their terms).
Section 5.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Other than as
disclosed in the Parent SEC Reports filed and publicly available prior to the
date hereof, since December 31, 1999 the businesses of Parent and its
Subsidiaries have been conducted in all material respects in the ordinary course
and there has not been (i) any event, occurrence, development or state of
circumstances or facts that has had, or would be reasonably likely to have, a
Material Adverse Effect on Parent, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of Parent's capital stock, except for dividends or
other distributions declared, set aside or paid by Parent as required by and in
accordance with the respective terms of such capital stock as of the date
hereof, (iii) any split, combination or reclassification of any of Parent's
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Parent's
capital stock, (iv) (A) any granting by Parent or any of its Subsidiaries to any
current or former director, executive officer or other employee of Parent or its
Subsidiaries of any increase in compensation, bonus or other benefits, except
for normal increases in cash compensation in the ordinary course of business
consistent with past practice or as was required under any employment agreements
in effect as of the date of the most recent audited financial statements
included in the Parent SEC Reports filed and publicly available prior to the
date hereof, (B) any granting by Parent or any of its Subsidiaries to any such
current or former director, executive officer or employee of any increase in
severance or termination pay, (C) any entry by Parent or any of its Subsidiaries
into, or any amendments of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, executive officer or employee or (D) any amendment to, or
modification of, any Parent Stock Option or Parent Warrant, (v) any damage,
destruction or loss, whether or not covered by insurance, that individually or
in the aggregate would be reasonably likely to have a Material Adverse Effect on
Parent, (vi) except insofar as may have been required by a change in GAAP, any
change in accounting methods, principles or practices by Parent or any of its
Subsidiaries or (vii) any tax election or any settlement or compromise of any
income tax liability that individually or in the aggregate is reasonably likely
to adversely affect the tax liability or tax attributes of Parent or any of its
Subsidiaries in any material respect or any settlement or compromise of any
material income tax liability.
Section 5.11. INVESTIGATIONS; LITIGATION. Except as described on
Attachment 5.11 to the Parent Disclosure Letter or in any of the Parent SEC
Reports filed and publicly available prior to the date hereof:
(a) No investigation or review by any governmental body or authority
with respect to Parent or any of its Subsidiaries that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on
Parent is pending nor has any governmental body or authority notified Parent
of an intention to conduct the same, nor is there any reasonable basis
therefor;
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(b) There are no actions, suits or proceedings pending (or, to Parent's
knowledge, threatened) against or affecting Parent or its Subsidiaries, or
any of their respective properties at law or in equity, or before any
federal, state, local or foreign governmental body or authority that,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on Parent, nor is there any reasonable basis therefor;
(c) There is no judgment, decree, injunction, rule or order of any
governmental entity or arbitrator outstanding against Parent or any of its
Subsidiaries having, or that individually or in the aggregate is reasonably
likely to have, a Material Adverse Effect on Parent; and
(d) There are no facts, circumstances or conditions that are reasonably
likely to give rise to any liability of, or form the basis of a claim
against, Parent or any of its Subsidiaries under any applicable statutes,
laws, ordinances, rules or regulations, which liability or claim is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
Section 5.12. JOINT PROXY STATEMENT; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to Parent or its Subsidiaries
to be included in the Joint Proxy Statement or the Registration Statement will,
in the case of the Joint Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Joint Proxy Statement or
any amendments or supplements thereto, and at the time of the Company Meeting
and the Parent Meeting, or, in the case of the Registration Statement, at the
time it becomes effective, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by Parent
with respect to information supplied in writing by the Company or any affiliate
of the Company specifically for inclusion in the Joint Proxy Statement. The
Joint Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder.
Section 5.13. LACK OF OWNERSHIP OF COMPANY COMMON STOCK. Neither Parent
nor any of its Subsidiaries owns any shares of Company Common Stock or other
securities convertible into shares of Company Common Stock (exclusive of any
shares owned by Parent's employee benefit plans).
Section 5.14. PARENT RIGHTS PLAN. Under the terms of the Parent Rights
Plan, as amended prior to the execution of this Agreement, the transactions
contemplated by this Agreement will not cause a Distribution Date (as such term
is defined in the Parent Rights Plan) to occur or cause the rights issued
pursuant to the Parent Rights Plan to become exercisable.
Section 5.15. TAX MATTERS.
(a) Except as disclosed in Attachment 5.15(a) to the Parent Disclosure
Letter, all federal, state, local and foreign Tax Returns required to be
filed by or on behalf of Parent, each of its Subsidiaries, and each
affiliated, combined, consolidated or unitary group of which Parent or any
of its Subsidiaries is (i) a member (a "Current Parent Group") or (ii) has
been a member within six years prior to the date hereof but is not currently
a member, but only insofar as any such Tax relates to a taxable period
ending on a date within the last six years (a "Past Parent Group", together
with Current Parent Groups, a "Parent Affiliated Group") have been timely
filed, and all returns filed are complete and accurate. All Taxes due and
owing by Parent, any Subsidiary of Parent or any Parent Affiliated Group
have been paid, or adequately reserved for. There is no audit examination,
deficiency, refund litigation, proposed adjustment or matter in controversy
with respect to any Taxes due and owing by Parent, any Subsidiary of Parent
or any Parent Affiliated Group. All assessments for Taxes due and owing by
Parent, any Subsidiary of Parent or any Parent consolidated group with
respect to completed and settled examinations or concluded litigation have
been paid. As soon as practicable after the public announcement of the
Merger Agreement, Parent will provide the Company with written schedules of
(i) the taxable years of Parent for which the
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statutes of limitations with respect to federal income Taxes have not
expired, and (ii) with respect to federal income Taxes, those years for
which examinations have been completed, those years for which examinations
are presently being conducted, and those years for which examinations have
not yet been initiated. Parent and each of its Subsidiaries has complied in
all material respects with all rules and regulations relating to the
withholding of Taxes.
(b) Neither Parent nor any of its Subsidiaries knows of any fact or has
taken or will take any action that could reasonably be expected to prevent
the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(c) Any amount or other entitlement that could be received (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of Parent or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any employee benefit plan or other compensation
arrangement currently in effect would not be characterized as an "excess
parachute payment" or a "parachute payment" (as such terms are defined in
Section 280G(b)(1) of the Code).
Section 5.16. OPINION OF FINANCIAL ADVISOR. The Board of Directors of
Parent has received the opinion of Salomon Smith Barney Inc. and Chase
Securities Inc., dated the date hereof, to the effect that, as of such date, the
Merger Consideration is fair to Parent from a financial point of view. A copy of
the written opinions of Salomon Smith Barney Inc. and Chase Securities Inc. will
be delivered to the Company as soon as practicable after the date of this
Agreement.
Section 5.17. REQUIRED VOTE OF PARENT SHAREHOLDERS. The affirmative vote
of the holders of a majority of the shares of Parent Common Stock voted at the
Parent Meeting is required to approve the Share Issuance; provided that holders
of a majority of the outstanding shares of Parent Common Stock are present, in
person or by proxy, at the Parent Meeting and vote upon the Share Issuance. No
other vote of the shareholders of Parent is required by law, the Restated
Certificate of Incorporation or by-laws of Parent or otherwise in order for
Parent to consummate the Merger and the transactions contemplated hereby.
Section 5.18. POOLING OF INTERESTS. To the knowledge of Parent and based
upon the advice of its independent accountants, neither it nor any of its
Subsidiaries has taken any action or failed to take any action which action or
failure (without giving effect to any actions or failures to act by the Company
or any of its Subsidiaries) would prevent the treatment of the Merger as a
pooling of interests for accounting purposes.
Section 5.19. INSURANCE. Parent has all insurance policies that it
reasonably believes are required in connection with the operation of the
businesses of Parent and its Subsidiaries. Parent has made available to the
Company true and correct summaries of each of the insurance policies relating to
Parent or its Subsidiaries that are currently in effect. With respect to each
such insurance policy none of Parent, any of its Subsidiaries or, to the
knowledge of Parent, any other party to the policy is in breach or default
thereunder (including with respect to the payment of premiums or the giving of
notices), and Parent does not know of any occurrence or any event which (with
notice or the lapse of time or both) would constitute such a breach or default
or permit termination, modification or acceleration under the policy, except for
such breaches or defaults which, individually or in the aggregate, would not
result in an Material Adverse Effect on Parent. All self-insurance arrangements
affecting Parent or its Subsidiaries are described on Attachment 5.19 to the
Parent Disclosure Letter.
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Section 5.20. LABOR MATTERS; EMPLOYEES. Except where the failure of any of
the following statements to be true, individually or in the aggregate, would not
have a Material Adverse Effect on Parent:
(a) (i) There is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of Parent, threatened against
or affecting Parent or any of its Subsidiaries and, during the past five
years, there has not been any such action, (ii) none of Parent or any of its
Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to
with any labor organization or employee association applicable to employees
of Parent or any of its Subsidiaries, (iii) none of the employees of Parent
or any of its Subsidiaries are represented by any labor organization and
none of Parent or any of its Subsidiaries have any knowledge of any current
union organizing activities among the employees of Parent or any of its
Subsidiaries nor does any question concerning representation exist
concerning such employees, (iv) Parent and its Subsidiaries have each at all
times been in material compliance with all applicable laws respecting
employment and employment practices, including Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, 42 U.S.C. Section 1981, the
Americans With Disabilities Act, the Fair Labor Standards Act, ERISA, the
Occupational Safety and Health Act, the Family Medical Leave Act, the
Immigration Reform and Control Act, the National Labor Relations Act, and
any other law, ordinance or regulation respecting the terms and conditions
of employment, including authorization to work in the United States, equal
employment opportunity (including prohibitions against discrimination,
harassment, and retaliation), payment of wages, hours of work, occupational
safety and health, and labor practices (v) there is no unfair labor practice
charge or complaint against any of Parent or any of its Subsidiaries pending
or, to the knowledge of Parent, threatened before the National Labor
Relations Board or any similar state or foreign agency, (vi) there is no
grievance or arbitration proceeding arising out of any collective bargaining
agreement or other grievance procedure relating to Parent or any of its
Subsidiaries pending, or to the knowledge of Parent, threatened, before the
National Labor Relations Board or any similar state or foreign agency,
(vii) neither the Occupational Safety and Health Administration nor any
corresponding state agency is threatening to file any citation, and there
are no pending citations, relating to Parent or any of its Subsidiaries, and
(viii) there are no pending or, to the knowledge of Parent, threatened
claims by any current or former employee of Parent or any employment-related
claims or investigations by any governmental entity, including any charges
to the Equal Employment Opportunity Commission or state employment practice
agency, investigations regarding compliance with federal, state or local
wage and hour laws, audits by the Office of Federal Contractor Compliance
Programs, complaints of sexual harassment, or any other form of unlawful
harassment, discrimination, or retaliation.
(b) Since the enactment of the WARN Act, none of Parent or any of its
Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of any of Parent or any of
its Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act)
affecting any site of employment or facility of Parent or any of its
Subsidiaries, nor has Parent or any of its Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law, in each
case that could reasonably be expected to have a Material Adverse Effect on
Parent.
Section 5.21. RESERVE REPORTS.
(a) All information (including, without limitation, the statement of the
percentage of reserves from the oil and gas wells and other interests
evaluated therein to which Parent or its Subsidiaries are entitled and the
percentage of the costs and expenses related to such wells or interests to
be borne by Parent or its Subsidiaries) supplied to Ryder Scott Company by
or on behalf of Parent and its Subsidiaries that was material to such firms'
estimates of proved oil and gas reserves
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attributable to the Oil and Gas Interests of Parent and its Subsidiaries in
connection with the preparation of the proved oil and gas reserve reports
concerning the Oil and Gas Interests of Parent and its Subsidiaries as of
December 31, 1999 by such engineering firms (collectively, the "Parent
Reserve Report") was (at the time supplied or as modified or amended prior
to the issuance of the Parent Reserve Report) true and correct in all
material respects and Parent has no knowledge of any material errors in such
information that existed at the time of such issuance. Except for changes
(including changes in commodity prices) generally affecting the oil and gas
industry and normal depletion by production in the ordinary course of
business, there has been no change in respect of the matters addressed in
the Parent Reserve Report that would have a Material Adverse Effect on
Parent.
(b) Attachment 5.21(b) to the Parent Disclosure Letter includes a list
of all material Oil and Gas Interests that have been disposed of since
January 1, 2000.
Section 5.22. MATERIAL CONTRACTS.
(a) Attachment 5.22 of the Parent Disclosure Letter sets forth a list of
each contract, lease, indenture, agreement, license, arrangement or
understanding to which Parent or any of its Subsidiaries is a party or
subject that is of a type that would be required to be included as an
exhibit to a Form S-1 Registration Statement pursuant to the rules and
regulations of the SEC if such a registration statement was filed by Parent
on the date hereof and no previous filings had been made (the "Parent
Material Contracts").
(b) The Oil and Gas Interests of Parent and its Subsidiaries are not
subject to (i) any instrument or agreement evidencing or related to
indebtedness for borrowed money, whether directly or indirectly, or
(ii) any agreement not entered into in the ordinary course of business in
which the amount involved is in excess of $500,000. Except for such matters
as would not have a Material Adverse Effect on Parent, (A) all Parent
Material Contracts are in full force and effect and are the valid and
legally binding obligations of Parent and, to the knowledge of Parent, the
other parties thereto and are enforceable in accordance with their
respective terms against Parent and, to the knowledge of Parent, the other
parties hereto; (B) Parent is not in breach of or default under (nor does
there exist any condition which upon the passage of time or the giving of
notice or both would cause such a breach of or default under), and to the
knowledge of Parent, no other party to any Parent Material Contract is in
breach of or default under (nor does there exist any condition which upon
the passage of time or the giving of notice or both would cause such a
breach of or default under), its obligations thereunder, including with
respect to payments or otherwise; (C) no party to any Parent Material
Contract has given notice of any action to terminate, cancel, rescind or
procure a judicial reformation thereof; (D) no Parent Material Contract
contains any provision that prevents Parent or any of its Subsidiaries from
owning, managing and operating the Oil and Gas Interests of Parent and its
Subsidiaries in accordance with historical practices and (E) the execution
of this Agreement and the consummation of the transactions contemplated
hereby will not breach, conflict with, result in a violation of or a default
under (with or without notice or lapse of time, or both), invoke any penalty
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements of any person
under (including the receipt of any consideration), any provision of any
Parent Material Contract.
(c) As of the date of this Agreement, (i) with respect to authorizations
for expenditure executed on or after May 31, 2000, there are no outstanding
calls for payments in excess of $1 million in any one case that are due or
which Parent or its Subsidiaries are committed to make that have not been
recorded in Parent's financial records; (ii) since December 31, 1999 there
are no material operations or any Material Oil and Gas Interest with respect
to which Parent or its Subsidiaries have become a non-consenting party and
(iii) there are no commitments for the
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expenditure of funds for drilling or other capital projects in excess of
$5 million that have not been recorded in Parent's financial records.
(d) (i) Except as reflected in the Parent Reserve Report, there are no
provisions applicable to the material Oil and Gas Interests of Parent and
its Subsidiaries that increase the royalty percentage of the lessor
thereunder and (ii) none of the material Oil and Gas Interests of Parent and
its Subsidiaries are limited by terms fixed by a certain number of years
(other than primary terms under oil and gas leases).
(e) Except for such agreements or obligations as would not have a
Material Adverse Effect on Parent, neither Parent nor any of its
Subsidiaries is a party to or bound by any noncompetition agreement or
similar agreement or obligation other than area of mutual interest and
similar agreements entered into in the ordinary course of business that
purports to limit in any respect the manner in which, or the localities in
which, all or any portion of the business of Parent and its Subsidiaries is
conducted.
(f) The execution and carrying out of this Agreement and the
consummation of the transactions contemplated hereby will not breach,
conflict with, result in a violation of or a default under (with or without
notice or lapse of time, or both), invoke any penalty under, or give rise to
a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or to increased, additional,
accelerated or guaranteed rights or entitlements of any person under
(including the receipt of any consideration), any license or right to use
the seismic data and no consent, authorization or approval of any third
party is necessary to maintain any license or right to use such seismic data
following the consummation of the transactions contemplated by this
Agreement.
Section 5.23. PERMITS. Parent or its Subsidiaries hold all material
Permits required or necessary to construct, run, operate, use and/or maintain
their properties and conduct their operations as presently conducted. Parent and
its Subsidiaries are in compliance with the terms of such Permits, except for
such failure to hold or instances of noncompliance, that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent.
Section 5.24. INTELLECTUAL PROPERTY. Parent or its Subsidiaries own, or
are licensed or otherwise have the right to use, all Intellectual Property
currently used in the conduct of the business of Parent and its Subsidiaries,
except where the failure to so own or otherwise have the right to use such
intellectual property would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. No Person has notified either Parent or any
of its Subsidiaries that their use of the Intellectual Property infringes on the
rights of any Person, subject to such claims and infringements as do not,
individually or in the aggregate, give rise to any liability on the part of
Parent and its Subsidiaries that could have a Material Adverse Effect on Parent,
and, to Parent's knowledge, no person is infringing on any right of Parent or
any of its Subsidiaries with respect to any such Intellectual Property. No
claims are pending or, to Parent's knowledge, threatened that Parent or any of
its Subsidiaries is infringing or otherwise adversely affecting the rights of
any Person with regard to any Intellectual Property that individually or in the
aggregate would give rise to a Material Adverse Effect on Parent.
Section 5.25. HEDGING. (a) Parent does not, and each of its Subsidiaries
does not, have any outstanding obligations for the delivery of Hydrocarbons
attributable to any of the properties of Parent or any of its Subsidiaries in
the future on account of prepayment, advance payment, take-or-pay or similar
obligations without then or thereafter being entitled to receive full value
therefor. (b) Attachment 5.25(b) of the Parent Disclosure Letter sets forth all
futures, hedge, swap, collar, put, call, floor, cap, option or other contracts
that are intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons or securities,
to which Parent or any of its Subsidiaries is bound.
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Section 5.26. CSI LETTER. Parent has furnished to the Company a copy of a
letter from Chase Securities Inc. (the "Chase Letter") with respect to the
availability of financing for the transactions contemplated by this Agreement.
As of the date hereof, the Chase Letter has not been modified or withdrawn.
ARTICLE VI.
