-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CATCi2A8DZa17Ovl8BK2LVS6DqzM+9pDFGfE4AeD+nmWwfpdTMdpAsIvTM3pf0Df MZpMAqFKyo9p/OMA1ZLlnA== 0000912057-01-007615.txt : 20010315 0000912057-01-007615.hdr.sgml : 20010315 ACCESSION NUMBER: 0000912057-01-007615 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST OIL CORP CENTRAL INDEX KEY: 0000038079 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 250484900 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13515 FILM NUMBER: 1568448 BUSINESS ADDRESS: STREET 1: 1600 BROADWAY STREET 2: 2200 COLORADO STATE BANK BLDG CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038121400 10-K 1 a2040776z10-k.txt FORM 10K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER: 1-13515 ------------------------ FOREST OIL CORPORATION (Exact name of registrant as specified in its charter) State of incorporation: NEW YORK I.R.S. Employer Identification No. 25-0484900 1600 BROADWAY SUITE 2200 DENVER, COLORADO 80202 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-812-1400 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, Par Value $.10 Per Share New York Stock Exchange
-------------------------- Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS Warrants to purchase Common Stock, expiring February 15, 2004 Warrants to purchase Common Stock, expiring February 15, 2005 Warrants to purchase Common Stock, expiring March 20, 2010 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,070,311,179 as of February 28, 2001 (based on the last reported sale price of such stock on the New York Stock Exchange Composite Tape). There were 48,480,706 shares of the registrant's Common Stock, Par Value $.10 Per Share outstanding as of February 28, 2001. Document incorporated by reference: Proxy Statement of Forest Oil Corporation relative to the Annual Meeting of Shareholders to be held on May 9, 2001, which is incorporated into Part III of this Form 10- K. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE NO. -------- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 18 Item 3. Legal Proceedings........................................... 23 Item 4. Submission of Matters to a Vote of Security Holders......... 23 Item 4A. Executive Officers of Forest................................ 24 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 26 Item 6. Selected Financial and Operating Data....................... 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 37 Item 8. Financial Statements and Supplementary Data................. 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 39 PART III Item 10. Directors and Executive Officers of the Registrant.......... 93 Item 11. Executive Compensation...................................... 93 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 93 Item 13. Certain Relationships and Related Transactions.............. 93 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................. 93
PART I This section highlights information that is discussed in more detail in the remainder of the document. Throughout this document we make statements that are classified as "forward-looking". Please refer to the "Forward-Looking Statements" section on page 17 of this document for an explanation of these types of assertions. We also use the terms "Forest", "Company", "we", "our" and "us" to refer to Forest Oil Corporation. ITEM 1. BUSINESS THE COMPANY Forest Oil Corporation is an independent oil and gas company engaged in the exploration, development, acquisition, 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. At March 1, 2001, the Anschutz Corporation, a private Denver-based corporation, owned approximately 31% of our outstanding common stock. Forest operates from production offices located in Lafayette and Metairie, Louisiana; Denver, Colorado; Anchorage, Alaska; and Calgary, Alberta and runs its international business (other than Canada) from an office located in Houston, Texas. Forest's corporate headquarters is located in Denver, Colorado. On December 31, 2000 Forest had 530 employees, of whom 349 were salaried and 181 were hourly. For financial information relating to our geographic and operational segments, see Note 13 of Notes to Consolidated Financial Statements. Forest's estimated proved reserves were 1,380 BCFE at December 31, 2000 of which approximately 61% was natural gas. As of December 31, 2000, our estimated proved developed reserves were approximately 73% of total estimated proved reserves. Forest's principal reserves and producing properties are all located in North America. In the United States, we have business units operating in four areas: offshore Gulf of Mexico, onshore Gulf of Mexico, the Western United States and Alaska. Our fifth business unit is in Canada, where our oil and gas operations are conducted by our wholly owned subsidiary, Canadian Forest Oil Ltd. Our sixth business unit consists of our interests in various other countries, including South Africa, Gabon, Switzerland, Germany, Albania, Italy, Romania, Thailand and Tunisia; activity in these areas has, to date, been exploratory in nature and is conducted by our wholly owned subsidiary, Forest Oil International. At December 31, 2000, approximately 87% of our oil and gas reserves were in the United States and approximately 13% were in Canada; oil and gas reserves in the offshore Gulf of Mexico area represented approximately 36% of total oil and gas reserves. Approximately 89% of our total production in 2000 was in the United States and approximately 11% was in Canada. During 2000, we produced approximately 498 MMCFE per day, of which 56% was in the Gulf of Mexico offshore area. (An MCF is one thousand cubic feet of natural gas. MMCF is