COVENANTS AND AGREEMENTS
It is further agreed as follows:
Section 6.1. CONDUCT OF BUSINESS BY THE COMPANY OR PARENT. Prior to the
Effective Time or the date, if any, on which this Agreement is earlier
terminated pursuant to Section 8.1 (the "Termination Date"), and except as may
be agreed to by the other parties hereto or as may be permitted pursuant to this
Agreement:
(a) The Company:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact its
business organizations and goodwill in all material respects, keep
available the services of its officers and employees as a group, subject
to changes in the ordinary course, and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with them in the ordinary course consistent with
past practice;
(iii) shall confer at such times as Parent may reasonably request with
one or more representatives of Parent to report material operational
matters and the general status of material ongoing operations (to the
extent Parent reasonably requires such information);
(iv) shall notify Parent of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in the
operation of its or its Subsidiaries' respective properties and of any
complaints, investigations or hearings (or communications indicating that
the same may be contemplated) of any governmental body or authority if
such emergency, change, complaint, investigation or hearing would have a
Material Adverse Effect on the Company;
(v) shall not, and shall not (except in the ordinary course of
business consistent with past practice) permit any of its Subsidiaries
that is not wholly owned to, authorize or pay any dividends on or make
any distribution with respect to its outstanding shares of stock, other
than regular dividends payable in kind on the Company Series A Preferred
Stock in accordance with its terms;
(vi) shall not, and shall not permit any of its Subsidiaries to,
except (i) in the ordinary course of business consistent with past
practice with persons who are not directors or officers or (ii) as
otherwise provided in this Agreement, enter into or amend any employment,
severance or similar agreements or arrangements with any of their
respective directors or executive officers or increase the compensation,
bonus or other benefits of any director, officer or other employee or pay
any benefit or amount not required by any plan or arrangement as in
effect on the date hereof to any such person;
(vii) shall not, and shall not permit any of its Subsidiaries to
(A) merge or consolidate with any other person (other than pursuant to
the Merger), (B) acquire assets having an
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individual purchase price in excess of $3 million or an aggregate
purchase price in excess of $3 million, (C) make any capital expenditure
other than those set forth on Attachment 4.22(c) of the Company
Disclosure Letter, provided that the Company shall be permitted to
substitute new projects for up to $5 million without increasing the
aggregate amount budgeted or increase budgeted projects in an amount not
to exceed $5 million in the aggregate, (D) enter into any farm-out or
similar arrangement without the consent of Parent, which consent will not
be unreasonably withheld, (E) otherwise sell or dispose of any assets,
properties or securities with an aggregate fair market value in excess of
$2 million or (F) provide any release or relinquishment of any rights in
any Material Contract without consideration.
(viii) shall not, and shall not permit any of its Subsidiaries to,
propose or adopt any amendments to its certificate of incorporation or
by-laws (or similar organizational documents) or any plan of complete or
partial liquidation or other reorganization;
(ix) shall not, and shall not permit any of its Significant
Subsidiaries to, issue any securities (whether through the issuance or
granting of options, warrants, rights or otherwise and except pursuant to
existing obligations disclosed in the Company SEC Reports filed and
publicly available prior to the date hereof or the Company Disclosure
Letter) or effect any stock split or otherwise change its capitalization
as it existed on June 30, 2000 (except as contemplated herein);
(x) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any options, warrants, conversion rights or other
rights, not existing on the date hereof, to acquire any shares of its
capital stock;
(xi) shall not, and shall not permit any of its Subsidiaries to,
except in the ordinary course of business in connection with employee
incentive and benefit plans, programs or arrangements in existence on the
date hereof, purchase or redeem any shares of its stock or any rights,
warrants or options to acquire any such shares;
(xii) shall not, and shall not permit any of its Subsidiaries to take
any actions that would, or would be reasonably likely to, prevent Parent
from accounting for the Merger in accordance with the pooling of
interests method of accounting under the requirements of Opinion No. 16
"Business Combinations" of the Accounting Principles Board of the
American Institute of Certified Public Accountants, as amended by
applicable pronouncements by the Financial Accounting Standards Board
("APB No. 16"); provided, that this covenant will not be violated by the
taking of any action by the Company or any of its Subsidiaries that its
independent accountants advised would not be reasonably likely to have
such effect;
(xiii) shall not, and shall not permit any of its Subsidiaries to,
except as contemplated by this Section 6.1 or Section 6.5, amend in any
significant respect the terms of their respective employee benefit plans,
programs or arrangements or any severance or similar agreements or
arrangements in existence on the date hereof, or adopt any new employee
benefit plans, programs or arrangements or any severance or similar
agreements or arrangements;
(xiv) shall not, and shall not permit any of its Subsidiaries to,
enter into any material loan agreement or otherwise incur any
indebtedness for borrowed money (except borrowings under the Company's
revolving credit facility as in existence at the date hereof) or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire debt securities, other
than in each case in the ordinary course of business consistent with past
practice;
(xv) shall not, and shall not permit any of its Subsidiaries to, make
any material Tax election or settle or compromise any material Tax
liability; provided, however, pursuant to Section 382(l)(5)(H) of the
Code, the Company shall elect not to have the provisions of
Section 382(l)(5) of the Code apply; the Company shall provide Parent
with copies of any amended Tax returns filed prior to the Effective Date;
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(xvi) shall not, and shall not permit any of its Subsidiaries to,
(A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) or litigation (whether or not commenced prior to the date of
this Agreement) in an amount or with a value in excess of insurance
proceeds received of $2 million or greater, other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with its terms, of any
liability recognized or disclosed in the most recent consolidated
financial statements (or the notes thereto) of the Company included in
the Company SEC Reports filed and publicly available prior to the date
hereof or incurred since the date of such financial statements, or
(B) waive the benefits of, or agree to modify in any manner, terminate,
release any person from or fail to enforce any confidentiality,
standstill or similar agreement to which the Company or any of its
Subsidiaries is a party or of which the Company or any of its
Subsidiaries is a beneficiary;
(xvii) shall not, and shall not permit any of its Subsidiaries to,
enter into any commitment or agreement to license or purchase seismic
data that will cost in excess of $1 million in the case of domestic
operations or $1 million in the case of international operations, and in
either case other than pursuant to agreements or commitments existing on
the date of this Agreement;
(xviii) shall not change any method of accounting or accounting
practice by the Company or any of its Subsidiaries, except for any such
change required by GAAP;
(xix) shall not take any action that would give rise to a claim under
the WARN Act or any similar state law or regulation because of a "plant
closing" or "mass layoff" (each as defined in the WARN Act);
(xx) shall not, and shall not permit any of its Subsidiaries to,
(A) enter into any futures, hedge, swap, collar, put, call, floor, cap,
option or other contracts that are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
Hydrocarbons, methanol or securities, other than contracts with a term of
90 days or less and at a fixed price based upon a standard industry
pricing reference or (B) enter into any fixed price commodity sales
agreements with a duration of more than three months;
(xxi) shall not make any election under any of its stock option plans
to pay cash in exchange for terminating awards under such plans;
(xxii) shall not, and shall not permit any of its Subsidiaries to,
agree, in writing or otherwise, to take any of the foregoing actions or
take any action that would make any representation or warranty in
Article IV hereof untrue or incorrect in any material respect, or that
would result in any of the conditions to the Merger set forth in
Article VII not being satisfied, or, except as otherwise allowed
hereunder, that could reasonably be expected to prevent, impede,
interfere with or significantly delay the transactions contemplated
hereby; and
(xxiii) shall provide to Parent as soon as available its internal
monthly financial statements for each month ending after the date hereof
(beginning with the financial statements for June 2000) in the forms
prepared in the ordinary course of business.
(b) Parent:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact its
business organizations and goodwill in all material respects, keep
available the services of its officers and employees as a group, subject
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to changes in the ordinary course, and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with them in the ordinary course consistent with
past practice;
(iii) shall confer at such times as the Company may reasonably request
with one or more representatives of the Company to report material
operational matters and the general status of material ongoing operations
(to the extent the Company reasonably requires such information);
(iv) shall notify the Company of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in the
operation of its or its Subsidiaries' respective properties and of any
complaints, investigations or hearings (or communications indicating that
the same may be contemplated) of any governmental body or authority if
such emergency, change, complaint, investigation or hearing would have a
Material Adverse Effect on Parent;
(v) shall not, and shall not (except in the ordinary course of
business consistent with past practice) permit any of its Subsidiaries
that is not wholly owned to, declare or pay any dividends on or make any
distribution with respect to their outstanding shares of capital stock;
(vi) shall not, and shall not permit any of its Subsidiaries to,
authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or
business combination (other than the Merger and any mergers,
consolidations or business combinations with Parent's Subsidiaries
entered into in the ordinary course of business consistent with past
practice), any individual sale of assets in excess of $5 million, any
acquisition of a material amount of assets or securities, or any release
or relinquishment of any material contract rights not in the ordinary
course of business;
(vii) shall not, and shall not permit any of its Subsidiaries to,
propose or adopt any amendments to its corporate charter (except as
contemplated herein) or by-laws (or similar organizational documents) or
any plan of complete or partial liquidation or other reorganization;
provided, however, that Parent shall be permitted to submit to its
shareholders a proposal to effect a reverse split with respect to the
Parent Common Stock;
(viii) shall not, and shall not permit any of its Significant
Subsidiaries to, issue any equity securities (whether through the
issuance or granting of options, warrants, rights or otherwise and except
pursuant to existing obligations disclosed in the Parent SEC Reports or
the Parent Disclosure Letter) or effect any stock split not previously
announced or otherwise change its capitalization as it existed on
June 30, 2000 (except as contemplated herein or as previously disclosed
in writing to the Company);
(ix) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any options, warrants, conversion rights or other
rights, not existing on the date hereof, to acquire any shares of its
capital stock, except pursuant to employee incentive or benefit plans,
programs or arrangements and non-employee director plans in existence on
the date hereof in the ordinary course of business and consistent with
past practice;
(x) shall not, and shall not permit any of its Subsidiaries to,
except in the ordinary course of business in connection with employee
incentive and benefit plans, programs or arrangements in existence on the
date hereof, purchase or redeem any shares of its stock or any rights,
warrants or options to acquire such shares;
(xi) shall not, and shall not permit any of its Subsidiaries to, take
any actions that would, or would be reasonably likely to, prevent Parent
from accounting for the Merger in accordance with the pooling of
interests method of accounting under the requirements of APB No. 16;
provided, that this covenant will not be violated by the taking of any
action by Parent
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or any of its Subsidiaries that its independent accountants advised would
not be reasonably likely to have such effect; and
(xii) shall not, and shall not permit any of its Subsidiaries to,
agree, in writing or otherwise, to take any of the foregoing actions or
take any action that would make any representation or warranty in
Article V hereof untrue or incorrect in any material respect, or that
would result in any of the conditions to the Merger set forth in
Article VII not being satisfied, or, except as otherwise allowed
hereunder, that could reasonably be expected to prevent, impede,
interfere with or significantly delay the transactions contemplated
hereby.
Section 6.2. INVESTIGATION. Each of the Company and Parent shall afford to
one another and to one another's officers, employees, accountants, counsel and
other authorized representatives full and complete access during normal business
hours, throughout the period prior to the earlier of the Effective Time or the
date of termination of this Agreement, to its and its Subsidiaries' plants,
properties, contracts, commitments, books, and records (including but not
limited to Tax Returns) and any report, schedule or other document filed or
received by it pursuant to the requirements of federal or state securities laws
and shall use their reasonable best efforts to cause their respective
representatives to furnish promptly to one another such additional financial and
operating data and other information as to its and its Subsidiaries' respective
businesses and properties as the other or its duly authorized representatives
may from time to time reasonably request. The parties hereby agree that each of
them will treat any such information in accordance with the Confidentiality
Agreement between the Company and Parent (the "Confidentiality Agreement").
Notwithstanding any provision of this Agreement to the contrary, no party shall
be obligated to make any disclosure in violation of applicable contracts,
licenses, laws or regulations, although the party bound thereby will use its
reasonable efforts to obtain a waiver from the disclosure restriction for the
benefit of the other party hereto.
Section 6.3. COOPERATION. (a) The Company and Parent shall together, or
pursuant to an allocation of responsibility to be agreed upon between them:
(i) prepare and file with the SEC as soon as is reasonably
practicable the Joint Proxy Statement and a registration statement on
Form S-4 under the Securities Act with respect to the Parent Common Stock
issuable in the Merger (the "Registration Statement"), and shall use
their reasonable best efforts to have the Joint Proxy Statement cleared
by the SEC under the Exchange Act and the Registration Statement declared
effective by the SEC under the Securities Act;
(ii) as soon as is reasonably practicable take all such action as may
be required under state blue sky or securities laws in connection with
the transactions contemplated by this Agreement;
(iii) promptly prepare and file with the NYSE and such other stock
exchanges as shall be agreed upon listing applications covering the
shares of Parent Common Stock issuable in the Merger or upon exercise of
Company stock options, warrants, conversion rights or other rights or
vesting or payment of other Company equity-based awards and use its
reasonable best efforts to obtain, prior to the Effective Time, approval
for the listing of such Common Stock, subject only to official notice of
issuance;
(iv) cooperate with one another in order to lift any injunctions or
remove any other impediment to the consummation of the transactions
contemplated herein; and
(v) cooperate with one another in obtaining opinions of Weil,
Gotshal & Manges LLP, counsel to the Company, and Ernst & Young LLP, tax
advisor to Parent, dated as of the Effective Time, to the effect that the
Merger qualifies as a reorganization under the provisions of
Section 368(a) of the Code. In connection therewith, each of the Company
and Parent shall deliver to Weil, Gotshal & Manges LLP and Ernst & Young
LLP representation letters in customary form and the Company shall use
its reasonable best efforts to obtain a
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representation letter in customary form from appropriate stockholders and
shall deliver any such letters obtained to Weil, Gotshal & Manges LLP and
Ernst & Young LLP; and
(vi) cooperate with one another in taking such actions as may be
reasonably necessary to facilitate issuing shares of Parent Common Stock
(in appropriate amounts to reflect the Common Exchange Ratio) in lieu of
any shares of Company Common Stock that might otherwise be issuable in
accordance with the terms of the Company's plan of reorganization.
(b) Subject to the limitations contained in Section 6.2, the Company and
Parent shall each furnish to one another and to one another's counsel all
such information as may be required in order to effect the foregoing actions
and each represents and warrants to the other that no information furnished
by it in connection with such actions or otherwise in connection with the
consummation of the transactions contemplated by this Agreement will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in order to make any information so furnished, in
light of the circumstances under which it is so furnished, not misleading.
(c) The Company and Parent shall each furnish to one another as soon as
practicable after the execution of this Agreement copies of the letter that
such party received from its independent accountants with respect to the
qualification of the Merger as a pooling-of-interests for accounting
purposes.
Section 6.4. AFFILIATE AGREEMENTS.
(a) The Company shall, prior to the Effective Time, deliver to Parent a
list (reasonably satisfactory to counsel for Parent), setting forth the
names and addresses of all persons who are, at the time of the Company
Meeting, in the Company's reasonable judgment, "affiliates" of the Company
for purposes of Rule 145 under the Securities Act or under applicable SEC
accounting releases with respect to pooling of interests accounting
treatment. The Company shall furnish such information and documents as
Parent may reasonably request for the purpose of reviewing such list. The
Company shall use its reasonable best efforts to cause each person who is
identified as an "affiliate" in the list furnished pursuant to this
Section 6.4 to execute a written agreement on or prior to the Effective
Time, in substantially the form of EXHIBIT 6.4(A) hereto.
(b) Parent shall, prior to the Effective Time, deliver to the Company a
list (reasonably satisfactory to counsel for the Company) setting forth the
names and addresses of all persons who are, at the time of the Parent
Meeting, in Parent's reasonable judgment, affiliates of Parent under
applicable SEC accounting releases with respect to pooling of interests
accounting treatment. Parent shall furnish such information and documents as
the Company may reasonably request for the purpose of reviewing such list.
Parent shall use its reasonable best efforts to cause each person who is
identified as an affiliate in the list furnished pursuant to this
Section 6.4 to execute a written agreement on or prior to the Effective
Time, in substantially the form of EXHIBIT 6.4(B) hereto.
Section 6.5. EMPLOYEE STOCK OPTIONS, INCENTIVE AND BENEFIT PLANS.
(a) Simultaneously with the Merger, (i) each outstanding option (and
related stock appreciation right ("Company SAR"), if any) to purchase or
acquire a share of Company Common Stock under the Company Stock Plans (other
than the Company 1999 Employee Stock Purchase Plan (the "Company Purchase
Plan") shall be converted into an option (together with a related stock
appreciation right of Parent, if applicable) to purchase the number of
shares of Parent Common Stock equal to the Common Exchange Ratio multiplied
by the number of shares of Company Common Stock that could have been
obtained immediately prior to the Effective Time upon the exercise of each
such option, at an exercise price per share equal to (x) the aggregate
exercise price for the shares of Company Common Stock otherwise purchasable
pursuant to such Company Stock Option divided by (y) the aggregate number of
shares of Parent Common Stock deemed purchasable pursuant to such option and
all references in each such option (and related
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Company SAR, if any) to the Company shall be deemed to refer to Parent,
where appropriate, (ii) each outstanding option to purchase or acquire a
share or Company Common Stock under the Company Purchase Plan shall be
converted into an option to purchase a number of shares of Parent Common
Stock determined pursuant to section 9(a) of the Company Purchase Plan based
upon a purchase price per share equal to the lesser of (a) 85% of the "Fair
Market Value" (determined under the Company Purchase Plan) of a share of
Company Common Stock on the first day of the "Option Period" (as such term
is defined in the Company Purchase Plan) during which the Effective Time
occurs divided by the Common Exchange Ratio or (b) 85% of the Fair Market
Value of a share of Parent Common Stock on the last day of such Option
Period and (iii) Parent shall assume the obligations of the Company under
the Company Stock Plans. The other terms of each such option and Company
SAR, and the plans under which they were issued, shall continue to apply in
accordance with their terms, including any provisions providing for
acceleration.
(b) Simultaneously with the Merger, each outstanding award (including
restricted stock, stock equivalents and stock units) ("Company Award") under
any employee incentive or benefit plans, programs or arrangements and
non-employee director plans presently maintained by the Company which
provide for grants of equity-based awards shall be amended or converted into
a similar instrument of Parent, in each case with such adjustments to the
terms of such Company Awards as are appropriate to preserve the value
inherent in such Company Awards with no detrimental effects on the holders
thereof. The other terms of each Company Award, and the plans or agreements
under which they were issued, shall be assumed by Parent and shall continue
to apply in accordance with their terms, including any provisions providing
for acceleration. With respect to any restricted stock awards as to which
the restrictions shall have lapsed on or prior to the Effective Time in
accordance with the terms of the applicable plans or award agreements,
shares of such previously restricted stock shall be converted in accordance
with the provisions of Section 2.1(b).
(c) The Company and Parent agree that each of their respective employee
incentive or benefit plans, programs and arrangements and non-employee
director plans shall be amended, to the extent necessary and appropriate, to
reflect the transactions contemplated by this Agreement, including, but not
limited to the conversion of shares of Company Common Stock held or to be
awarded or paid pursuant to such benefit plans, programs or arrangements
into shares of Parent Common Stock on a basis consistent with the
transactions contemplated by this Agreement. The actions to be taken by the
Company and Parent pursuant to this Section 6.5(c) shall include the
submission by the Company or Parent of the amendments to the plans, programs
or arrangements referred to herein to their respective stockholders at the
Company Meeting or the Parent Meeting, respectively, if such submission is
determined to be necessary or advisable by counsel to the Company or Parent
after consultation with one another; provided, however, that such approval
shall not be a condition to the consummation of the Merger.