used to designate one million cubic feet of natural gas and BCF refers to one billion cubic feet of natural gas. MCFE means thousands of cubic feet of natural gas equivalents, using a conversion ratio of one barrel of liquids to six MCF of natural gas. BCFE means billions of cubic feet of natural gas equivalents. With respect to liquids, the term BBL means one barrel of liquids whereas MBBLS is used to designate one thousand barrels of liquids. The term liquids is used to describe oil, condensate and natural gas liquids.) MERGER WITH FORCENERGY INC On December 7, 2000, Forest completed its merger with Forcenergy Inc (Forcenergy). Pursuant to the terms of the merger agreement, Forcenergy stockholders received 0.8 of a Forest common share for each share of Forcenergy common stock they owned and 34.307 Forest common shares for each $1,000 stated value amount of Forcenergy preferred stock. In addition, each warrant to purchase Forcenergy common 1 stock was exchanged for a warrant to purchase 0.8 shares of Forest common stock. The merger was accounted for under the pooling of interests method of accounting. In conjunction with the merger with Forcenergy, Forest effected a 1-for-2 reverse stock split. Unless otherwise indicated, all share and per share amounts included herein have been adjusted to give retroactive effect to the 1-for-2 reverse stock split. In connection with the merger Forest entered into a registration rights agreement with certain of Forcenergy's largest stockholders, Lehman Brothers Inc., certain funds administered by Oaktree Capital Management, LLC and The Anschutz Corporation. Pursuant to that registration rights agreement Forest has filed a registration statement with the Securities and Exchange Commission for all of the shares of Forest common stock acquired by Lehman and the Oaktree funds in the merger. The registration statement covers sales in either negotiated transactions directly with purchasers, block or other institutional trades, or one or more underwritten offerings. The approximately 8,900,000 shares of common stock covered by the registration statement represent approximately 18% of the outstanding common stock of Forest as of March 1, 2001. SALES AND MARKETS OIL AND GAS OPERATIONS. Forest's U.S. production is generally sold at the wellhead to oil and natural gas purchasing companies in the areas where it is produced. Liquids are typically sold under short-term contracts at prices based upon posted field prices. Natural gas in the United States is generally sold month to month on the spot market. Currently, nearly all of our U.S. natural gas is sold at the wellhead at spot market prices. The term "spot market" as used herein refers to contracts with a term of six months or less or contracts which call for a redetermination of sales prices every six months or earlier. We believe that the loss of one or more of our current natural gas spot purchasers should not have a material adverse effect on Forest's business in the United States because any individual spot purchaser could be readily replaced by another spot purchaser who would pay approximately the same sales price. Substantially all of our Alaskan oil production, which was acquired in the merger with Forcenergy, is sold to one purchaser. The contract with this purchaser runs through December 31, 2001, and is automatically renewed from year to year thereafter until terminated by either party upon sixty (60) days prior written notice. In Canada, liquids are typically sold under short-term contracts at prices based upon posted prices at Alberta pipeline and processing hubs netted back to the field. Canadian Forest's natural gas production is sold primarily through the ProMark Netback Pool which is operated by ProMark, the marketing subsidiary of Canadian Forest. Canadian Forest sold approximately 85% of its natural gas production through the ProMark Netback Pool in 2000. From time to time we enter into energy swaps and collars to hedge the price of spot market volumes against price fluctuations. See Quantitative and Qualitative Disclosures About Market Risk--Commodity Price Risk. MARKETING AND TRADING ACTIVITIES. The ProMark Netback Pool matches major end users with providers of gas supply through arranged transportation channels, and uses a netback pricing mechanism to establish the wellhead price paid to producers. Under this netback arrangement, producers receive the blended market price less related transportation and other direct costs. ProMark charges a marketing fee for marketing and administering the gas supply pool. The ProMark Netback Pool gas sales in 2000 averaged 86 MMCF per day, of which Canadian Forest supplied approximately 32 MMCF per day or 37%. Approximately 18% of the volumes sold in the 2 ProMark Netback Pool in 2000 were sold at fixed prices. The remainder of the volumes sold were priced in a variety of ways, including prices based on indices. In addition to operating the ProMark Netback Pool, ProMark provides other marketing services for producers and consumers of natural gas. ProMark manages long-term gas supply contracts for industrial customers and provides full-service purchasing, accounting and gas nomination services for both producers and customers on a fee-for-services basis. ProMark follows procedures to immediately match its gas purchase and sales commitments with offsetting gas purchase or sales. We are, however, exposed to credit risk in that there exists the possibility that the counterparties to agreements will fail to perform their contractual obligations. The credit of counterparties is evaluated and letters of credit or parent guarantees are obtained when considered necessary to minimize credit risk. OTHER FOREIGN OPERATIONS Forest considers, from time to time, certain oil and gas opportunities in other foreign countries. Foreign oil and natural gas operations are subject to certain risks, such as nationalization, confiscation, terrorism, renegotiation of existing contracts and currency fluctuations. Forest monitors the political, regulatory and economic developments in any foreign countries in which it operates. We currently hold concessions in South Africa, Gabon, Switzerland, Germany, Albania, Italy, Romania, Thailand and Tunisia. We currently have no production from any of the foregoing concessions. Forest is currently conducting drilling operations in South Africa and Albania. These international interests comprise approximately 2% of our total assets at December 31, 2000. COMPETITION The oil and natural gas industry is intensely competitive. Competition is particularly intense in the acquisition of prospective oil and natural gas properties and oil and gas reserves. Forest's competitive position depends on our geological, geophysical and engineering expertise, our financial resources, our ability to develop properties and our ability to select, acquire and develop proved reserves. We compete with a substantial number of other companies having larger technical staffs and greater financial and operational resources. Many such companies not only engage in the acquisition, exploration, development and production of oil and natural gas reserves, but also carry on refining operations, generate electricity and market refined products. We also compete with major and independent oil and gas companies in the marketing and sale of oil and gas to transporters, distributors and end users. The oil and natural gas industry competes with other industries supplying energy and fuel to industrial, commercial and individual consumers. Forest competes with other oil and natural gas companies in attempting to secure drilling rigs and other equipment necessary for drilling and completion of wells. Such equipment may be in short supply from time to time. Finally, companies not previously investing in oil and natural gas may choose to acquire reserves to establish a firm supply or simply as an investment. Such companies provide competition for Forest. Forest's business is affected not only by such competition, but also by general economic developments, governmental regulations and other factors that affect our ability to market our oil and natural gas production. The prices of oil and natural gas realized by Forest are highly volatile. The price of oil is generally dependent on world supply and demand, while the price we receive for our natural gas is tied to the specific markets in which such gas is sold. Declines in crude oil prices or natural gas prices adversely impact Forest's activities. Our financial position and resources may also adversely affect our competitive position. Lack of available funds or financing alternatives will prevent us from executing our operating strategy and from deriving the expected benefits therefrom. For further information concerning Forest's financial position, see Management's Discussion and Analysis of Financial Condition and Results of Operations. 3 ProMark also faces significant competition from other gas marketers, some of whom are significantly larger in size and have greater financial resources than ProMark, Canadian Forest or Forest. REGULATION UNITED STATES. Various aspects of our oil and natural gas operations are regulated by administrative agencies under statutory provisions of the states where such operations are conducted and by certain agencies of the Federal government for operations on Federal leases. All of the jurisdictions in which we own or operate producing crude oil and natural gas properties have statutory provisions regulating the exploration for and production of crude oil and natural gas, including provisions requiring permits for the drilling of wells and maintaining bonding requirements in order to drill or operate wells and provisions relating to the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled and the plugging and abandoning of wells. Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units and the number of wells which may be drilled in an area and the unitization or pooling of crude oil and natural gas properties. In this regard, some states can order the pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases. In addition, state conservation laws establish maximum rates of production from crude oil and natural gas wells, generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells. Some states, such as Texas and Oklahoma, have, in recent years, reviewed and substantially revised methods previously used to make monthly determinations of allowable rates of production from fields and individual wells. The effect of these regulations is to limit the amounts of crude oil and natural gas we can produce from our wells, and to limit the number of wells or the location at which we can drill. The Federal Energy Regulatory Commission (FERC) regulates the transportation and sale for resale of natural gas in interstate commerce under the Natural Gas Act of 1938 (NGA) and the Natural Gas Policy Act of 1978 (NGPA). In the past, the Federal government has regulated the prices at which oil and gas could be sold. The Natural Gas Wellhead Decontrol Act of 1989 (the Decontrol Act) removed all NGA and NGPA price and nonprice controls affecting producers' wellhead sales of natural gas effective January 1, 1993. While sales by producers of natural gas, and all sales of crude oil, condensate and natural gas liquids can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Commencing