(d) Parent shall (i) reserve for issuance the number of shares of Parent
Common Stock that will become subject to the benefit plans, programs and
arrangements referred to in this Section 6.5 and (ii) issue or cause to be
issued the appropriate number of shares of Parent Common Stock pursuant to
such plans, programs and arrangements, upon the exercise or maturation of
rights existing thereunder on the Effective Time or thereafter granted or
awarded.
(e) Parent agrees to use its reasonable efforts to file with the
Securities and Exchange Commission (the "Commission") within 30 days after
the Effective Time a registration statement on Form S-8 or other appropriate
form under the Securities Act to register Parent Common Stock issuable upon
exercise of the options and Company SARs assumed by Parent pursuant to
Section 6.5(a), and to use its reasonable efforts to cause such registration
statement to remain effective until the exercise or expiration of such
options and rights. Prior to the Effective Time, the Board of Directors of
Parent, or an appropriate committee of non-employee directors thereof,
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shall adopt a resolution consistent with the interpretive guidance of the
Commission so that the acquisition by any officer or director of the Company
who may become a covered person of Parent for purposes of Section 16 of the
Exchange Act and the rules and regulations thereunder ("Section 16") of
Parent Common Stock or options to acquire Parent Common Stock pursuant to
this Agreement and the Merger shall be an exempt transaction for purposes of
Section 16.
Section 6.6. FILINGS; OTHER ACTION. Subject to the terms and conditions
herein provided, the Company and Parent shall (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act,
(b) use reasonable efforts to cooperate with one another in (i) determining
whether any filings are required to be made with, or consents, permits,
authorizations or approvals are required to be obtained from, any third party,
the United States government or any agencies, departments or instrumentalities
thereof or other governmental or regulatory bodies or authorities of federal,
state, local and foreign jurisdictions in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and thereby and (ii) timely making all such filings and timely seeking
all such consents, permits, authorizations or approvals, and (c) use reasonable
efforts to take, or cause to be taken, all other actions and do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby, including, without limitation,
taking all such further action as reasonably may be necessary to resolve such
objections, if any, as the Federal Trade Commission, the Antitrust Division of
the Department of Justice, state antitrust enforcement authorities or
competition authorities of any other nation or other jurisdiction or any other
person may assert under relevant antitrust or competition laws with respect to
the transactions contemplated hereby and to ensure that it is a "poolable
entity" eligible to participate in a transaction to be accounted for under the
pooling of interests method of accounting. Nothing in this Agreement shall be
deemed to require Parent to agree to, or proffer to, divest or hold separate any
assets or any portion of any business of Parent, the Company or any of their
respective Subsidiaries if the Board of Directors of Parent determines that so
doing would materially impair the benefit intended to be obtained by Parent in
the Merger.
Section 6.7. FURTHER ASSURANCES. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers of the Company and Parent shall take all
such necessary action.
Section 6.8. TAKEOVER STATUTE. If any "fair price", "moratorium", "control
share acquisition" or other form of antitakeover statute or regulation shall
become applicable to the transactions contemplated hereby, each of the Company
and Parent and the members of their respective Boards of Directors shall grant
such approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby.
Section 6.9. NO SOLICITATION. From and after the date hereof, each party
will not, and shall not permit any of its officers, directors, employees,
attorneys, financial advisors, agents or other representatives or those of any
of its Subsidiaries to, directly or indirectly, solicit, initiate or knowingly
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal that
constitutes a Takeover Proposal from any person, or engage in or continue
discussions or negotiations relating thereto. Notwithstanding anything in this
Agreement to the contrary, each of the Company and Parent or its respective
Board of Directors shall be permitted to (A) to the extent applicable, comply
with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with respect
to a Takeover Proposal, (B) effect a change in the Company Recommendation or the
Parent Recommendation, as the case may be, or (C) engage in discussions or
negotiations with, or provide information to, any Person in response to an
unsolicited bona fide written Takeover Proposal by any such Person, if and only
to the extent that, in any such case as is referred to in clause (B) or (C),
(i) the Company Stockholders Meeting or the Parent Shareholders Meeting, as the
case may be, shall not have occurred, (ii) (x) in the case of clause (B) above,
it has received an
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unsolicited bona fide written Takeover Proposal from a third party and its Board
of Directors concludes in good faith that such Takeover Proposal constitutes a
Superior Proposal (as defined below) and (y) in the case of clause (C) above,
its Board of Directors concludes in good faith that there is a reasonable
likelihood that such Takeover Proposal could result in a Superior Proposal,
(iii) prior to providing any information or data to any Person in connection
with a Takeover Proposal by any such Person, its Board of Directors receives
from such Person an executed confidentiality agreement containing terms at least
as stringent as those contained in the Confidentiality Agreement referred to in
Section 6.2 and (iv) prior to providing any information or data to any Person or
entering into discussions or negotiations with any Person, such party notifies
the other party promptly of such inquiries, proposals or offers received by, any
such information requested from, or any such discussions or negotiations sought
to be initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any inquiries, proposals or offers. Each of the Company and Parent
agrees that it will, and will cause its officers, directors and representatives
to, immediately cease and cause to be terminated any activities, discussions or
negotiations existing as of the date of this Agreement with any parties
conducted heretofore with respect to any Takeover Proposal. Each of the Company
and Parent agrees that it will use reasonable best efforts to promptly inform
its directors, officers, key employees, agents and representatives of the
obligations undertaken in this Section 6.9. Nothing in this Section 6.9 shall
(x) permit the Company or Parent to terminate this Agreement (except as
specifically provided in Article VIII hereof) or (y) affect any other obligation
of the Company or Parent under this Agreement. As used in this Agreement,
(i) "Takeover Proposal" shall mean any proposal or offer, or any expression of
interest by any third party relating to a party's willingness or ability to
receive or discuss a proposal or offer, in each case made prior to the vote at
the Company Stockholders Meeting or the Parent Shareholders Meeting, as the case
may be, other than a proposal or offer by the other party hereto or any of its
Subsidiaries, for a merger, consolidation or other business combination
involving, or any purchase of, more than 35% of the assets or more than 35% of
the voting securities of, such party, and (ii) "Superior Proposal" shall mean a
bona fide unsolicited Takeover Proposal (except that references to "35%" shall
be deemed to be "50%") made by a third party on terms that a majority of the
members of the Board of Directors of such party determines in their good faith
reasonable judgment (after considering the advice of an independent financial
advisor and outside counsel, taking into account, among other things, all legal,
financial, regulatory and other aspects of the Proposal) are more favorable to
such party and to its stockholders than the transactions contemplated hereby and
for which any required financing is committed or which, in the good faith
reasonable judgment of a majority of such members (after consultation with any
independent financial advisor), is reasonably capable of being financed by such
third party and which Takeover Proposal is reasonably capable of being
completed. Notwithstanding anything to the contrary herein, Parent shall be
permitted to engage in negotiations or discussions with, and can provide
information to, any other person with respect to possible transactions
contemplated to occur following the Merger that would not otherwise delay or
impair the consummation of the Merger.
Section 6.10. PUBLIC ANNOUNCEMENTS. The Company and Parent will consult
with each other before issuing any press release relating to this Agreement or
the transactions contemplated herein and shall not issue any such press release
prior to such consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
Section 6.11. INDEMNIFICATION AND INSURANCE.
(a) Parent and Sub agree that all rights to exculpation and
indemnification for acts or omissions occurring prior to the Effective Time
now existing in favor of the current or former directors or officers (the
"Indemnified Parties") of the Company as provided in its certificate of
incorporation or by-laws or in any agreement shall be assumed by Parent upon
the Effective Time and shall survive the Merger and shall continue in full
force and effect as direct obligations of Parent in accordance with their
terms.
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(b) For six years from the Effective Time, Parent shall, maintain in
effect (i) the Company's current directors' and officers' liability
insurance covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy (a copy of which has
been heretofore delivered to Parent) and (ii) Parent's current directors'
and officers' liability insurance covering those persons who are currently
covered by Parent's directors' and officers' liability insurance policy (a
copy of which has been heretofore delivered to the Company); PROVIDED,
HOWEVER, that in no event shall Parent be required to expend for any one
year an amount in excess of 200% of the annual premiums currently paid by
the Company for such insurance, and, provided, further, that if the annual
premiums of such insurance coverage exceed such amount, Parent shall be
obligated to obtain a policy with the greatest coverage available for a cost
not exceeding such amount.
Section 6.12. ACCOUNTANTS' "COMFORT" LETTERS. The Company and Parent will
each use reasonable best efforts to cause to be delivered to each other letters
from their respective independent accountants, dated as of the effective date of
the Registration Statement, in form reasonably satisfactory to the recipient and
customary in scope for comfort letters delivered by independent accountants in
connection with registration statements on Form S-4 under the Securities Act.
Section 6.13. ADDITIONAL REPORTS. The Company and Parent shall each
furnish to the other copies of any reports of the type referred to in Sections
4.4 and 5.4 that it files with the SEC on or after the date hereof, and the
Company and Parent, as the case may be, represents and warrants that as of the
respective dates thereof, such reports will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statement therein, in light of the circumstances under
which they were made, not misleading. Any unaudited consolidated interim
financial statements included in such reports (including any related notes and
schedules) will fairly present the financial position of the Company and its
consolidated Subsidiaries or Parent and its consolidated Subsidiaries, as the
case may be, as of the dates thereof and the results of operations and changes
in financial position or other information included therein for the periods or
as of the date then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto).
Section 6.14. EMPLOYEE MATTERS.
(a) From and after the Effective Time, Parent will provide, or cause to
be provided to, the individuals who are employees of the Company and its
Subsidiaries as of the Effective Time (the "Retained Employees") plans that
are comparable to the employee plans that Parent provides to its similarly
situated employees. Further, Parent shall (i) waive, or cause to be waived,
any preexisting condition limitations applicable to the Retained Employees
under any Parent group medical plan to the extent that a Retained Employee's
condition would not have operated as a preexisting condition limitation
under the Company's group medical plan, (ii) cause any Parent employee
pension benefit plan (as such term is defined in section 3(2) of ERISA)
which is intended to be qualified under Section 401 of the Code to be
amended to provide that the Retained Employees shall receive credit for
participation and vesting purposes under such plan for their period of
employment with the Company and its predecessors to the extent such
predecessor employment was recognized by the Company for such purposes, and
(iii) credit the Retained Employees under each other Parent employee benefit
plan or policy which is not described in clause (ii) above for their period
of employment with the Company or its predecessors to the extent such
predecessor employment was recognized by the Company under its comparable
plan or policy, but not in excess of the maximum credit available to
Parent's employees under such plan or policy.
(b) Parent agrees that following the Closing Date, it will provide
continuation coverage, to the extent required by the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA"), to be offered to any employee
of the Company whose employment has been or will be terminated.
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The parties understand that COBRA may require that such continuation
coverage be provided for a period of up to thirty-six months as provided in
Section 4980B of the Code at the qualified beneficiary's expense.
(c) Parent shall cause the Surviving Corporation to honor the Company's
obligations under the retention plan and employment and severance agreements
set forth on Schedule 6.14(c) hereto.
Section 6.15. MANAGEMENT. Commencing immediately after the Effective Time,
those individuals set forth on SCHEDULE 6.15 hereto shall be executive officers
of Parent having the titles and positions set forth opposite their respective
names on such Schedule until the earlier of the resignation or removal of any
such individual or until their respective successors are duly elected and
qualified, as the case may be. Prior to the Effective Time, Parent and the
Company may mutually agree to designate additional or different individuals to
serve as executive officers of Parent subsequent to the Effective Time.
Section 6.16 DISPUTED CLAIMS AND ALLOWED COMPANY EQUITY INTERESTS UNDER THE
COMPANY PLAN OF REORGANIZATION. In the event that after the Effective Time a
holder of a Disputed Claim (as such term is defined in the Company's First
Amended Joint Plan of Reorganization, dated October 26, 1999 as modified (the
"Plan of Reorganization")) or a holder of Allowed Forcenergy Equity Interests
(as such term is defined in the Plan of Reorganization) is entitled to receive
pursuant to the Plan of Reorganization as a result of a Disputed Claim being
Allowed (as such term is defined in the Plan of Reorganization) or under
Section 5.3(h)(iii) of the Plan of Reorganization shares of Company Common
Stock, Parent hereby agrees to cause to be issued out of the Reserve and, if
necessary, to issue (in each case in lieu of such shares of Company Common
Stock) to the appropriate recipients fully paid and non-assessable shares of
Parent Common Stock (in appropriate amounts to reflect the Common Exchange
Ratio).
ARTICLE VII.
CONDITIONS TO THE MERGER
Section 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The holders of issued and outstanding shares of Company Common Stock
shall have duly approved the Merger, and the holders of issued and
outstanding shares of Parent Common Stock shall have approved the Share
Issuance, all in accordance with applicable law and the rules of the NYSE.
(b) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits
the consummation of the Merger substantially on the terms contemplated
hereby. In the event any order, decree or injunction shall have been issued,
each party shall use its reasonable efforts to remove any such order, decree
or injunction.
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and no stop order suspending such
effectiveness shall have been issued and remain in effect.
(d) The shares of Parent Common Stock issuable in the Merger shall have
been approved for listing on the NYSE, subject only to official notice of
issuance.
(e) Any applicable waiting period under the HSR Act shall have expired
or been terminated and any other Company Required Approvals and Parent
Required Approvals shall have been obtained, except where the failure to
obtain such other Company Required Approvals and Parent
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Required Approvals would not have a Material Adverse Effect on the Company
or Parent, as the case may be.
(f) Each of the Company and Parent shall have received an opinion of its
tax counsel, Weil, Gotshal & Manges LLP and Ernst & Young LLP, respectively,
in form and substance reasonably satisfactory to it, and dated within five
days of the date of the Joint Proxy Statement, to the effect that the Merger
will qualify for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that none of the Company, the
holders of Company Common Stock, the holders of the Company Series A
Preferred Stock, Parent and Sub shall recognize gain or loss for federal
income tax purposes as a result of the Merger (other than, with respect to
any cash paid in lieu of fractional shares of Parent Common Stock or cash
paid to a Dissenting Stockholder). In rendering such opinions, Weil,
Gotshal & Manges LLP and Ernst & Young LLP may rely upon representations of
officers of the Company and Parent and stockholders of the Company referred
to in Section 6.3(a)(v).
Section 7.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger is further subject
to the conditions that (a) the representations and warranties of Parent
contained herein shall be true and correct in all respects (but without regard
to any materiality qualifications or references to Material Adverse Effect
contained in any specific representation or warranty) as of the Effective Time
with the same effect as though made as of the Effective Time except (i) for
changes specifically permitted by the terms of this Agreement, (ii) that the
accuracy of representations and warranties that by their terms speak as of the
date of this Agreement or some other date will be determined as of such date and
(iii) where any such failure of the representations and warranties in the
aggregate to be true and correct in all respects would not have a Material
Adverse Effect on Parent, (b) Parent shall have performed in all material
respects all obligations and complied with all covenants required by this
Agreement to be performed or complied with by it prior to the Effective Time;
provided, however, insofar as a breach of the covenant relating to
representations and warranties set forth in Section 6.1(b)(xii) is concerned,
such failure must cause the condition set forth in clause (a) of this
Section 7.2 to fail to be satisfied for it to be deemed to be a failure of the
condition set forth in this Section 7.2(b) and (c) Parent shall have delivered
to the Company a certificate, dated the Effective Time and signed by its
Chairman of the Board and Chief Executive Officer or a Senior Vice President,
certifying to both such effects.
Section 7.3. CONDITIONS TO OBLIGATIONS OF PARENT TO EFFECT THE MERGER. The
obligation of Parent to effect the Merger is further subject to the conditions
that (a) the representations and warranties of the Company contained herein
shall be true and correct in all respects (but without regard to any materiality
qualifications or references to Material Adverse Effect contained in any
specific representation or warranty) as of the Effective Time with the same
effect as though made as of the Effective Time except (i) for changes
specifically permitted by the terms of this Agreement, (ii) that the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date and (iii) where
any such failure of the representations and warranties in the aggregate to be
true and correct in all respects would not have a Material Adverse Effect on the
Company, (b) the Company shall have performed in all material respects all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Effective Time; provided, however,
insofar as a breach of the covenant relating to representations and warranties
set forth in Section 6.1(a)(xxii) is concerned, such failure must cause the
condition set forth in clause (a) of this Section 7.3 to fail to be satisfied
for it to be deemed to be a failure of the condition set forth in this
Section 7.3(b), (c) the Company shall have delivered to Parent a certificate,
dated the Effective Time and signed by its Chairman of the Board, Chief
Executive Officer and President or a Senior Vice President, certifying to both
such effects, and (d) the Company's officers and directors have resigned their
positions, effective as of the Effective Time.
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ARTICLE VIII.
TERMINATION, WAIVER, AMENDMENT AND CLOSING
Section 8.1. TERMINATION OR ABANDONMENT. Notwithstanding anything
contained in this Agreement to the contrary, this Agreement may be terminated
and abandoned at any time prior to the Effective Time, whether before or after
any approval of the matters presented in connection with the Merger by the
respective stockholders of the Company and Parent:
(a) by the mutual written consent of the Company and Parent;
(b) by either the Company or Parent if the Effective Time shall not have
occurred on or before December 31, 2000; provided, that the party seeking to
terminate this Agreement pursuant to this clause 8.1(b) shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure to consummate
the Merger on or before such date;
(c) by either the Company or Parent if (i) a statute, rule, regulation
or executive order shall have been enacted, entered or promulgated
prohibiting the consummation of the Merger substantially on the terms
contemplated hereby or (ii) an order, decree, ruling or injunction shall
have been entered permanently restraining, enjoining or otherwise
prohibiting the consummation of the Merger substantially on the terms
contemplated hereby and such order, decree, ruling or injunction shall have
become final and non-appealable; provided, that the party seeking to
terminate this Agreement pursuant to this clause 8.1(c)(ii) shall have used
its reasonable best efforts to remove such injunction, order or decree;
(d) by either the Company or Parent if the approvals of the stockholders
of the Company or the shareholders of Parent contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain the required
vote at a duly held meeting of stockholders or shareholders or of any
adjournment thereof;
(e) by Parent, if the Company shall have failed to make the Company
Recommendation or effected a Change in the Company Recommendation (or
resolved to take any such action), whether or not permitted by the terms
hereof, or shall have failed to call the Company Stockholders Meeting in
accordance with Section 3.1;
(f) by the Company, if Parent shall have failed to make the Parent
Recommendation or effected a Change in the Parent Recommendation (or
resolved to take any such action), whether or not permitted by the terms
hereof, or shall have failed to call the Parent Shareholders Meeting in
accordance with Section 3.1;
(g) by Parent, if the Board of Directors of Parent authorizes Parent to
enter into a written agreement relating to a transaction that the Board of
Directors of Parent has determined is a Superior Proposal; provided that
Parent shall not terminate this Agreement pursuant to this Section 8.1(g)
and enter into a definitive agreement with respect to such Superior Proposal
until the expiration of five Business Days following the Company's receipt
of written notice advising the Company that Parent has received a Superior
Proposal specifying the material terms and conditions of such Superior
Proposal (and including a copy thereof with all exhibits and schedules) and
identifying the Person making such Superior Proposal. After providing such
notice, Parent shall provide a reasonable opportunity to the Company during
such period to make such adjustments in the terms and conditions of this
Agreement as would enable Parent to proceed with the Merger on such adjusted
terms;
(h) by the Company, if the Board of Directors of the Company authorizes
the Company to enter into a written agreement relating to a transaction that
the Board of Directors of the Company has determined is a Superior Proposal;
provided that the Company shall not terminate
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this Agreement pursuant to this Section 8.1(h) and enter into a definitive
agreement with respect to such Superior Proposal until the expiration of
five Business Days following Parent receipt of written notice advising
Parent that the Company has received a Superior Proposal specifying the
material terms and conditions of such Superior Proposal (and including a
copy thereof with all exhibits and schedules) and identifying the Person
making such Superior Proposal. After providing such notice, the Company
shall provide a reasonable opportunity to Parent during such period to make
such adjustments in the terms and conditions of this Agreement as would
enable the Company to proceed with the Merger on such adjusted terms; and
(i) by the Company or Parent if there shall have been a material breach
by the other of any of its representations, warranties, covenants or
agreements contained in this Agreement (which breach could cause any
condition precedent set forth in Section 7.1 or in Section 7.2 or 7.3,
respectively, not to be satisfied) and such breach shall not have been cured
within 30 days after notice thereof shall have been received by the party
alleged to be in breach; PROVIDED that the party seeking to terminate this
Agreement pursuant to this clause 8.1(i) shall not itself be in material
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement so as to permit the termination of this
Agreement by the other party pursuant to this clause 8.1(i).