in April 1992, the FERC issued Order No. 636 and subsequent orders (collectively, Order No. 636), which require interstate pipelines to provide transportation separate, or "unbundled", from the pipelines' sales of gas. Also, Order No. 636 requires pipelines to provide open-access transportation on a basis that is equal for all gas supplies. Although Order No. 636 does not directly regulate gas producers like Forest, the FERC has stated that it intends for Order No. 636 to foster increased competition within all phases of the natural gas industry. The courts have largely affirmed the significant features of Order No. 636 and numerous related orders pertaining to the individual pipelines, although certain appeals remain pending and the FERC continues to review and modify its open access regulations. Commencing in February 2000, the FERC issued Order No. 637 and subsequent orders (collectively, Order No. 637), which, among other things, (i) lifts the cost-based cap on pipeline transportation rates in the capacity release market until September 30, 2002, for releases of pipeline capacity of less than one year, (ii) permits pipelines to charge different maximum cost-based rates for peak and off-peak times, (iii) encourages auctions for pipeline capacity, (iv) requires pipelines to implement imbalance management services, and (v) restricts the ability of pipelines to impose penalties for imbalances, overruns, and non-compliance with operational flow orders. Order No. 637 also requires the FERC Staff to analyze whether the FERC should implement additional fundamental policy changes, including, among other things, whether to pursue performance-based ratemaking or other non-cost based ratemaking techniques and whether the FERC should mandate greater standardization in terms and conditions of service across 4 the interstate pipeline grid. Most major aspects of Order No. 637 are currently pending judicial review. The FERC has also recently implemented new regulations governing the procedure for obtaining authorization to construct new pipeline facilities and has issued a policy statement, which it largely affirmed in a recent order on rehearing, establishing a presumption in favor of requiring owners of new pipeline facilities to charge rates based solely on the costs associated with such new pipeline facilities. While any additional FERC action on these matters would affect Forest only indirectly, these changes are intended to further enhance competition in natural gas markets. We cannot predict what further action the FERC will take on these matters, nor can it predict whether and to what extent the FERC's regulations will survive judicial review and, if so, whether the FERC's actions will achieve the stated goal of increased competition in natural gas markets. However, we do not believe that it will be treated materially differently than other natural gas producers and markets with which it competes. In Order Nos. 561 and 561-A, the FERC established an indexing system under which oil pipelines are able to change their transportation rates, subject to prescribed ceiling levels. The indexing system, which allows or may require pipelines to make rate changes to track changes in the Producer Price Index for Finished Goods, minus one percent, became effective January 1, 1995. In certain circumstances, these rules permit oil pipelines to establish rates using traditional cost of service or other methods of rate making. To date, we do not believe Order Nos. 561 and 561-A have materially increased transportation costs associated with oil production from our oil producing operations. The Outer Continental Shelf Lands Act (OCSLA) requires that all pipelines operating on or across the Outer Continental Shelf (the OCS) provide open-access, non-discriminatory service. Commencing in April 2000, FERC issued Order No. 639 and subsequent orders (collectively, Order No. 639), which imposed certain reporting requirements applicable to "gas service providers" operating on the OCS concerning their prices and other terms and conditions of service. The purpose of Order No. 639 is to provide regulators and other interested parties with sufficient information to detect and to remedy discriminatory conduct by such service providers. FERC has stated that these reporting rules apply to OCS gatherers and has clarified that they may also apply to other OCS service providers including platform operators performing dehydration, compression, processing and related services for third parties. Judicial review of Order No. 639 is currently pending. We cannot predict whether and to what extent these regulations will survive such review, and what effect, if any, they may have on our financial condition or operations. The rules, if allowed to stand, may increase the frequency of claims of discriminatory service, may decrease competition among OCS service providers and may lessen the willingness of OCS gathering companies to provide service on a discounted basis. Certain operations that we conduct are on federal oil and gas leases, which the Minerals Management Service (MMS) administers. The MMS issues such leases through competitive bidding. These leases contain relatively standardized terms and require compliance with detailed MMS regulations and orders pursuant to the OCSLA (which are subject to change by the MMS). For offshore operations, lessees must obtain MMS approval for exploration plans and development and production plans prior to the commencement of such operations. In addition to permits required from other agencies (such as the Coast Guard, the Army Corps of Engineers and the Environmental Protection Agency), lessees must