In the event of termination of this Agreement pursuant to this Section 8.1,
this Agreement shall terminate (except for the Confidentiality Agreement
referred to in Section 6.2 and Sections 8.2 and 9.2), and there shall be no
other liability on the part of the Company or Parent to the other except
liability arising out of a willful breach of this Agreement or as provided for
in the Confidentiality Agreement.
Section 8.2. TERMINATION FEE.
(a) In the event that a Company Termination Fee Event occurs, then the
Company shall promptly, but in no event later than the date of the
termination of the Merger Agreement resulting in such event, pay Parent a
fee equal to $18 million (the "Company Termination Fee") payable by wire
transfer of same day funds; PROVIDED, HOWEVER, that no Termination Fee shall
be payable to Parent pursuant to clauses (i) or (ii) of the definition of
Company Termination Fee Event unless and until within 12 months of such
termination the Company or any of its Subsidiaries enters into a definitive
agreement with respect to, or consummates, any Company Takeover Proposal. A
"Company Termination Fee Event" shall mean, after a Takeover Proposal shall
have been made to the Company or any of its Subsidiaries or shall have been
made directly to the stockholders of the Company generally or shall have
otherwise became publicly known or any person shall have publicly announced
an intention (whether or not conditional) to make a Takeover Proposal, the
occurrence of (i) a termination of this Agreement pursuant to
Section 8.1(b) herein if following the existence of such Takeover Proposal
and prior to any such termination, the Company shall have intentionally
breached (and not cured after notice thereof) any of its covenants or
agreements set forth in this Agreement in any material respect, which breach
shall have materially contributed to the failure of the Effective Time to
occur on or before the date of termination, (ii) a termination of this
Agreement pursuant to Section 8.1(d) herein (provided that the basis for
termination is the failure of the Company's stockholders to adopt this
Agreement and approve the Merger at a vote duly taken) or, following a
Change in the Company Recommendation by reason of a Superior Proposal with
respect to the Company, a termination of this Agreement by Parent pursuant
to Section 8.1(e), unless, in either case, (A) at the time of the event
giving rise to the right of termination, a Material Adverse Effect with
respect to Parent or a Change in the Parent Recommendation has occurred, or
(B) Parent's shareholders have failed to approve the Share Issuance at a
vote duly taken, or (iii) a termination by the Company pursuant to
Section 8.1(h) herein; provided that no Company Termination Fee Event shall
be deemed to have occurred pursuant to any of the preceding clauses if, at
the time of termination, Parent shall
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be in breach of any of its representations, warranties, covenants,
obligations or agreements contained in this Agreement and as a result the
Company would be entitled to terminate this Agreement pursuant to
Section 8.1(i).
(b) In the event that a Parent Termination Fee Event occurs, then Parent
shall promptly, but in no event later than the date of the termination of
the Merger Agreement resulting in such event, pay the Company a fee equal to
$18 million (the "Parent Termination Fee") payable by wire transfer of same
day funds; PROVIDED, HOWEVER, that no Termination Fee shall be payable to
the Company pursuant to clauses (i) or (ii) of the definition of Parent
Termination Fee Event unless and until within 12 months of such termination
Parent or any of its Subsidiaries enters into a definitive agreement with
respect to, or consummates, any Parent Takeover Proposal; PROVIDED, FURTHER,
HOWEVER, that the foregoing proviso shall not apply to a termination of this
Agreement by the Company pursuant to Section 8.1(f). A "Parent Termination
Fee Event" shall mean, after a Takeover Proposal shall have been made to
Parent or any of its Subsidiaries or shall have been made directly to the
shareholders of Parent generally or shall have otherwise become publicly
known or any person shall have publicly announced an intention (whether or
not conditional) to make a Takeover Proposal, the occurrence of (i) a
termination of this Agreement pursuant to Section 8.1(b) herein if following
the existence of such Takeover Proposal and prior to any such termination,
Parent shall have intentionally breached (and not cured after notice
thereof) any of its covenants or agreements set forth in this Agreement in
any material respect, which breach shall have materially contributed to the
failure of the Effective Time to occur on or before the date of termination,
(ii) a termination of this Agreement pursuant to Section 8.1(d) herein
(provided that the basis for termination is the failure of Parent's
shareholders to approve the Share Issuance at a vote duly taken) or,
following a Change in the Parent Recommendation by reason of a Superior
Proposal with respect to Parent, a termination of this Agreement by the
Company pursuant to Section 8.1(f), unless, in either case, (A) at the time
of the event giving rise to the right of termination, a Material Adverse
Effect with respect to the Company or a Change in the Company Recommendation
has occurred, or (B) the Company's stockholders have failed to adopt this
Agreement and approve the Merger at a vote duly taken and (iii) a
termination by Parent pursuant to Section 8.1(g) herein; provided that no
Parent Termination Fee Event shall be deemed to have occurred pursuant to
any of the preceding clauses if, at the time of termination, the Company
shall be in breach of any of its representations, warranties, covenants,
obligations or agreements contained in this Agreement and as a result Parent
would be entitled to terminate this Agreement pursuant to Section 8.1(i).
(c) Each party acknowledges that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the other party would not
enter into this Agreement; accordingly, if any party fails promptly to pay
the amount due pursuant to this Section 8.2, and, in order to obtain such
payment, the other party commences a suit that results in a final and
nonappealable judgment against such party for the fee set forth in this
Section 8.2, such party shall pay to the other party its costs and expenses
actually incurred (including reasonable attorneys' fees and expenses) in
connection with such suit, together with interest on the amount of the fee
at the prime rate of Citibank, N.A. in effect on the date such payment was
required to be made.
Section 8.3. AMENDMENT OR SUPPLEMENT. At any time before or after approval
of the matters presented in connection with the Merger by the respective
stockholders of the Company and Parent and prior to the Effective Time, this
Agreement may be amended or supplemented in writing by the Company and Parent
with respect to any of the terms contained in this Agreement, except that
following approval by the stockholders of the Company and Parent there shall be
no amendment or change to the provisions hereof with respect to the Exchange
Ratio provided herein nor any
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amendment or change not permitted under applicable law, without further approval
by the stockholders of the Company and Parent.
Section 8.4. EXTENSION OF TIME, WAIVER, ETC. At any time prior to the
Effective Time, the Company and Parent may:
(a) extend the time for the performance of any of the obligations or
acts of the other party;
(b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto;
or
(c) waive compliance with any of the agreements or conditions of the
other party contained herein.
Notwithstanding the foregoing, no failure or delay by the Company or Parent
in exercising any right hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE IX.
MISCELLANEOUS
Section 9.1. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, except
for the agreements set forth in Article II and Article III, the agreements of
"affiliates" of the Company and Parent to be delivered pursuant to Section 6.4,
the provisions of Sections 6.5, 6.7, 6.9, 6.11, 6.14, 6.15 and 6.16 and this
Article IX.
Section 9.2. EXPENSES. Other than as provided by Section 8.2(c), whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expenses, except that (a)(i) the filing fee
in connection with any HSR Act filing, (ii) the expenses and compensation of the
Exchange Agent and (iii) the expenses incurred in connection with the printing
and mailing of the Joint Proxy Statement, shall be shared equally by the Company
and Parent and (b) all transfer taxes shall be paid by the Company.
Section 9.3. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed
in two or more consecutive counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered (by facsimile or otherwise) to the
other parties.
Section 9.4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except that
Delaware General Corporation Law shall apply to the Merger, without regard to
the principles of conflicts of laws thereof.
Section 9.5. NOTICES. All notices and other communications hereunder shall
be in writing (including facsimile or similar writing) and shall be effective
(a) if given by facsimile, when such facsimile is transmitted to the facsimile
number specified in this Section 9.5 and the appropriate
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facsimile confirmation is received or (b) if given by any other means, when
delivered at the address specified in this Section 9.5:
To the Company:
Forcenergy Inc
3838 N. Causeway Boulevard
Lakeway Three, Suite 2300
Metairie, LA 70002
Attention: Richard G. Zepernick, Jr.
Facsimile: (504) 835-7095
copy to:
Weil, Gotshal & Manges LLP
700 Louisiana
Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
J. Michael Chambers, Esq.
Facsimile: (713) 224-9511
To Parent:
Forest Oil Corporation
1600 Broadway
Suite 2200
Denver, CO 80202
Attention: Robert S. Boswell
Facsimile: (303) 812-1602
copy to:
Vinson & Elkins L.L.P.
1325 Avenue of the Americas
17th Floor
New York, New York 10019
Attention: Alan P. Baden, Esq. and
Eric S. Shube, Esq.
Facsimile: (917) 206-8100
Section 9.6. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 9.7. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
Section 9.8. ENFORCEMENT OF AGREEMENT. The parties hereto agree that money
damages or other remedy at law would not be sufficient or adequate remedy for
any breach or violation of, or a default
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under, this Agreement by them and that in addition to all other remedies
available to them, each of them shall be entitled to the fullest extent
permitted by law to an injunction restraining such breach, violation or default
or threatened breach, violation or default and to any other equitable relief,
including, without limitation, specific performance, without bond or other
security being required.
Section 9.9. MISCELLANEOUS. This Agreement:
(a) along with the Confidentiality Agreement constitutes the entire
agreement, and supersedes all other prior agreements and understandings,
both written and oral, between the parties, or any of them, with respect to
the subject matter hereof and thereof; and
(b) except for the provisions of Sections 6.11 and 6.14(c) hereof, is
not intended to and shall not confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 9.10. HEADINGS. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 9.11. SUBSIDIARIES; SIGNIFICANT SUBSIDIARIES;
AFFILIATES. References in this Agreement to "Subsidiaries" of the Company or
Parent shall mean any corporation or other form of legal entity of which more
than 50% of the outstanding voting securities are on the date hereof directly or
indirectly owned by the Company or Parent, as the case may be. References in
this Agreement to "Significant Subsidiaries" shall mean Subsidiaries (as defined
above) which constitute "significant subsidiaries" under Rule 405 promulgated by
the SEC under the Securities Act. References in this Agreement (except as
specifically otherwise defined) to "affiliates" shall mean, as to any person,
any other person which, directly or indirectly, controls, or is controlled by,
or is under common control with, such person. As used in this definition,
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of a Person,
whether through the ownership of securities or partnership of other ownership
interests, by contract or otherwise. References in the Agreement to "person"
shall mean an individual, a corporation, a partnership, an association, a trust
or any other entity or organization, including, without limitation, a
governmental body or authority.
Section 9.12. FINDERS OR BROKERS. Except for Lehman Brothers Inc. and
Petrie Parkman & Co., Inc. with respect to the Company, the engagement
agreements of which have been provided to Parent, and Salomon Smith
Barney Inc., Chase Securities Inc. and Morpheus Capital Advisors with respect to
Parent, the engagement agreements of which have been or will be provided to the
Company, neither the Company nor Parent nor any of their respective Subsidiaries
has employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who might be entitled to any fee or
any commission in connection with or upon consummation of the Merger.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
<TABLE>
<S> <C> <C>
FORCENERGY INC
By: /s/ RICHARD G. ZEPERNICK, JR.
----------------------------------------
Name: Richard G. Zepernick, Jr.
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
FOREST OIL CORPORATION
By: /s/ ROBERT S. BOSWELL
----------------------------------------
Name: Robert S. Boswell
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
FOREST ACQUISITION I CORPORATION
By: /s/ ROBERT S. BOSWELL
----------------------------------------
Name: Robert S. Boswell
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
49
<PAGE>
EXHIBIT A TO ANNEX A
STOCKHOLDERS AGREEMENT (this "Agreement") dated as of July 10, 2000, among
Forest Oil Corporation, a New York corporation ("Forest"), Forcenergy Inc, a
Delaware corporation ("Forcenergy"), and the other parties signatory hereto
(each a "Stockholder").
WHEREAS, each Stockholder desires that Forcenergy, Forest and Forest
Acquisition I Corporation, a Delaware corporation and wholly owned subsidiary of
Forest ("Forest Sub"), enter into an Agreement and Plan of Merger dated the date
hereof (as the same may be amended or supplemented, the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement) providing for the merger of Forest Sub with and into
Forcenergy (the "Merger") upon the terms and subject to the conditions set forth
in the Merger Agreement; and
WHEREAS, each Stockholder and Forcenergy are executing this Agreement as an
inducement to Forest to enter into and execute, and to cause Forest Sub to enter
into and execute, the Merger Agreement;
NOW, THEREFORE, in consideration of the execution and delivery by Forest and
Forest Sub of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. (a) Each Stockholder severally
represents and warrants to Forest as follows:
(i) Such Stockholder is the record and beneficial owner of, or is the
sole trustee of a trust that is the record holder of, and whose
beneficiaries are the beneficial owners of, the number of shares of common
stock, par value $0.01 per share, of Forcenergy (the "Common Stock") and the
number of shares of 14% Series A Cumulative Preferred Stock, par value $0.01
per share, of Forcenergy (the "Preferred Stock"), set forth opposite such
Stockholder's name on SCHEDULE A hereto (such shares of Common Stock and
Preferred Stock, together with any other shares of Common Stock and
Preferred Stock acquired after the date hereof (including through the
exercise of any stock options, warrants or similar instruments) being
collectively referred to herein as the "Subject Shares"). Except for the
Subject Shares, such Stockholder is not the record or beneficial owner of
any shares of Common Stock, Preferred Stock or other capital stock of
Forcenergy. Such Stockholder has the sole right to vote and Transfer (as
defined below in Section 3(a)) the Subject Shares set forth opposite its
name on SCHEDULE A hereto, and none of such Subject Shares is subject to any
voting trust or other agreement, arrangement or restriction with respect to
the voting or the Transfer of the Subject Shares. Such Stockholder has all
requisite power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. To the extent that such Stockholder is
an entity and not an individual, such Stockholder is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. The execution and delivery of this Agreement by such
Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of such Stockholder. This Agreement has been duly executed and
delivered by, and constitutes a valid and binding agreement of, such
Stockholder, enforceable against such Stockholder in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding for such remedy may be
brought.
(ii) Neither the execution and delivery of this Agreement nor the
consummation by such Stockholder of the transactions contemplated hereby
will result in a violation of, or a default under, or conflict with, any
contract, trust, commitment, agreement, understanding, arrangement or
1
<PAGE>
restriction of any kind to which such Stockholder is a party or bound or to
which the Subject Shares are subject. No trust of which such Stockholder is
a trustee requires the consent of any beneficiary to the execution and
delivery of this Agreement or to the consummation of the transactions
contemplated hereby. Consummation by such Stockholder of the transactions
contemplated hereby will not violate, or require any consent, approval or
notice under, any provision of any judgment, order, decree, statute, law,
rule or regulation applicable to such Stockholder or the Subject Shares,
except for any necessary filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
(iii) The Subject Shares and the certificates representing such Shares
are now, and at all times during the term hereof will be, held by such
Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder or under the existing terms of a trust of which such
Stockholder is the trustee.
(iv) No broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of such Stockholder.
(v) Such Stockholder is not acquiring any Forest Common Stock with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof. Such
Stockholder acknowledges that such Stockholder (A) has such knowledge and
experience in business and financial matters and with respect to investments
in securities to enable such Stockholder to understand and evaluate the
risks of an investment in the Forest Common Stock to be acquired by such
Stockholder and form an investment decision with respect thereto and is able
to bear the risk of such investment for an indefinite period and to afford a
complete loss thereof and (B) is an "accredited investor" as defined in
Rule 501 of Regulation D under the Securities Act.
(vi) Such Stockholder understands and acknowledges that Forest is
entering into, and causing Forest Sub to enter into, the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
(b) Forest represents and warrants to each Stockholder that the execution
and delivery of this Agreement by Forest and the consummation by Forest of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of Forest.
2. VOTING AGREEMENTS. Each Stockholder severally agrees with, and
covenants to, Forest that at any meeting of stockholders of Forcenergy called to
vote upon the Merger and the Merger Agreement or at any adjournment thereof or
in any other circumstances upon which a vote, consent or other approval
(including by written consent) with respect to the Merger and the Merger
Agreement is sought, such Stockholder shall, including by executing a written
consent solicitation if requested by Forest, vote (or cause to be voted) the
Subject Shares in favor of the Merger, the adoption by Forcenergy of the Merger
Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement.
3. COVENANTS. Each Stockholder severally agrees with, and covenants to,
Forest as follows:
(a) Such Stockholder shall not (i) sell, transfer, pledge, assign or
otherwise dispose of (including by gift) (collectively, "Transfer"), or
consent to any Transfer of, any Subject Shares or any interest therein,
except pursuant to the Merger, (ii) enter into any contract, option or other
agreement or understanding (including any profit sharing or other derivative
arrangement) with
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<PAGE>
respect to any Transfer of any or all of the Subject Shares or any interest
therein, (iii) grant any proxy, power-of-attorney or other authorization in
or with respect to the Subject Shares, except for this Agreement or
(iv) deposit the Subject Shares into a voting trust or enter into a voting
agreement or arrangement with respect to the Subject Shares; PROVIDED, that
any such Stockholder may Transfer any of the Subject Shares to any other
Stockholder who is on the date hereof, or to any family member of a
Stockholder or charitable institution which prior to the Stockholders
Meeting and prior to such transfer becomes, a party to this Agreement bound
by all the obligations of a "Stockholder" hereunder; PROVIDED, HOWEVER, that
such Stockholder shall not transfer any Subject Shares pursuant to the
preceding proviso if any such transfer, either alone or in the aggregate
with other transfers by Stockholders and other persons who may be affiliates
of Forcenergy, would preclude Forest's ability to account for the business
combination to be effected by the Merger as a pooling of interests.
(b) Such Stockholder hereby waives any rights of appraisal, or rights to
dissent from the Merger, that such Stockholder may have.
(c) Such Stockholder shall not, nor shall it permit any investment
banker, attorney or other adviser or representative of such Stockholder to,
directly or indirectly, (i) solicit, initiate or encourage the submission
of, any Takeover Proposal or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by an investment banker, attorney or other adviser or
representative of such Stockholder, whether or not such person is purporting
to act on behalf of such Stockholder or otherwise, shall be deemed to be in
violation of this Section 3(c) by such Stockholder.
4. CERTAIN EVENTS. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Subject Shares and
shall be binding upon any person or entity to which legal or beneficial
ownership of such Shares shall pass, whether by operation of law or otherwise,
including without limitation such Stockholder's heirs, guardians, administrators
or successors. In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of
Forcenergy affecting the Common Stock, Preferred Stock or the acquisition of
additional shares of Common Stock, Preferred Stock or other voting securities of
Forcenergy by any Stockholder, the number of Shares listed on SCHEDULE A beside
the name of such Stockholder shall be adjusted appropriately and this Agreement
and the obligations hereunder shall attach to any additional shares of Common
Stock, Preferred Stock or other voting securities of Forcenergy issued to or
acquired by such Stockholder.
5. STOP TRANSFER. Forcenergy agrees with, and covenants to, Forest that
Forcenergy shall not register the transfer of any certificate representing any
Subject Shares, unless such transfer is made to Forest or Forest Sub or
otherwise in compliance with this Agreement.
6. STOCKHOLDER CAPACITY. No person executing this Agreement who is or
becomes during the term hereof a director of Forcenergy makes any agreement or
understanding herein in his or her capacity as such director. Each Stockholder
signs solely in his or her capacity as the record and beneficial owner of, or
the trustee of a trust whose beneficiaries are the beneficial owners of, such
Stockholder's Subject Shares.
7. FURTHER ASSURANCES. Each Stockholder shall, upon request of Forest,
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by Forest to be necessary or desirable to carry out the
provisions hereof.
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<PAGE>
8. TERMINATION. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the first to occur of (i) the Effective
Time of the Merger or (ii) the date upon which the Merger Agreement is
terminated in accordance with its terms.
9. MISCELLANEOUS.
(a) All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice): (i) if to Forest
or Forcenergy, to the appropriate address set forth in Section 9.5 of the
Merger Agreement; and (ii) if to a Stockholder, to the appropriate address
set forth on SCHEDULE A hereto.
(b) The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
(c) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become
effective as to any Stockholder when one or more counterparts have been
signed by each of Forest, Forcenergy and such Stockholder and delivered to
Forest, Forcenergy and such Stockholder.
(d) This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and this Agreement is not intended to
confer upon any other person (other than Forest Sub) any rights or remedies
hereunder.
(e) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
(f) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior
written consent of the other parties, except by laws of descent or as
expressly provided by Section 3(a). Any assignment in violation of the
foregoing shall be void.
(g) Each Stockholder agrees that irreparable damage to Forest would
occur and that Forest would not have any adequate remedy at law in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Forest shall be entitled to an injunction or
injunctions to prevent breaches by any Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any
Federal court located in the State of Delaware or in any Delaware state
court, this being in addition to any other remedy to which it may be
entitled at law or in equity. In addition, each of the parties hereto
(i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of Delaware or any Delaware state court
in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that such party will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (iii) agrees that such party will
not bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other than a Federal court located in the
State of Delaware or a Delaware state court.
(h) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and
the
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<PAGE>
application thereof to any other circumstances shall remain in full force
and effect, shall not in any way be affected, impaired or invalidated, and
shall be enforced to the fullest extent permitted by law.
(i) No amendment, modification or waiver in respect of this Agreement
shall be effective against any party unless it shall be in writing and
signed by such party.
[Remainder of this page intentionally left blank]
5
<PAGE>
IN WITNESS WHEREOF, Forest Oil Corporation, Forcenergy Inc and the
Stockholders party hereto have caused this Agreement to be duly executed and
delivered as of the date first written above.
<TABLE>
<S> <C> <C>
FOREST OIL CORPORATION
By: -----------------------------------------
Name:
Title:
FORCENERGY INC
By: -----------------------------------------
Name:
Title:
LEHMAN BROTHERS INC.
By: -----------------------------------------
Name:
Title:
OCM PRINCIPAL OPPORTUNITIES FUND, L.P.
By: Oaktree Capital Management, LLC, as
general partner or investment manager
By: -----------------------------------------
Name:
Title:
By: -----------------------------------------
Name:
Title:
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
OCM OPPORTUNITIES FUND II, L.P.
By: Oaktree Capital Management, LLC, as
general partner or investment manager
By: -----------------------------------------
Name:
Title:
By: -----------------------------------------
Name:
Title:
COLUMBIA/HCA MASTER RETIREMENT TRUST
By: Oaktree Capital Management, LLC, as
general partner or investment manager
By: -----------------------------------------
Name:
Title:
By: -----------------------------------------
Name:
Title:
THE ANSCHUTZ CORPORATION
By: -----------------------------------------
Name:
Title:
</TABLE>
7
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
STOCKHOLDER NAME/ADDRESS OF COMMON STOCK OF PREFERRED STOCK
------------------------ ---------------- ------------------
<S> <C> <C>
LEHMAN BROTHERS INC.
600 Travis Street, Suite 7330
Houston, TX 77002
Attn: J. Robert Chambers
Phone: (713) 236-3913
Fax: (713) 236-3912
OCM PRINCIPAL OPPORTUNITIES FUND, L.P.
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Attn: Steve Kaplan
Phone: (213) 830-6350
Fax: (213) 830-6395
OCM OPPORTUNITIES FUND II, L.P.
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Attn: Steve Kaplan
Phone: (213) 830-6350
Fax: (213) 830-6395
COLUMBIA/HCA MASTER RETIREMENT TRUST
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Attn: Steve Kaplan
Phone: (213) 830-6350
Fax: (213) 830-6395
THE ANSCHUTZ CORPORATION
2400 Qwest Tower
555 Seventeenth Street
Denver, CO 80202
Attn: Craig Slater
Phone: (303) 298-1000
Fax: (303) 298-8881
</TABLE>
8
<PAGE>
EXHIBIT B TO ANNEX A
SHAREHOLDERS AGREEMENT (this "Agreement") dated as of July 10, 2000, among
Forcenergy Inc, a Delaware corporation ("Forcenergy"), and The Anschutz
Corporation ("Shareholder").
WHEREAS, Shareholder desires that Forcenergy, Forest Oil Corporation, a New
York corporation ("Forest"), and Forest Acquisition I Corporation, a Delaware
corporation and wholly owned subsidiary of Forest ("Forest Sub"), enter into an
Agreement and Plan of Merger dated the date hereof (as the same may be amended
or supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement) providing for
the merger of Forest Sub with and into Forcenergy (the "Merger") upon the terms
and subject to the conditions set forth in the Merger Agreement; and
WHEREAS, Shareholder is executing this Agreement as an inducement to
Forcenergy to enter into and execute the Merger Agreement;
NOW, THEREFORE, in consideration of the execution and delivery by Forcenergy
of the Merger Agreement and the mutual covenants, conditions and agreements
contained herein and therein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. (a) Shareholder represents and warrants
to Forcenergy as follows:
(i) Shareholder is the record and beneficial owner of, or is the sole
trustee of a trust that is the record holder of, and whose beneficiaries are
the beneficial owners of, the number of shares of common stock, par value
$0.10 per share, of Forest (the "Common Stock") set forth opposite
Shareholder's name on SCHEDULE A hereto (such shares of Common Stock,
together with any other shares of Common Stock acquired after the date
hereof (including through the exercise of any stock options, warrants or
similar instruments) being collectively referred to herein as the "Subject
Shares"). Except for the Subject Shares, Shareholder is not the record or
beneficial owner of any shares of Common Stock, preferred stock or other
capital stock of Forest. Shareholder has the sole right to vote and Transfer
(as defined below in Section 3(a)) the Subject Shares set forth opposite its
name on SCHEDULE A hereto, and none of such Subject Shares is subject to any
voting trust or other agreement, arrangement or restriction with respect to
the voting or the Transfer of the Subject Shares. Shareholder has all
requisite power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. To the extent that Shareholder is an
entity and not an individual, Shareholder is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. The execution and delivery of this Agreement by Shareholder
and the consummation by Shareholder of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of
Shareholder. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding agreement of, Shareholder, enforceable
against Shareholder in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium or other similar laws and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding for such remedy may be brought.
(ii) Neither the execution and delivery of this Agreement nor the
consummation by Shareholder of the transactions contemplated hereby will
result in a violation of, or a default under, or conflict with, any
contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which Shareholder is a party or bound or to which
the Subject Shares are subject. No trust of which Shareholder is a trustee
requires the consent of any beneficiary to the execution and delivery of
this Agreement or to the consummation of the transactions contemplated
hereby. Consummation by Shareholder of the transactions contemplated hereby
will not violate, or
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<PAGE>
require any consent, approval or notice under, any provision of any
judgment, order, decree, statute, law, rule or regulation applicable to
Shareholder or the Subject Shares, except for any necessary filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
(iii) The Subject Shares and the certificates representing such Shares
are now, and at all times during the term hereof will be, held by
Shareholder, or by a nominee or custodian for the benefit of Shareholder,
free and clear of all liens, claims, security interests, proxies, voting
trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever, except for any such encumbrances or proxies arising
hereunder or under the existing terms of a trust of which Shareholder is the
trustee.
(iv) No broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of Shareholder.
(v) Shareholder understands and acknowledges that Forcenergy is entering
into the Merger Agreement in reliance upon such Shareholder's execution and
delivery of this Agreement.
(b) Forcenergy represents and warrants to Shareholder that the execution and
delivery of this Agreement by Forcenergy and the consummation by Forcenergy of
the transactions contemplated hereby have been duly authorized by all necessary
action on the part of Forcenergy.
2. VOTING AGREEMENTS. Shareholder agrees with, and covenants to,
Forcenergy that at any meeting of shareholders of Forest called to vote upon the
Share Issuance or at any adjournment thereof or in any other circumstances upon
which a vote, consent or other approval (including by written consent) with
respect to the Share Issuance is sought, Shareholder shall, including by
executing a written consent solicitation if requested by Forcenergy, vote (or
cause to be voted) the Subject Shares in favor of the Share Issuance.
3. COVENANTS. Shareholder agrees with, and covenants to, Forcenergy as
follows:
(a) Shareholder shall not (i) sell, transfer, pledge, assign or
otherwise dispose of (including by gift) (collectively, "Transfer"), or
consent to any Transfer of, any Subject Shares or any interest therein,
except pursuant to the Merger, (ii) enter into any contract, option or other
agreement or understanding (including any profit sharing or other derivative
arrangement) with respect to any Transfer of any or all of the Subject
Shares or any interest therein, (iii) grant any proxy, power-of-attorney or
other authorization in or with respect to the Subject Shares, except for
this Agreement or (iv) deposit the Subject Shares into a voting trust or
enter into a voting agreement or arrangement with respect to the Subject
Shares; PROVIDED, that Shareholder may Transfer any of the Subject Shares to
any family member of Shareholder or charitable institution which prior to
the Forest Shareholders Meeting and prior to such transfer becomes a party
to this Agreement bound by all the obligations of a "Shareholder" hereunder;
PROVIDED, HOWEVER, that Shareholder shall not transfer any Subject Shares
pursuant to the preceding proviso if any such transfer, either alone or in
the aggregate with other transfers by other persons who may be affiliates of
Forest, would preclude Forest's ability to account for the business
combination to be effected by the Merger as a pooling of interests.
(b) Shareholder shall not, nor shall it permit any investment banker,
attorney or other adviser or representative of Shareholder to, directly or
indirectly, (i) solicit, initiate or encourage the submission of, any
Takeover Proposal or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by an
investment banker, attorney or other adviser or representative of
Shareholder, whether or not such person is
2
<PAGE>
purporting to act on behalf of Shareholder or otherwise, shall be deemed to
be in violation of this Section 3(b) by Shareholder.
4. CERTAIN EVENTS. Shareholder agrees that this Agreement and the
obligations hereunder shall attach to Shareholder's Subject Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation Shareholder's heirs, guardians, administrators or successors. In the
event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of Forest affecting
the Common Stock or the acquisition of additional shares of Common Stock or
other voting securities of Forest by Shareholder, the number of Shares listed on
SCHEDULE A beside the name of Shareholder shall be adjusted appropriately and
this Agreement and the obligations hereunder shall attach to any additional
shares of Common Stock or other voting securities of Forest issued to or
acquired by Shareholder.
5. STOP TRANSFER. Shareholder agrees and understands that Forest may
refuse to register the transfer of any certificate representing any Subject
Shares, unless such transfer is made in compliance with this Agreement.
6. SHAREHOLDER CAPACITY. No person executing this Agreement who is or
becomes during the term hereof a director of Forest makes any agreement or
understanding herein in his or her capacity as such director. Shareholder signs
solely in Shareholder's capacity as the record and beneficial owner of, or the
trustee of a trust whose beneficiaries are the beneficial owners of, such
Shareholder's Subject Shares.
7. FURTHER ASSURANCES. Shareholder shall, upon request of Forcenergy,
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by Forcenergy to be necessary or desirable to carry out
the provisions hereof.
8. TERMINATION. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the first to occur of (i) the Effective
Time of the Merger or (ii) the date upon which the Merger Agreement is
terminated in accordance with its terms.
9. MISCELLANEOUS.
(a) All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice): (i) if to
Forcenergy, to the appropriate address set forth in Section 9.5 of the
Merger Agreement; and (ii) if to Shareholder, to the address set forth on
SCHEDULE A hereto.
(b) The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
(c) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become
effective as to Shareholder when one or more counterparts have been signed
by each of Forcenergy and Shareholder and delivered to Forcenergy and
Shareholder.
(d) This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and this Agreement is not intended to
confer upon any other person any rights or remedies hereunder.
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<PAGE>
(e) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
(f) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior
written consent of the other parties, except by laws of descent or as
expressly provided by Section 3(a). Any assignment in violation of the
foregoing shall be void.
(g) Shareholder agrees that irreparable damage to Forcenergy would occur
and that Forcenergy would not have any adequate remedy at law in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Forcenergy shall be entitled to an injunction or
injunctions to prevent breaches by Shareholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any
Federal court located in the State of New York, City of New York, Borough of
Manhattan or in any New York state court located in the City of New York,
Borough of Manhattan, this being in addition to any other remedy to which it
may be entitled at law or in equity. In addition, each of the parties hereto
(i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of New York, City of New York, Borough of
Manhattan or any New York state court located in the City of New York,
Borough of Manhattan in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (ii) agrees that such party
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (iii) agrees that such party
will not bring any action relating to this Agreement or any of the
transactions contemplated hereby in any court other than a Federal court
located in the State of New York, City of New York, Borough of Manhattan or
any New York state court located in the City of New York, Borough of
Manhattan.
(h) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances shall remain in full
force and effect, shall not in any way be affected, impaired or invalidated,
and shall be enforced to the fullest extent permitted by law.
(i) No amendment, modification or waiver in respect of this Agreement
shall be effective against any party unless it shall be in writing and
signed by such party.
[Remainder of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, Forcenergy Inc and The Anschutz Corporation have caused
this Agreement to be duly executed and delivered as of the date first written
above.
<TABLE>
<S> <C> <C>
FORCENERGY INC
By:
-----------------------------------------
Name:
Title:
THE ANSCHUTZ CORPORATION
By:
-----------------------------------------
Name:
Title:
</TABLE>
5
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
SHAREHOLDER NAME/ADDRESS NUMBER OF SHARES OF COMMON STOCK
------------------------ --------------------------------
<S> <C>
THE ANSCHUTZ CORPORATION
2400 Qwest Tower
555 Seventeenth Street
Denver, CO 80202
Attn: Craig Slater
Phone: (303) 298-1000
Fax: (303) 298-8881
</TABLE>
6
<PAGE>
EXHIBIT C TO ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
BETWEEN
FOREST OIL CORPORATION
AND
THE FORCENERGY INC STOCKHOLDERS LISTED ON THE SIGNATURE PAGE HERETO
DATED JULY 10, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS.............................................. 1
1.1 DEFINITIONS................................................. 1
1.2 INTERNAL REFERENCES......................................... 2
ARTICLE II REGISTRATION RIGHTS..................................... 2
2.1 DEMAND REGISTRATION......................................... 2
2.2 PIGGYBACK REGISTRATION...................................... 4
2.3 SHELF REGISTRATION.......................................... 5
ARTICLE III REGISTRATION PROCEDURES................................ 5
3.1 FILINGS; INFORMATION........................................ 5
3.2 REGISTRATION EXPENSES....................................... 9
ARTICLE IV INDEMNIFICATION AND CONTRIBUTION........................ 9
4.1 INDEMNIFICATION BY THE COMPANY.............................. 9
4.2 INDEMNIFICATION BY SELLING HOLDERS.......................... 10
4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS...................... 10
4.4 CONTRIBUTION................................................ 10
ARTICLE V MISCELLANEOUS............................................ 11
5.1 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS................. 11
5.2 RULE 144.................................................... 12
5.3 HOLDBACK AGREEMENTS......................................... 12
5.4 EFFECTIVE TIME; TERMINATION................................. 12
5.5 AMENDMENTS, WAIVERS, ETC.................................... 12
5.6 COUNTERPARTS................................................ 12
5.7 ENTIRE AGREEMENT............................................ 12
5.8 GOVERNING LAW............................................... 12
5.9 SUBSEQUENT REGISTRATION RIGHTS.............................. 12
5.10 SPECIFIC PERFORMANCE........................................ 12
</TABLE>
<PAGE>
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is made as of
July 10, 2000, by and between Forest Oil Corporation, a New York corporation
(the "COMPANY") and the other signatories to this Agreement.