obtain a permit from the MMS prior to the commencement of drilling. Lessees must also comply with detailed MMS regulations governing, among other things, engineering and construction specifications for offshore production facilities, safety procedures, flaring of production, plugging and abandonment of OCS wells, calculation of royalty payments and the valuation of production for this purpose and removal of facilities. To cover the various obligations of lessees on the OCS, the MMS generally requires that lessees post substantial bonds or other acceptable assurances that such obligations will be met. The cost of such bonds or other surety can be substantial and we can provide no assurance that the we can continue to obtain bonds or other surety in all cases. Under certain circumstances, the MMS may require our operations on federal leases to be suspended or terminated. Any such suspension or termination could materially and adversely affect our financial condition and operations. 5 In March 2000, the MMS issued a final rule modifying the valuation procedures for the calculation of royalties owed for crude oil sales. When oil production sales are not in arms-length transactions, the new royalty calculation will base the valuation of oil production on spot market prices instead of the posted prices that were previously utilized. We do not believe that this rule will have a material adverse effect on our operations. Additional proposals and proceedings that might affect the oil and gas industry are regularly considered by Congress, states, the FERC and the courts. We cannot predict when or whether any such proposals may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by the FERC will continue indefinitely. Notwithstanding the foregoing, we do not anticipate that compliance with existing federal, state and local laws, rules and regulations will have a material or significantly adverse effect upon our capital expenditures, earnings or competitive position. No material portion of Forest's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Federal government. CANADA. The oil and natural gas industry in Canada is subject to extensive controls and regulations imposed by various levels of government. It is not expected that any of these controls or regulations will affect our operations in a manner materially different than they would affect other oil and gas companies of similar size. All current legislation is a matter of public record and we are unable to predict what additional legislation or amendments may be created. In Canada, oil exports are subject to regulation by the National Energy Board (NEB), an independent federal regulatory agency. Exports may be made pursuant to export orders with terms not exceeding one year in the case of light crude, and not exceeding two years in the case of heavy crude. Natural gas exported from Canada is also subject to regulation by the NEB. Exporters are free to negotiate prices and other terms with purchasers, provided that the export contracts must continue to meet certain criteria prescribed by the NEB. Natural gas exports for a term of less than two years must be made pursuant to an NEB order, or, in the case of exports for a longer duration (to a maximum of 25 years) pursuant to an export license from the NEB with government of Canada approval. The provincial governments of Alberta, British Columbia and Saskatchewan also regulate the volume of natural gas which may be removed from those provinces for consumption elsewhere based on such factors as reserve availability, transportation arrangements and market considerations. In addition to federal regulation, each province has legislation and regulations which govern land tenure, royalties, production rates, environmental protection and other matters. The royalty regime is a significant factor in the profitability of oil and natural gas production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the mineral owner and the lessee. Crown royalties are determined by government regulation and are generally calculated as a percentage of the value of the gross production, and the rate of royalties payable generally depends in part on prescribed reference prices, well productivity, geographical location, field discovery date and the type or quality of the petroleum product produced. From time to time the governments of Canada, Alberta, British Columbia and Saskatchewan have established incentive programs which have included royalty rate deductions, royalty holidays and tax credits for the purpose of encouraging oil and natural gas exploration or enhanced recovery projects. The trend in recent years has been for provincial governments to allow such programs to expire without renewal, and consequently few such programs are currently operative. In Alberta, certain producers of oil or natural gas are entitled to a credit against the royalties to the Crown by virtue of the ARTC (Alberta royalty tax credit) program. The credit is determined by applying a specified rate to a maximum of $2 million CDN of Alberta Crown royalties payable for each producer or associated group of producers. The specified rate is a function of the Royalty Tax Credit reference price (RTCRP) which is set quarterly by the Alberta Department of Energy and ranges from 25% to 75%, 6 depending on oil and gas par prices for the previous calendar quarter. Canadian Forest is eligible for ARTC credits only on eligible properties acquired and wells drilled after the change of control. Crown royalties on production from producing properties acquired from corporations claiming maximum entitlement to ARTC will generally not be eligible. The provincial government of Alberta