WHEREAS, Forcenergy Inc, a Delaware corporation ("Forcenergy"), the Company
and Forest Acquisition I Corporation, a Delaware corporation and wholly owned
subsidiary of Forest ("FOREST SUB") entered into an Agreement and Plan of Merger
dated the date hereof (as the same may be amended or supplemented, the "MERGER
AGREEMENT") providing for the merger of Forest Sub with and into Forcenergy (the
"MERGER") upon the terms and subject to the conditions set forth in the Merger
Agreement;
WHEREAS, simultaneously with the execution and delivery of the Merger
Agreement, the Company and certain principal stockholders of Forcenergy (the
"PRINCIPAL FORCENERGY STOCKHOLDERS") entered into the Forcenergy Stockholders
Agreement (the "FORCENERGY STOCKHOLDERS AGREEMENT") in the form of Exhibit A to
the Merger Agreement pursuant to which the Principal Forcenergy Stockholders
agreed to vote to adopt the Merger Agreement and to take certain other actions
in furtherance of the Merger; and
WHEREAS, each Principal Forcenergy Stockholder desires that the Company
enter into this Agreement as an inducement to the Principal Forcenergy
Stockholders entering into and executing the Forcenergy Stockholders Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by the
Principal Forcenergy Stockholders of the Forcenergy Stockholders Agreement and
the mutual covenants, conditions and agreements contained herein and therein,
the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Terms defined in the Merger Agreement are used herein as
therein defined except as otherwise indicated below. In addition, the following
terms, as used herein, have the following meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.10 per share, of the
Company.
"Demand Registration" means a registration under the Securities Act
requested in accordance with Section 2.1.
"Holders" means the Principal Forcenergy Stockholders who hold Registrable
Securities.
"Piggyback Registration" has the meaning set forth in Section 2.2.
"Registrable Common Stock" means shares of Common Stock issued or issuable
to the Principal Forcenergy Stockholders upon the Closing of the Merger, plus
any additional shares of Common Stock issued in respect thereof in connection
with any stock split, stock dividend or similar event with respect to the Common
Stock.
"Registrable Securities" means (a) the Registrable Common Stock and (b) any
securities of the Company or any successor entity into which Registrable Common
Stock may hereafter be converted or changed. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of under such registration statement, (ii) such securities shall have
been transferred pursuant to Rule 144, (iii) such securities shall have been
otherwise transferred or disposed of by the Principal Forcenergy Stockholders
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(other than to an (A) Affiliate of such transferring or disposing stockholder or
(B) any transferee who acquires 2.5% or more of the outstanding Common Stock and
who agrees to be bound by the terms of this Agreement) or (iv) such securities
shall have ceased to be outstanding.
"Requesting Holders" means the Holders requesting a Demand Registration, and
shall include parties deemed "Requesting Holders" pursuant to
Section 2.1(a)(iii).
"Rule 144" means Rule 144 (or any successor rule of similar effect)
promulgated under the Securities Act.
"Selling Holder" means any Holder who is selling Registrable Securities
pursuant to a public offering registered hereunder.
"Shelf Registration" has the meaning set forth in Section 2.3.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
1.2. INTERNAL REFERENCES. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement.
ARTICLE II
REGISTRATION RIGHTS
2.1. DEMAND REGISTRATION.
(a)
(i) Each Holder may make, until the fifth anniversary of the date of
this Agreement, one or more written requests for a Demand Registration of
all or any part of the Registrable Securities held by such Holder;
provided, that (A) the Company shall in no event be required to effect
more than two Demand Registrations for the Holders in total in any
12-month period, (B) each such Demand Registration must be in respect of
Registrable Securities with a fair market value of at least $25 million
or all of the Registrable Securities then held by the requesting Holder
if the aggregate fair market value of all of such Registrable Securities
is less than $25 million and (C) such Holder shall not be entitled to a
Demand Registration if, during the 120 days preceding such request, any
Holder has requested a Demand Registration unless the Company preempted
such Demand Registration in accordance with Section 2.1(d) or the Company
postponed the filing thereof in accordance with Section 3.1(a) and the
requesting Holders withdrew the request for such Demand Registration.
(ii) Any request for a Demand Registration will specify the aggregate
number of shares of Registrable Securities proposed to be sold by the
Requesting Holders and will also specify the intended method of
disposition thereof. A registration will not count as a Demand
Registration until it has become effective. Should a Demand Registration
not become effective due to the failure of a Holder to perform its
obligations under this Agreement or the inability of the Requesting
Holders to reach agreement with the Underwriters for the proposed sale on
price or other customary terms for such transaction, or in the event the
Requesting Holders withdraw or do not pursue the request for the Demand
Registration (in each of the foregoing cases, provided that at such time
the Company is in compliance in all material respects with its
obligations under this Agreement), then such Demand Registration shall be
deemed to have been effected (provided that (A) if, the Demand
Registration does not become effective because a material adverse change
has occurred, or is reasonably likely to occur, in the condition
(financial or otherwise), business, assets or results of operations of
the Company and its subsidiaries taken as a whole subsequent to the date
of the written request made by
2
<PAGE>
the Requesting Holders, or (B) if the Company withdraws the Demand
Registration for any reason or preempts the request for the Demand
Registration, or (C) if, after the Demand Registration has become
effective, an offering of Registrable Securities pursuant to a
registration is interfered with by any stop order, injunction, or other
order or requirement of the Commission or other governmental agency or
court or (D) if the Demand Registration is withdrawn at the request of
the Requesting Holders pursuant to Section 2.1(e) or Section 3.1(a), then
the Demand Registration shall not be deemed to have been effected and
will not count as a Demand Registration).
(iii) Upon receipt of any request for a Demand Registration by a
Holder, the Company shall promptly (but in any event within ten
(10) days) give written notice of such proposed Demand Registration to
the other Holders, and all such other Holders shall have the right,
exercisable by written notice to the Company within twenty (20) days of
their receipt of the Company's notice, to elect to include in such Demand
Registration such portion of their Registrable Securities as they may
request. All such Holders requesting to have their Registrable Securities
included in a Demand Registration in accordance with the preceding
sentence shall be deemed to be "Requesting Holders" for purposes of this
Section 2.1.
(b) If the Requesting Holders so elect, the offering of such Registrable
Securities pursuant to such Demand Registration shall be in the form of a
"firm commitment" underwritten offering. With respect to any such
underwritten offering, the Company shall select an investment banking firm
or firms of national standing to manage the underwritten offering, subject
to the consent of a majority in interest of the Requesting Holders, which
consent shall not be unreasonably withheld; provided, however, that if a
majority of the Registrable Securities of the Requesting Holders are held by
Lehman Brothers Inc. or any Affiliate thereof, then the Company shall select
Lehman Brothers Inc. or one of its Affiliates to manage the underwritten
offering.
(c) The Requesting Holders will inform the Company of the time and
manner of any disposition of Registrable Common Stock, and agree to
reasonably cooperate with the Company in effecting the disposition of the
Registrable Common Stock in a manner that does not unreasonably disrupt the
public trading market for the Common Stock; provided, however, that the
Holders' only right to a shelf registration statement shall be pursuant to
Section 2.3.
(d) The Company will have the right to preempt any Demand Registration
with a primary registration by delivering written notice (within seven
business days after the Company has received a request for such Demand
Registration) of such intention to the Requesting Holders indicating that
the Company has identified a specific business need and use for the proceeds
of the sale of such securities and had contemplated such sale of securities
prior to receiving the Requesting Holders' notice, and the Company shall use
commercially reasonable efforts to effect a primary registration within
90 days of such notice. In the ensuing primary registration, the Holders
will have such piggyback registration rights as are set forth in
Section 2.2 hereof. Upon the Company's preemption of a requested Demand
Registration, such requested registration will not count as the Holders'
Demand Registration. If the Company thereafter decides to abandon its
intention to pursue such sale of securities, it shall give notice thereof to
any preempted Holders within five business days following the Company's
decision. The Company may exercise the right to preempt a Demand
Registration only once in any 360-day period; provided, that during any
360-day period the Company shall use its reasonable best efforts to permit a
period of at least 180 consecutive days during which the Selling Holders may
effect a Demand Registration.
(e) Securities to be sold for the account of any Person (including the
Company) other than a Requesting Holder shall not be included in a Demand
Registration if the managing Underwriter or Underwriters shall advise the
Company and the Requesting Holders in writing that the inclusion of such
securities will materially and adversely affect the price of the offering (a
"MATERIAL ADVERSE
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<PAGE>
EFFECT"). Furthermore, in the event the managing Underwriter or Underwriters
shall advise the Company or the Requesting Holders that even after exclusion
of all securities of other Persons (including the Company) pursuant to the
immediately preceding sentence, the amount of Registrable Securities
proposed to be included in such Demand Registration by Requesting Holders is
sufficiently large to cause a Material Adverse Effect, the Registrable
Securities of the Requesting Holders to be included in such Demand
Registration shall equal the number of shares which the Company and the
Requesting Holders are so advised can be sold in such offering without a
Material Adverse Effect and such shares shall be allocated pro rata among
the Requesting Holders on the basis of the number of Registrable Securities
requested to be included in such registration by each such Requesting
Holder; provided, however, that if any Registrable Securities requested to
be registered pursuant to a Demand Registration under Section 2.1 are
excluded from registration hereunder, then the Holder(s) having shares
excluded ("EXCLUDED HOLDERS") shall have the right to withdraw all, or any
part, of their shares from such registration and if withdrawn in full such
Demand Registration shall not be deemed to have been effected and will not
count as a Demand Registration.
(f) If any Holder is exercising a demand registration right under any
other agreement with the Company, such Holder shall notify all other Holders
of the exercise of such demand.
2.2. PIGGYBACK REGISTRATION.
(a) If the Company proposes to file, at any time until the tenth
anniversary of the date of this Agreement, a registration statement under
the Securities Act with respect to an offering of Common Stock for its own
account or for the account of another Person (other than a registration
statement on Form S-4 or S-8, or, except as provided for in Section 2.3,
pursuant to Rule 415 (or any substitute form or rule, respectively, that may
be adopted by the Commission)), the Company shall give written notice of
such proposed filing to the Holders as soon as reasonably practicable (but
in no event less than 15 days before the anticipated filing date),
undertaking to provide each Holder the opportunity to register on the same
terms and conditions such number of shares of Registrable Securities as such
Holder may request (a "PIGGYBACK REGISTRATION"); provided that the Company
shall in no event be required to provide the Holders with notice of, and the
Holders shall not be entitled to participate in, more than ten Piggyback
Registrations for any Holder and its Affiliates in total. Subject to the
foregoing proviso, each Holder will have seven business days after receipt
of any such notice to notify the Company as to whether it wishes to
participate in a Piggyback Registration; provided that should a Holder fail
to provide timely notice to the Company, such Holder will forfeit any rights
to participate in the Piggyback Registration with respect to such proposed
offering other than as described in Section 2.1(a)(iii). In the event that
the registration statement is filed on behalf of a Person other than the
Company, the Company will use its best efforts to have the shares of
Registrable Securities that the Holders wish to sell included in the
registration statement. If the Company or the Person for whose account such
offering is being made shall determine in its sole discretion not to
register or to delay the proposed offering, the Company may, at its
election, provide written notice of such determination to the Holders and
(i) in the case of a determination not to effect the proposed offering,
shall thereupon be relieved of the obligation to register such Registrable
Securities in connection therewith, and (ii) in the case of a determination
to delay a proposed offering, shall thereupon be permitted to delay
registering such Registrable Securities for the same period as the delay in
respect of the proposed offering. As between the Company and the Selling
Holders, the Company shall be entitled to select the Underwriters in
connection with any Piggyback Registration.
(b) If the managing Underwriter advises the Company that the inclusion
of the requested Registrable Securities in the Piggyback Registration would
cause a Material Adverse Effect, the Company will be obligated to include in
such registration statement, as to each Holder only a portion of the shares
such Holder has requested be registered equal to the ratio which such
4
<PAGE>
Holder's requested shares bears to the total number of shares requested to
be included in such registration statement by all Persons (other than the
Person or Persons initiating such registration request) who have the
contractual right to request that their shares be included in such
registration statement and who have requested their shares be included. If
the Company initiated the registration, then the Company may include all of
its securities in such registration statement before any such Holder's
requested shares are included. If another security holder initiated the
registration, then the Company may not include any of its securities in such
registration statement unless all Registrable Securities requested to be
included in the registration statement by all Holders are included in such
registration statement. If as a result of the provisions of this
Section 2.2(b) any Holder shall not be entitled to include all Registrable
Securities in a registration that such Holder has requested to be so
included, such Holder may withdraw such Holder's request to include
Registrable Securities in such registration statement prior to its
effectiveness and if withdrawn in full such registration shall not be deemed
to reduce the number of Piggyback Registrations in which such Holder is
entitled to participate under Section 2.2(a) of this Agreement.
2.3. SHELF REGISTRATION. Each Holder may, at any time after the 60th day
after the Effective Time of the Merger or, if longer, after such period of time
as would be required not to prevent the treatment of the Merger as a pooling of
interests for accounting purposes, make a written request that the Company
effect a shelf registration of all or a portion of the Registrable Securities
held by such Holder (a "SHELF REGISTRATION") pursuant to Rule 415. Upon receipt
of a request for a Shelf Registration, the Company shall promptly (but in any
event within 10 business days) give written notice of the proposed Shelf
Registration to all other Holders, and all such Holders shall have the right to
include Registrable Securities in the Shelf Registration. Each Holder will have
seven business days after receipt of any such notice to notify the Company as to
whether it wishes to participate in a Shelf Registration; provided that should a
Holder fail to provide timely notice to the Company, such Holder will forfeit
any rights to participate in the Shelf Registration with respect to such
proposed offering. The Company covenants to prepare and publish, within 60 days
after the Effective Time of the Merger, results covering at least 30 days of
combined operations of the Company and Forcenergy Inc, in the form of a
quarterly earnings report, an effective registration statement filed with the
Commission, a report to the Commission on Form 10-K, 10-Q or 8-K or any other
public filing or announcement that includes the combined results of operations.
ARTICLE III
REGISTRATION PROCEDURES
3.1. FILINGS; INFORMATION. In connection with the registration of
Registrable Securities pursuant to Section 2.1, Section 2.2 and Section 2.3
hereof, the Company will use its reasonable best efforts to effect the
registration of such Registrable Securities as promptly as is reasonably
practicable, and in connection with any such request:
(a) The Company will expeditiously prepare and file with the Commission
a registration statement on any form for which the Company then qualifies
and which counsel for the Company shall deem appropriate and available for
the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use its
reasonable best efforts to cause such filed registration statement to become
and remain effective (i) with respect to any Demand Registration or
Piggyback Registration, for such period, not to exceed 60 days, as may be
reasonably necessary to effect the sale of such securities, (ii) with
respect to a Shelf Registration, until the earlier of the sale of all
Registrable Securities thereunder and the second anniversary of the
effective date of such Shelf Registration (it being understood that if at
any time all the Registrable Securities then permitted to be sold under such
Shelf Registration pursuant to Section 2.3 have been sold but any of the
Holders has the right to request a Shelf
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Registration in the future pursuant to Section 2.3, the Company may (at its
option) either cause the registration statement to remain effective
(notwithstanding the fact that all securities then registrable on such shelf
registration statement shall have been sold) and file post-effective
amendments when required to permit the sale of the additional Registrable
Securities or prepare and file, and cause to become and remain effective, a
new shelf registration statement to effect the registration of the
additional Registrable Securities when required pursuant to Section 2.3);
provided that if the Company shall furnish to the Selling Holder a
certificate signed by the Company's Chairman, President or any Executive
Vice-President or Vice-President stating that the Company's Board of
Directors has determined in good faith that it would be detrimental or
otherwise disadvantageous to the Company or its shareholders for such a
registration statement to be filed as expeditiously as possible because the
sale of Registrable Securities covered by such registration statement or the
disclosure of information in any related prospectus or prospectus supplement
would materially interfere with any acquisition, financing or other material
event or transaction which is then intended or the public disclosure of
which at the time would be materially prejudicial to the Company, the
Company may postpone the filing or effectiveness of a registration statement
for a period of not more than 60 days in any one instance or 120 days in the
aggregate in any 360-day period; provided that during any 360-day period the
Company shall use its reasonable best efforts to permit a period of at least
180 consecutive days during which the Company will make a registration
statement available under this Agreement; and provided further that if
(i) the effective date of any registration statement filed pursuant to a
Demand Registration would otherwise be at least 45 calendar days, but fewer
than 90 calendar days, after the end of the Company's fiscal year, and
(ii) the Securities Act requires the Company to include audited financials
as of the end of such fiscal year, the Company may delay the effectiveness
of such registration statement for such period as is reasonably necessary to
include therein its audited financial statements for such fiscal year. If
the Company exercises its right to postpone the filing or effectiveness of a
registration statement, the applicable Requesting Holders shall be entitled
to withdraw their request for such Demand Registration and it shall not
count as a Demand Registration.
(b) Anything in this Agreement to the contrary notwithstanding, it is
understood and agreed that the Company shall not be required to keep any
shelf registration effective or useable for offers and sales of the
Registrable Securities, file a post effective amendment to a shelf
registration statement or prospectus supplement or to supplement or amend
any registration statement, if the Company is then involved in discussions
concerning, or otherwise engaged in, any material financing or investment,
acquisition or divestiture transaction or other material business purpose if
the Company determines in good faith that the making of such a filing,
supplement or amendment at such time would interfere with such transaction
or purpose. The Company shall promptly give the Holders of Registrable
Securities written notice of such postponement containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay. Upon receipt by a Holder of Registrable Securities of
notice of an event of the kind described in this Section 3.1(b), such Holder
shall forthwith discontinue such Holder's disposition of Registrable
Securities until such Holder's receipt of notice from the Company that such
disposition may continue and of any supplemented or amended prospectus
indicated in such notice. No such postponement shall extend for a period of
more than 60 days in any one instance or 120 days in the aggregate in any
360-day period; provided, that the Company shall use its reasonable best
efforts to permit sales of Registrable Securities on such shelf registration
statement for at least 180 days during any 360-day period. In the event the
Company shall give notice of an event of the kind described in this
Section 3.1(b), the Company shall extend the period during which the
applicable registration statement shall be maintained effective as provided
in Section 3.1(a) hereof by the number of days during such period from and
including the date of the giving of such notice to the date when the Company
shall give notice to the Selling Holders that such dispositions of
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<PAGE>
such Registrable Securities may continue and shall have made available to
the Selling Holders any such supplemented or amended prospectus.
(c) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to the Selling
Holders, and each applicable managing Underwriter, if any, copies thereof,
and thereafter furnish to the Selling Holders and each such Underwriter, if
any, such number of copies of such registration statement, amendment and
supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein) and the prospectus included in
such registration statement (including each preliminary prospectus) as the
Selling Holders or each such Underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities by the Selling Holders.
(d) After the filing of the registration statement, the Company will
promptly notify the Selling Holders of any stop order issued or, to the
Company's knowledge, threatened to be issued by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
(e) The Company will use its commercially reasonable efforts to qualify
the Registrable Securities for offer and sale under such other securities or
blue sky laws of such jurisdictions in the United States as the Selling
Holders reasonably request; keep each such registration or qualification (or
exemption therefrom) effective during the period in which such registration
statement is required to be kept effective; and do any and all other acts
and things which may be reasonably necessary or advisable to enable each
Selling Holder to consummate the disposition of the Registrable Securities
owned by such Selling Holder in such jurisdictions; provided that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph 3.1(e), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction.
(f) The Company will as promptly as is practicable notify the Selling
Holders, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered in connection with
sales by an Underwriter or dealer, of the occurrence of any event requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading and promptly make available to the Selling
Holders and to the Underwriters any such supplement or amendment. Upon
receipt of any notice of the occurrence of any event of the kind described
in the preceding sentence, Selling Holders will forthwith discontinue the
offer and sale of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until receipt by the Selling
Holders and the Underwriters of the copies of such supplemented or amended
prospectus and, if so directed by the Company, the Selling Holders will
deliver to the Company all copies, other than permanent file copies then in
the possession of Selling Holders, of the most recent prospectus covering
such Registrable Securities at the time of receipt of such notice. In the
event the Company shall give such notice, the Company shall extend the
period during which such registration statement shall be maintained
effective as provided in Section 3.1(a) hereof by the number of days during
the period from and including the date of the giving of such notice to the
date when the Company shall make available to the Selling Holders such
supplemented or amended prospectus.
(g) The Company will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions
(including, without limitation, participation in road shows and investor
conference calls as the Selling Holders may reasonably request (it being
understood that such presentations by officers of the Company of 14 days in
the aggregate during any 12-month period shall be deemed a reasonable
request)) as are required in order to expedite or facilitate the sale of
such Registrable Securities.
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(h) At the request of any Underwriter in connection with an underwritten
offering the Company will furnish (i) an opinion of counsel, addressed to
the Underwriters, covering such customary matters as the managing
Underwriter may reasonably request and (ii) a comfort letter or comfort
letters from the Company's independent public accountants pursuant to
Statement of Accounting Standards 72 each in customary form and covering
such matters as the managing Underwriter may reasonably request.
(i) If requested by the managing Underwriter or any Selling Holder, the
Company shall promptly incorporate in a prospectus supplement or post
effective amendment such information as the managing Underwriter or any
Selling Holder reasonably requests to be included therein, including without
limitation, with respect to the Registrable Securities being sold by such
Selling Holder, the purchase price being paid therefor by the Underwriters
and with respect to any other terms of the underwritten offering of the
Registrable Securities to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post effective amendment.
(j) The Company shall promptly make available for inspection by any
Selling Holder or Underwriter participating in any disposition pursuant to
any registration statement, and any attorney, accountant or other agent or
representative retained by any such Selling Holder or Underwriter
(collectively, the "INSPECTORS"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, the
"RECORDS"), as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information requested by any such
Inspector in connection with such registration statement; provided, however,
that unless the disclosure of such Records is necessary to avoid or correct
a misstatement or omission in the registration statement or the release of
such Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction, the Company shall not be required to provide any
information under this subparagraph (j) if (A) the Company believes, after
consultation with counsel for the Company, that to do so would cause the
Company to forfeit an attorney-client privilege that was applicable to such
information or (B) if either (1) the Company has requested and been granted
from the Commission confidential treatment of such information contained in
any filing with the Commission or documents provided supplementally or
otherwise or (2) the Company reasonably determines in good faith that such
Records are confidential and so notifies the Inspectors in writing unless
prior to furnishing any such information with respect to (A) or (B) such
Holder of Registrable Securities requesting such information agrees to enter
into a confidentiality agreement in customary form; provided further,
however, that each Holder of Registrable Securities agrees that it will,
upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give written notice to the Company and allow the
Company, at its expense, to undertake appropriate action and to prevent
disclosure of the Records deemed confidential.
(k) The Company shall cause the Registrable Securities included in any
registration statement to be (A) listed on each securities exchange, if any,
on which similar securities issued by the Company are then listed, or
(B) authorized to be quoted and/or listed (to the extent applicable) on the
Nasdaq National Market if the Registrable Securities so qualify.
(l) The Company shall provide a CUSIP number for the Registrable
Securities included in any registration statement not later than the
effective date of such registration statement.
(m) The Company shall cooperate with each Selling Holder and each
Underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.
8
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(n) The Company shall during the period when the prospectus is required
to be delivered under the Securities Act, promptly file all documents
required to be filed with the Commission pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act.
(o) The Company will make generally available to its security holders,
as soon as reasonably practicable, an earnings statement covering a period
of 12 months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
The Company may require Selling Holders promptly to furnish in writing to
the Company such information regarding such Selling Holders, the plan of
distribution of the Registrable Securities and other information as the Company
may from time to time reasonably request or as may be legally required in
connection with such registration.
3.2. REGISTRATION EXPENSES. In connection with any Registration effected
hereunder, the Company shall pay the following expenses incurred in connection
with such registration (the "REGISTRATION EXPENSES"): (i) registration and
filing fees with the Commission and the National Association of Securities
Dealers, Inc., (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) fees and expenses incurred in connection with the listing or quotation of
the Registrable Securities, (v) fees and expenses of counsel to the Company and
the reasonable fees and expenses of independent certified public accountants for
the Company (including fees and expenses associated with the special audits or
the delivery of comfort letters), (vi) the reasonable fees and expenses of any
additional experts retained by the Company in connection with such registration,
(vii) all roadshow costs and expenses not paid by the Underwriter, and
(viii) reasonable fees and expenses of one counsel for the Selling Holders not
to exceed $25,000.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
4.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless each Selling Holder and its Affiliates and their respective
officers, directors, partners, stockholders, members, employees, agents and
representatives and each Person (if any) which controls a Selling Holder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities,
costs and expenses (including reasonable attorneys' fees), joint or several,
caused by, arising out of, resulting from or related to any untrue statement or
alleged untrue statement of a material fact contained or incorporated by
reference in any registration statement or prospectus relating to the
Registrable Securities (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by or based upon any information furnished in writing to the Company by
or on behalf of such Selling Holder expressly for use therein or by the Selling
Holder's failure to deliver a copy of the prospectus, prospectus supplement or
any amendments or supplements thereto after the Company has furnished the
Selling Holder with copies of the same. The Company also agrees to indemnify any
Underwriters of the Registrable Securities, their officers and directors and
each person who controls such Underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this
Section 4.1, except insofar as such losses, claims, damages or liabilities are
caused by or based upon any information furnished in writing to the Company by
or on behalf of such Underwriter expressly for use therein or by the
Underwriter's
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failure to deliver a copy of the prospectus, prospectus supplement or any
amendments or supplements thereto after the Company has furnished the
Underwriter with copies of the same.
4.2. INDEMNIFICATION BY SELLING HOLDERS. Each Selling Holder agrees to
indemnify and hold harmless the Company, its officers and directors, and each
Person, if any, which controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each Selling Holder, but
only with reference to information furnished in writing by or on behalf of such
Selling Holder expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus. Each Selling Holder also agrees to indemnify and
hold harmless any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Company provided in this
Section 4.2, but only with reference to information furnished in writing by or
on behalf of such Selling Holder expressly for use in any registration statement
or prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. Each such Selling Holder's
liability under this Section 4.2 shall be limited to an amount equal to the net
proceeds (after deducting the underwriting discount and expenses) received by
such Selling Holder from the sale of such Registrable Securities by such Selling
Holder. The obligation of each Selling Holder shall be several and not joint.
4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to Section 4.1 or
Section 4.2, such Person (the "INDEMNIFIED PARTY") shall promptly notify the
Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the Indemnifying Party, upon the request of the Indemnified Party,
shall retain counsel reasonably satisfactory to such Indemnified Party to
represent such Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless
(i) the Indemnifying Party and the Indemnified Party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party and, in the written opinion of counsel for the
Indemnified Party, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for all such Indemnified Parties, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent (not to be unreasonably withheld), or
if there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. No Indemnifying Party shall, without the prior written consent (not to
be unreasonably withheld) of the Indemnified Party, consent to entry of any
judgment or enter into any settlement with respect to any matter as to which
indemnification may be sought hereunder unless such judgment or settlement
includes as a term thereof the unconditional release of the Indemnified Party
(with no admission of culpability) from all liability in respect of such
proceeding.
4.4. CONTRIBUTION. If the indemnification provided for in this Article IV
is unavailable to an Indemnified Party in respect of any losses, claims, damages
or liabilities in respect of which indemnity is to be provided hereunder, then
each such Indemnifying Party, in lieu of indemnifying such
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<PAGE>
Indemnified Party, shall to the fullest extent permitted by law contribute to
the amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of such party in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the Company, a
Selling Holder and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and each Selling Holder agrees that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article IV, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and each Selling
Holder shall not be required to contribute any amount in excess of the amount by
which the net proceeds of the offering (after deducting the underwriting
discount and expenses paid or incurred by such Selling Holder) received by such
Selling Holder exceeds the amount of any damages which such Selling Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
5.1. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements, (b) completes and executes all questionnaires, powers
of attorney, custody arrangements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement and (c) furnishes in writing to the Company such
information regarding such Person, the plan of distribution of the Registrable
Securities and other information as the Company may from time to time request or
as may be legally required in connection with such registration; provided,
however, that no such Person shall be required to make any representations or
warranties in connection with any such registration other than representations
and warranties as to (i) such Person's ownership of his or its Registrable
Securities to be sold or transferred free and clear of all liens, claims and
encumbrances, (ii) such Person's power and authority to effect such transfer and
(iii) such matters pertaining to compliance with securities laws as may be
reasonably requested; provided further, however, that the obligation of such
Person to indemnify pursuant to any such underwriting agreements shall be
several, not joint and several, among such Persons selling Registrable
Securities, and the liability of each such Person will be in proportion to, and
provided further that such liability will be limited to, the net amount received
by such Person from the sale of such Person's Registrable Securities pursuant to
such registration.
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5.2. RULE 144. The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act and
that it will take such further action as the Holders may reasonably request to
the extent required from time to time to enable the Holders to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
5.3. HOLDBACK AGREEMENTS. Each Principal Forcenergy Stockholder, for so
long as it owns Registrable Securities representing 5% or more of the voting
power of the outstanding voting securities of the Company, agrees, in the event
of an underwritten offering by the Company (whether for the account of the
Company or otherwise) not to offer, sell, contract to sell or otherwise dispose
of any Registrable Securities, or any securities convertible into or
exchangeable or exercisable for such securities, including any sale pursuant to
Rule 144 under the Securities Act (except as part of such underwritten
offering), during the 14 days prior to, and during the 90-day period (or such
lesser period as the lead or managing underwriters may require) beginning on,
the effective date of the registration statement for such underwritten offering
(or, in the case of an offering pursuant to an effective shelf registration
statement pursuant to Rule 415, the pricing date for such underwritten
offering), provided that in connection with such underwritten offering each
officer and director of the Company and holder of 10% or more of the Common
Stock is subject to restrictions substantially equivalent to those imposed on
the Principal Forcenergy Stockholders.
5.4. EFFECTIVE TIME; TERMINATION. This Agreement, and the rights and
obligations of the parties hereunder, will be effective upon the Effective Time
of the Merger and will terminate upon the first to occur of (a) the date upon
which the Merger Agreement is terminated in accordance with its terms and
(b) such time as there shall no longer be any Registrable Securities.
5.5. AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, waived
or otherwise modified or terminated except by an instrument in writing signed by
the Company and the Holders of at least 66% of the Registrable Securities then
held by all the Holders.
5.6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement. Each
party need not sign the same counterpart.
5.7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
5.8. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
5.9. SUBSEQUENT REGISTRATION RIGHTS. Prior to the termination of all
registration rights granted hereunder, the Company will not, without the prior
written consent of each Holder, enter into any agreement with any holder or
prospective holder of any securities of the Company that would grant such holder
or prospective holder registration rights that would conflict with the
registration rights granted hereunder.
5.10. SPECIFIC PERFORMANCE. The parties hereto acknowledge and agree that
they would not have adequate remedies at law and would be irreparably harmed if
any of the provisions of this Agreement were not performed by the parties hereto
in accordance with the specific terms hereof or were otherwise breached, and
that, in such case, it would be impossible to measure in money the damages to
such parties. It is accordingly agreed that the parties hereto shall be entitled
to injunctive relief or the enforcement of other equitable remedies, without
bond or other security, to compel performance and to prevent breaches of this
Agreement and specifically to enforce the terms and provisions hereof, in
addition to any other remedy to which they may be entitled at law or in equity.
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IN WITNESS WHEREOF, the Company and each Holder has caused this Agreement to
be signed on its behalf by its officer thereunto duly authorized as of the date
first written above.
<TABLE>
<S> <C> <C>
FOREST OIL CORPORATION
By:
----------------------------------------
Name:
Title:
OCM PRINCIPAL OPPORTUNITIES FUND, L.P.
By: Oaktree Capital Management, LLC, as
general partner or investment manager
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
OCM OPPORTUNITIES FUND II, L.P.
By: Oaktree Capital Management, LLC, as
general partner or investment manager
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
</TABLE>
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<TABLE>
<S> <C> <C>
COLUMBIA/HCA MASTER RETIREMENT TRUST
By: Oaktree Capital Management, LLC, as
general partner or investment manager
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
LEHMAN BROTHERS INC.
By:
----------------------------------------
Name:
Title:
THE ANSCHUTZ CORPORATION
By:
----------------------------------------
Name:
Title:
</TABLE>
14
<PAGE>
ANNEX B
PETRIE PARKMAN & CO., INC.
July 7, 2000
The Board of Directors
Forcenergy Inc
3838 North Causeway Blvd.
Three Lakeway Center, Suite 2300
Metairie, Louisiana 70002
Members of the Board:
Forcenergy Inc, a Delaware corporation ("Forcenergy"), proposes to enter
into an agreement and plan of merger (the "Merger Agreement") with Forest Oil
Corporation, a New York corporation ("Forest Oil"), and Forest Acquisition I
Corporation, a Delaware corporation and a wholly-owned subsidiary of Forest Oil
("Forest Oil Sub"), which provides for, among other things, the merger of Forest
Oil Sub with and into Forcenergy (the "Merger"). Upon consummation of the
Merger, each outstanding share of common stock, par value $.01 per share, of
Forcenergy (the "Forcenergy Common Stock") (other than Forcenergy Common Stock
held by Forcenergy as treasury stock or owned by Forest Oil) will be converted
into 1.6 shares (the "Exchange Ratio") of common stock, par value $.10 per
share, of Forest Oil (the "Forest Oil Common Stock").
You have requested our opinion as to whether the Exchange Ratio is fair from
a financial point of view to the holders of Forcenergy Common Stock.
In arriving at our opinion, we have, among other things:
1. reviewed certain publicly available business and financial information
relating to Forest Oil and Forcenergy, including (a) Annual Reports on
Form 10-K and related audited financial statements for the fiscal years
ended December 31, 1998 and December 31, 1999, and (b) the Quarterly
Report on Form 10-Q and related unaudited financial statements for the
fiscal quarter ended March 31, 2000;
2. reviewed certain estimates of Forcenergy's reserves, including
(a) estimates of proved oil and gas reserves prepared by Netherland,
Sewell & Associates, Inc. (as to on-shore United States reserves only)
as of January 1, 2000, (b) estimates of proved oil and gas reserves
prepared by the management and staff of Forcenergy and audited by
Netherland, Sewell & Associates, Inc. (as to Alaskan reserves only) as
of January 1, 2000, (c) estimates of proved oil and gas reserves
prepared by the management and staff of Forcenergy and audited by
Collarini Engineering, Inc. (as to offshore reserves only) as of
January 1, 2000, (d) updated unaudited estimates of proved oil and gas
reserves prepared by the management and staff of Forcenergy as of
April 1, 2000 and (e) unaudited estimates of probable, possible and
additional oil and gas reserves prepared by the management and staff of
Forcenergy as of April 1, 2000;
3. reviewed certain estimates of Forest Oil's reserves, including
(a) estimates of proved oil and gas reserves prepared by the management
and staff of Forest Oil and audited by Ryder Scott Company as of
January 1, 2000, (b) updated unaudited estimates of proved oil and gas
reserves prepared by the management and staff of Forest Oil as of
April 1, 2000, (c) unaudited estimates of probable, possible and
additional oil and gas reserves prepared by the management and staff of
Forest Oil as of January 1, 2000 and (d) updated unaudited
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estimates of probable, possible and additional oil and gas reserves (as
to United States reserves only) as of April 1, 2000;
4. analyzed certain historical and projected financial and operating data
of Forest Oil and Forcenergy prepared by the management and staff of
Forest Oil and Forcenergy, respectively;
5. discussed the current and projected operations and prospects of Forest
Oil and Forcenergy with the management and staff of Forest Oil and
Forcenergy, respectively;
6. reviewed the trading history of Forest Oil Common Stock and Forcenergy
Common Stock;
7. compared recent stock market capitalization indicators for Forest Oil
and Forcenergy with recent stock market capitalization indicators for
certain other publicly-traded independent energy companies;
8. compared the financial terms of the Merger with the financial terms of
certain other transactions that we deemed to be relevant;
9. participated in certain discussions and negotiations among the
representatives of Forcenergy, Forest Oil and their financial and legal
advisors;
10. reviewed a draft dated June 30, 2000 of the Merger Agreement, a draft
dated June 27, 2000 of the Stockholders Agreement among Forest Oil and
the Forcenergy stockholders listed therein (the "Forcenergy
Stockholders Agreement") and a draft dated June 27, 2000 of the
Stockholders Agreement between The Anschutz Corporation and Forest Oil
(the "Forest Oil Stockholders Agreement" and, together with the Merger
Agreement and the Forcenergy Stockholders Agreement, the "Agreements");
and
11. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
have deemed necessary or appropriate.
In preparing our opinion, we have assumed and relied upon, without assuming
any responsibility for, or independently verifying, the accuracy and
completeness of any information supplied or otherwise made available to us by
Forcenergy and Forest Oil. We have further relied upon the assurances of the
management of Forcenergy and Forest Oil that they are unaware of any facts that
would make the information provided to us incomplete or misleading in any
material respect. With respect to projected financial and operating data, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements and staff of
Forcenergy and Forest Oil, respectively, relating to the future financial and
operational performance of each company. With respect to the estimates of oil
and gas reserves, we have assumed that they have been reasonably prepared on
bases reflecting the best available estimates and judgments of the managements
and staff of Forcenergy or Forest Oil or their respective engineering
consultants relating to the oil and gas properties of Forcenergy and Forest Oil,
respectively. We have not made an independent evaluation or appraisal of the
assets or liabilities of Forcenergy or Forest Oil nor, except for the estimates
of oil and gas reserves referred to above, have we been furnished with such an
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct, nor have we conducted, any physical inspection of the properties or
facilities of Forcenergy or Forest Oil. Consistent with the Merger Agreement, we
have assumed that the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. We have also assumed that the final forms of the
Agreements will be substantially similar to the last drafts of the Agreements
reviewed by us.
Our opinion relates solely to the fairness, from a financial point of view,
of the Exchange Ratio. This opinion is for the use and benefit of the Board of
Directors of Forcenergy and does not constitute a recommendation to any holder
of Forcenergy Common Stock as to how such stockholder should vote on the Merger.
We have not been asked to consider, and this opinion does not address, the
after-tax
2
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consequences of the Merger to any particular stockholder of Forcenergy or the
price at which Forest Oil Common Stock will actually trade following the
announcement or consummation of the Merger. Furthermore, we have not been
authorized or directed to solicit, nor have we solicited, offers from other
parties to acquire all or any part of Forcenergy. As you are aware, we have
acted as financial advisor to Forcenergy and we will receive a fee from
Forcenergy for such services, a substantial portion of which is contingent upon
the consummation of the Merger. In addition, Forcenergy has agreed to indemnify
us for certain liabilities arising out of our engagement. We have, in the past,
provided financial advisory services to Forcenergy and Forest Oil and have
received customary fees for such services. In addition, in the ordinary course
of business, we or our affiliates may trade in the debt or equity securities of
Forcenergy or Forest Oil for the accounts of our customers or for our own
account and, accordingly, may at any time hold a long or short position in such
securities.
Our opinion is rendered on the basis of conditions in the securities markets
and the oil and gas markets prevailing as of the date hereof and the condition
and prospects, financial and otherwise, of Forest Oil and Forcenergy as they
have been represented to us as of the date hereof or as they were reflected in
the materials and discussions described above.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
holders of Forcenergy Common Stock.
Very truly yours,
/s/ Jon C. Hughes
PETRIE PARKMAN & CO., INC.
3
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ANNEX C
[LOGO]
July 10, 2000
Board of Directors
Forest Oil Corporation
1600 Broadway
Suite 2200
Denver, CO 80202
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Forest Oil Corporation ("Forest"), of the consideration to be paid by
Forest in connection with the proposed merger (the "Merger") of Forest
Acquisition I Corporation ("Sub"), a wholly owned subsidiary of Forest, with
Forcenergy Inc (the "Company"), pursuant to an Agreement and Plan of Merger,
dated as of July 10, 2000 (the "Merger Agreement") among Forest, Sub and the
Company. Upon the effectiveness of the Merger, (i) each share of common stock,
par value $.01 per share, of the Company that is issued and outstanding
immediately prior to the effectiveness of the Merger (other than shares owned by
Forest or the Company) will be converted into and represent the right to receive
1.60 shares of common stock, par value $.10 per share ("Forest Common Stock"),
of Forest (the "Common Stock Merger Consideration") and (ii) each share of 14%
Series A Cumulative Preferred Stock, par value $.01 per share, of the Company
that is issued and outstanding immediately prior to the effectiveness of the
Merger (other than shares owned by Forest or the Company) will be converted into
and represent the right to receive 68.6141 shares of Forest Common Stock (the
"Preferred Stock Merger Consideration", and together with the Common Stock
Merger Consideration, the "Merger Consideration").
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning Forest and the Company and certain other
financial information concerning Forest and the Company, including financial
forecasts, that were provided to us, or discussed with us, by Forest and the
Company, respectively. We have discussed the past and current business
operations, financial condition and prospects of Forest and the Company with
certain officers and employees of Forest and the Company, respectively. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by us
for the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of Forest and the Company, we have been advised by the respective
managements of Forest and the Company that such forecasts have been reasonably
prepared on bases reflecting their best currently available estimates and
judgements, and we express no opinion with respect to such forecasts or the
assumptions on which they are based. We have not assumed any responsibility for
any independent evaluation or appraisal of any of the assets (including
properties and facilities) or liabilities of Forest or the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for Forest Common Stock following the
consummation of the Merger, which may vary depending upon,
<PAGE>
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Our opinion does not address Forest's
underlying business decision to effect the Merger. Our opinion is directed only
to the fairness, from a financial point of view, of the Merger Consideration to
Forest and does not constitute a recommendation concerning how holders of Forest
Common Stock should vote with respect to the transactions contemplated by the
Merger Agreement.
We have acted as financial advisor to the Board of Directors of Forest in
connection with the Merger and will receive a fee for our services, a portion of
which was payable upon execution of the Merger Agreement and a significant
portion of which is contingent upon consummation of the Merger. In the ordinary
course of business, we and our affiliates may actively trade the securities of
Forest and the Company for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. In addition, we and our affiliates have previously rendered certain
investment banking and financial advisory services to Forest and the Company for
which we have received customary compensation. We and our affiliates (including
Citigroup Inc.) may have other business relationships with Forest or the Company
in the ordinary course of their businesses.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair to Forest from a financial point
of view.
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
<PAGE>
ANNEX D
CHASE SECURITIES INC.
July 10, 2000
Board of Directors
Forest Oil Corporation
1600 Broadway
Suite 2200
Denver, CO 80202-4722
Members of the Board:
You have informed us that Forest Oil Corporation (the "Company"), Forest
Acquisition I Corporation, a wholly-owned subsidiary of the Company ("Merger
Sub"), and Forcenergy Inc (the "Merger Partner") propose to enter into an
Agreement and Plan of Merger (the "Agreement") which provides, among other
things, that Merger Sub will be merged with and into the Merger Partner (the
"Merger") in a transaction in which (i) each outstanding share of common stock,
par value $0.01 per share, of the Merger Partner (the "Merger Partner Common
Stock"), other than shares of the Merger Partner Common Stock owned by the
Company or by the Merger Partner or any of their subsidiaries, all of which
shall be canceled, will be converted into the right to receive 1.60 shares of
common stock, par value $0.10 per share, of the Company (the "Company Common
Stock") and (ii) each outstanding share of 14% Series A Cumulative Preferred
Stock, par value $0.01 per share, of the Merger Partner (the "Merger Partner
Series A Preferred Stock"), other than shares of the Merger Partner Series A
Preferred Stock owned by the Company or by the Merger Partner or any of their
subsidiaries, all of which shall be canceled, will be converted into the right
to receive 68.6141 shares of Company Common Stock. The shares of Company Common
Stock to be issued by the Company in the Merger are collectively referred to
herein as the "Merger Consideration."
You have asked us whether, in our opinion, the Merger Consideration is fair,
from a financial point of view, to the Company.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed a draft dated July 7, 2000 of the Agreement;
(b) reviewed certain publicly available business and financial information
we deemed relevant relating to the Company and the Merger Partner and the
industries in which they operate;
(c) reviewed certain internal non-public financial and operating data and
forecasts provided to us by the management of the Company relating to its
business, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger (the
"Synergies") furnished to us by the Company and the Merger Partner;
(d) reviewed certain internal non-public financial and operating data and
forecasts provided to us by the management of the Merger Partner relating
to its business, which included financial forecasts for fiscal years 2000
and 2001 only, having been advised that the Merger Partner has not
prepared such forecasts beyond fiscal year 2001;
(e) discussed, with members of the senior managements of the Company and the
Merger Partner, the Company's and the Merger Partner's operations,
historical financial statements and future prospects, before and after
giving effect to the Merger and the Synergies;
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(f) compared the financial and operating performance of the Company and the
Merger Partner with publicly available information concerning certain
other companies we deemed comparable and reviewed the relevant historical
stock prices of the Company Common Stock and the Merger Partner Common
Stock and certain publicly traded securities of such other companies;
(g) compared the proposed financial terms of the Merger with the financial
terms of certain recent transactions we deemed reasonably comparable to
the Merger and otherwise relevant to our inquiry; and
(h) made such other analyses and examinations as we have deemed necessary or
appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with or reviewed by or for us, or publicly
available, for purposes of this opinion and have further relied upon the
assurance of the managements of the Company and the Merger Partner that they are
not aware of any facts that would make such information inaccurate or
misleading. We have neither made nor obtained any independent evaluations or
appraisals of the assets or liabilities of the Company or the Merger Partner,
nor have we conducted a physical inspection of the properties or facilities of
the Company or the Merger Partner. We have assumed that the financial forecasts
and the Synergies provided to or discussed with us by the Company and the Merger
Partner have been reasonably determined on bases reflecting the best currently
available estimates and judgments of the management of the Company and the
Merger Partner as to the future financial performance of their respective
companies and the Synergies. We express no view as to such forecast or
projection information or the assumptions on which they were based.
For purposes of rendering our opinion, we have assumed that, in all respects
material to our analysis, the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Merger will be
satisfied without waiver thereof. We have further assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either of the Company or the Merger Partner are a party, as
contemplated by the Agreement, no restrictions will be imposed or amendments,
modifications or waivers made that would have any material adverse effect on the
contemplated benefits of the Merger. We have further assumed that the Merger
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
We have also assumed that the definitive Agreement will not differ in any
material respects from the draft thereof furnished to us.
As you are aware, we did not participate in the structuring or the
negotiation of the terms of the Merger.
Our opinion herein is necessarily based on market, commodity price, economic
and other conditions as they exist and can be evaluated on the date of this
letter. Our opinion is limited to the fairness, from a financial point of view,
to the Company of the Merger Consideration and we express no opinion as to the
merits of the underlying decision by the Company to engage in the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the issuance of the
Company Common Stock or any other matters relating to the Merger. In addition,
we express no opinion as to the prices at which the Company Common Stock will
trade following the announcement or the consummation of the Merger.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Company in
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connection with the delivery of this opinion and will receive a fee for our
services upon delivery of this opinion. In addition, the Company has agreed to
indemnify us for certain liabilities arising out of our engagement. The Chase
Manhattan Corporation and its affiliates, including Chase Securities Inc., in
the ordinary course of business, have from time to time, provided commercial and
investment banking services to the Company and its affiliates, for which we
received usual and customary compensation and in the future may continue to
provide such commercial and investment banking services. In that regard, Chase
Securities Inc. has delivered a commitment letter to the Company with respect to
arranging financing in connection with the Merger, for which financing Chase
Securities Inc. will receive usual and customary compensation. In the ordinary
course of business, we or our affiliates may trade in the debt and equity
securities of the Company and the Merger Partner for our own accounts and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Merger Consideration is fair, from a financial point of
view, to the Company.
This opinion is for the use and benefit of the Board of Directors of the
Company in its evaluation of the Merger and shall not be used for any other
purpose without the prior written consent of Chase Securities Inc. This opinion
shall not be reproduced, disseminated, quoted, summarized or referred to at any
time, in any manner or for any purpose, nor shall any public references to Chase
Securities Inc. be made by the Company, without the prior written consent of
Chase Securities Inc.
Very truly yours,
CHASE SECURITIES INC.
3
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ANNEX E
CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF FOREST
OIL CORPORATION
Under Section 805 of the New York Business Corporation Law
WE, THE UNDERSIGNED, Robert S. Boswell and Joan C. Sonnen being,
respectively, the Chairman of the Board and Secretary of Forest Oil Corporation,
do hereby certify:
1. The name of the Corporation is Forest Oil Corporation.
2. The Certificate of Incorporation of said Corporation was filed by the
Department of State, State of New York, on the 13th day of March, 1924, and its
previous restated certificates of incorporation were filed by the Department of
State on the 12th day of May, 1978, the 19th day of May, 1992 and the 21st day
of October, 1993.
3. Immediately upon the effectiveness of this amendment to the
Corporation's Restated Certificate of Incorporation pursuant to the New York
Business Corporation Law (the "Effective Time"), each two issued and outstanding
shares of the Corporation's Common Stock, Par Value $.10 Per Share ("Old Common
Stock"), shall automatically, without further action on the part of the
Corporation or any holder of such Old Common Stock, be reclassified into one new
share of the Corporation's Common Stock, $.10 Par Value Per Share ("New Common
Stock"), as constituted following the Effective Time. The reclassification of
the Old Common Stock into New Common Stock, will be deemed to occur at the
Effective Time, regardless of when the certificates representing such Old Common
Stock are physically surrendered to the Corporation for exchange into
certificates representing New Common Stock. After the Effective Time,
certificates representing the Old Common Stock will, until such shares are
surrendered to the Corporation for exchange into New Common Stock, represent the
number and class of New Common Stock into which such Old Common Stock shall have
been converted pursuant to this amendment.
In cases in which the conversion of the Old Common Stock into New Common
Stock results in any shareholder holding a fraction of a share, the Company will
pay the shareholder for such fractional interest on the basis of the average
closing market price on the New York Stock Exchange for the 10 trading days
immediately preceding the Effective Time.
4. Following the Effective Time, the number of outstanding shares of the
Corporation will be reduced. This amendment authorizes the officers of the
Corporation to reduce the stated capital of the Corporation to reflect the
change in outstanding shares of the Corporation.
At a meeting of the Board of Directors held on , 2000 and at a
meeting of the shareholders held on , 2000, the foregoing amendment was
approved by more than a majority of the votes cast by the holders of the
outstanding shares of Common Stock entitled to vote thereon, all in accordance
with Section 614 of the New York Business Corporation Law.
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ANNEX F
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to ((S)) 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one (1) or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ((S)) 251 (other than a merger effected pursuant to ((S))
251(g) of this title), ((S)) 252, ((S)) 254, ((S)) 257, ((S)) 258, ((S)) 263 or
((S)) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of ((S)) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to ((S))((S))
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a, b and c of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ((S)) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows: (1) If a proposed merger
or consolidation for which appraisal rights are provided under this section is
to be submitted for approval at a meeting of stockholders, the corporation, not
less than 20 days prior to the meeting, shall notify each of its stockholders
who was such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such stockholder's
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or (2) If the merger or consolidation was approved pursuant to ((S)) 228 or
((S)) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within
10 days after such effective date; provided, however, that if such second notice
is sent more than
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20 days following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given I-2 prior to the effective date,
the record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendancy of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take
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into account all relevant factors. In determining the fair rate of interest, the
Court may consider all relevant factors, including the rate of interest which
the surviving or resulting corporation would have had to pay to borrow money
during the pendancy of the proceeding. Upon application by the surviving or
resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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FOREST OIL CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS
, 2000
The undersigned shareholder of Forest Oil Corporation, a New York
corporation (the "Company"), hereby appoints Robert S. Boswell and Joan C.
Sonnen, or either of them, attorneys, agents and proxies of the undersigned,
with full power of substitution to each of them, to vote all the shares of
Common Stock, par value $0.10 per share, of the Company which are entitled to
one vote per share and which the undersigned may be entitled to vote at the
Special Meeting of Shareholders of the Company to be held at 1600 Broadway,
Suite 590, Denver, Colorado 80202, on , 2000, at 10:00 a.m., M.D.T.,
and at any adjournment of such meeting, with all powers which the undersigned
would possess if personally present:
1. To approve the issuance of Common Stock of the Company pursuant to the
proposed merger transaction involving the Company and Forcenergy Inc;
2. To approve the 1-for-2 reverse stock split of the Common Stock of the
Company; and
3. To vote upon such other matters as may be properly brought before the
meeting or any adjournment thereof hereby revoking all previous proxies
and ratifying all that any of said proxies, their substitutes, or any of
them, may lawfully do by virtue hereof.
If no directions are given, the individuals designated above will vote for
the above proposals and, at their discretion, on any other matter that may
come before the meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and the Joint Proxy Statement/Prospectus.
(CONTINUED AND TO BE VOTED, DATED AND SIGNED ON REVERSE SIDE)
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FOLD AND DETACH HERE
THANK YOU FOR VOTING
See other side for voting options.
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FOREST OIL CORPORATION
COMMON STOCK PROXY ONE (1) VOTE PER SHARE
PLEASE MARK VOTES /-/ OR /X/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
No. 1. To approve the issuance of Common Stock of the Company pursuant to
the proposed merger transaction involving the Company and Forcenergy Inc.
/ / FOR / / AGAINST / / ABSTAIN
No. 2. To approve the 1-for-2 reverse stock split of the Common Stock of the
Company. / / FOR / / AGAINST / / ABSTAIN
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FOLD AND DETACH HERE
[TELEPHONE PICTURE] VOTE BY TELEPHONE OR INTERNET [COMPUTER PICTURE]
QUICK *** EASY *** IMMEDIATE
YOUR VOTE IS IMPORTANT!--YOU CAN VOTE IN ONE OF THREE WAYS:
1. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone telephone 24
HOURS A DAY-7 DAYS A WEEK
There is NO CHARGE to you for this call.--HAVE YOUR PROXY CARD IN HAND.
You will be asked to enter a Control Number, which is located in the
box on the lower right hand corner of this form
OPTION 1: To vote as the Board of Directors recommends on ALL proposals, press 1
<PAGE>
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
OPTION 2: If you choose to vote on each proposal separately, press 0. You will
hear these instructions:
Proposal 1--To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
Proposal 2--To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
OR
2. TO VOTE BY INTERNET: Follow the instructions at our Website Address:
http://www.eproxy.com/
OR
3. TO VOTE BY PROXY CARD: Mark, sign and date your proxy card and return
promptly in the enclosed envelope.
NOTE: IF YOU VOTE BY INTERNET OR TELEPHONE, THERE IS NO NEED TO MAIL BACK YOUR
PROXY CARD.
THANK YOU FOR VOTING.
<PAGE>
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
FORCENERGY INC
SPECIAL MEETING -- , 2000
The undersigned hereby appoints Richard G. Zepernick, Jr., E. Joseph Grady,
and Thomas F. Getten, each of them, each with full power of substitution, the
proxy of the undersigned to attend the Special Meeting of Stockholders of
FORCENERGY INC (the "Company") to be held at , p.m., Central
Daylight Time, on , 2000 at the Doubletree Hotel Lakeside, Lakeshore
Room, 3838 North Causeway Blvd., Metairie, Louisiana 70002 (Phone
(504) 836-5253), and any adjournments thereof, and to vote at said meeting and
any adjournments thereof all shares of stock of the Company standing in the name
of the undersigned, as instructed on the reverse side, and in his judgment on
any other business which may properly come before said meeting.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
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Please Detach and Mail in the Envelope Provided
<TABLE>
<S> <C> <C> <C>
A /X/ Please mark your votes as in this example.
1. Approval of the Agreement and Plan of Merger, dated as of FOR AGAINST ABSTAIN
July 10, 2000 among Forest Oil Corporation, Forest / / / / / /
Acquisition I Corporation, a wholly owned subsidiary of
Forest, and the Company, and the transactions contemplated
thereby, including the merger, pursuant to which Forest
Acquisition I Corporation will be merged with and into the
Company and each share of common stock, $0.01 par value
per share, of the Company issued and outstanding
immediately prior to the merger (other than shares held by
Forest, the Company or their respective subsidiaries,
which will be canceled) will be converted into the right
to receive 1.6 common shares, $0.10 par value, of Forest
(or 0.8 of a Forest common share if the proposed 1-for-2
reverse stock split of the Forest common shares is
approved).
All other matters that may come before the meeting.
</TABLE>
(INSTRUCTION: This proxy will be voted as directed, but if no direction is
specified, or if you ABSTAIN, your vote will be counted for quorum purposes but
will not be considered as a vote FOR or AGAINST proposal 1.
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PLEASE COMPLETE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED ENVELOPE.
Signature ______________________________ Dated: _____________________________
NOTE: Stockholder(s) should sign above exactly as name(s) appears hereon. But
minor discrepancies in such signatures shall not invalidate their proxy. If more
than one Stockholder, all should sign.
Please date, sign and mail your proxy card back as soon as possible!