is proposing changes to the ARTC program. Proposed changes include (i) the establishment of a $10,000 minimum royalty payment for ARTC, (ii) the elimination of ARTC for individuals and trusts, and (iii) changes in the manner companies report and verify ARTC eligible properties. Oil and natural gas royalty holidays and reductions for specific wells reduce the amount of Crown royalties paid by Forest to the provincial governments. REGULATION IN NORTHWEST TERRITORIES OF CANADA. Currently, the provincial governments have jurisdiction over the exploration and development of oil and gas resources in the provinces of Canada and the federal government has jurisdiction over the exploration and development of oil and gas resources in the Canadian territories. The Yukon, Northwest Territories and Nunavut governments recently signed a Northern Cooperation Accord for the purpose of cooperating to seek jurisdiction over the oil and gas resources in these territories. If jurisdiction over the oil and gas resources in these territories were to be transferred to the territorial governments, the territorial governments would have the authority to regulate the grant of drilling permits, the construction of pipelines and other matters affecting oil and gas exploration and development activities. We are unable to predict whether any transfer of jurisdiction to the territorial governments would affect our proposed exploration and development activities in the Northwest Territories, although it is possible that the territorial governments would adopt policies or regulations that could delay or limit our proposed exploration and development activities, delay or prevent the construction of pipelines or result in the payment of higher royalties or taxes than would otherwise be the case under the current federal regulatory framework. Canadian Forest's right to produce oil and gas from its Northwest Territories properties, along with the production rights of other industry participants in these properties, are subject to finalizing the commercial discovery licenses and production licenses for the wells to be produced. Until the particulars for these licenses and the related spacing units are finalized, Canadian Forest's share of production cannot be finally determined. NORTH AMERICAN FREE TRADE AGREEMENT. On January 1, 1994 the North American Free Trade Agreement (NAFTA) among the governments of Canada, the United States and Mexico became effective. NAFTA carries forward most of the material energy terms contained in the Canada-U.S. Free Trade Agreement. In the context of energy resources, Canada continues to remain free to determine whether exports to the United States or Mexico will be allowed provided that any export restrictions do not: (i) reduce the proportion of energy resource exported relative to domestic use (based upon the proportion prevailing in the most recent 36-month period), (ii) impose an export price higher than the domestic price, and (iii) disrupt normal channels of supply. All three countries are prohibited from imposing minimum export or import price requirements. NAFTA contemplates clearer disciplines on regulators to ensure fair implementation of any regulatory changes and to minimize disruption of contractual arrangements, which is important for Canadian natural gas exports. ENVIRONMENTAL MATTERS. Extensive U.S. federal, state and local laws govern oil and natural gas operations, regulate the discharge of materials into the environment or otherwise relate to environmental protection. Numerous governmental agencies, such as the U.S. Environmental Protection Agency (commonly called the EPA) issue regulations to implement and enforce such laws which are often difficult and costly to comply with and which carry substantial administrative, civil and even criminal penalties for failure to comply. These laws and regulations may, in certain circumstances, impose "strict liability" for environmental contamination, rendering a person liable for environmental and natural resource damages 7 and cleanup costs without regard to negligence or fault on the part of such person. These laws and regulations may restrict the rate of oil and natural gas production below the rate that would otherwise exist or even prohibit exploration or production activities in sensitive areas. This regulatory burden on the oil and natural gas industry increases its cost of doing business and consequently affects its profitability. Changes in existing environmental laws or the adoption of new environmental laws have the potential to adversely effect our operations, earnings or competitive position, as well as the oil and gas exploration and production industry in general. While we believe that we are in substantial compliance with current applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on Forest, we cannot give any assurance that we will not be adversely affected in the future. The Oil Pollution Act of 1990 (OPA) and regulations thereunder impose a variety of requirements on "responsible parties" related to the prevention of oil spills and liability for damages resulting from such spills in U.S. waters. A "responsible party" includes the owner or operator of a pipeline, vessel or onshore facility, or the lessee or permittee of the area in which an offshore facility is located. OPA assigns liability to each responsible party for oil cleanup costs and a variety of public and private damages from oil spills. OPA also requires operators of offshore OCS facilities to demonstrate to the MMS that they possess at least $35 million in financial resources that are available to pay for costs that may be incurred in responding to an oil spill. This financial responsibility amount can increase up to a maximum of $150 million if the MMS determines that a greater amount is justified based on specific risks posed by the operations or if the worst case oil-spill discharge volume possible at a facility exceeds applicable threshold volumes established by the MMS under rules it issued in August 1998 pertaining to covered offshore facilities. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Even if applicable, the liability limits for offshore facilities require the responsible party to pay all removal costs, plus up to $75 million in other damages. Few defenses exist to the liability imposed by OPA. The U.S. Water Pollution Control Act (commonly called the Clean Water Act) imposes restrictions and strict controls regarding the discharge of produced waters and other oil and gas wastes in navigable waters. Many state discharge regulations and the federal National Pollutant Discharge Elimination System generally prohibit the discharge of produced water and sand, drilling fluids, drill cuttings and certain other substances related to the oil and gas industry into coastal waters. Although the costs to comply with these zero discharge mandates under federal or state law may be significant, the entire industry is expected to experience similar costs in the western Gulf of Mexico and we believe that these costs will not have a material adverse impact on our financial condition and operations. Forest generates wastes, including hazardous wastes, that are subject to the federal Resource Conservation and Recovery Act, as amended (commonly referred to as RCRA) and comparable state statues. The EPA and various state agencies have limited the approved methods of disposal for certain hazardous and nonhazardous wastes. Moreover, certain oil and gas exploration and production wastes generated by Forest that are currently exempt from treatment as "hazardous waste" may in the future be designated as "hazardous wastes" and therefore be subject to more rigorous and costly operating and disposal requirements. The Comprehensive Environmental Response, Compensation and Liability Act, as amended (commonly called CERCLA but also known as "Superfund") and comparable state laws impose liability without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of a "hazardous substance" into the environment. These persons include the current owner and operator of the disposal site or sites where the release occurred and companies that transported or disposed or arranged for the transport or disposal of the hazardous substances that have been released at the site. Persons who are or were responsible for releases of hazardous substances under 8 CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other pollutants into the environment. In the ordinary course of Forest's operations, substances may be generated that fall within the definition of "hazardous substances." Although we have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposedof or released on or under the properties owned or leased by us or on or under other locations where such wastes have been taken for disposal. Moreover, we may own or operate properties that in the past were operated by third parties whose operations were not under our control. Those properties and any wastes that may have been disposed or released on them may be subject to CERCLA, RCRA, and analogous state laws, and we potentially could be required to remediate such properties. In Canada, the oil and natural gas industry is currently subject to environmental regulation pursuant to provincial and federal legislation. Environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced or utilized in association with certain oil and gas industry operations. In addition, legislation requires that well and facility sites be abandoned and reclaimed to the satisfaction of provincial authorities. A breach of such legislation may result in the imposition of fines and penalties. In Alberta, environmental compliance has been governed by the Alberta Environmental Protection and Enhancement Act (AEPEA) since September 1, 1993. In addition to replacing a variety of older statutes which related to environmental matters, AEPEA also imposes certain environmental responsibilities on oil and natural gas operators in Alberta and in certain instances also imposes greater penalties for violations. British Columbia's Environmental Assessment Act became effective June 30, 1995. This legislation rolls the previous processes for the review of major energy projects into a single environmental assessment process which contemplates public participation in the environmental review. Although we maintain insurance against some, but not all, of the risks described above, including insuring the costs of clean-up operations, public liability and physical damage, there is no assurance that such insurance will be adequate to fully cover all such costs or that such insurance will continue to be available in the future or that such insurance will be available at premium levels that justify its purchase. The occurrence of a significant environmental-related event not fully insured or indemnified against could have a material adverse effect on our financial condition and operations. We have established guidelines to be followed to comply with U.S. and Canadian environmental laws and regulations. In addition, we have designated a compliance officer whose responsibility is to monitor regulatory requirements and their impacts on Forest and to implement appropriate compliance procedures. We also employ an environmental manager whose responsibilities include causing Forest's operations to be carried out in accordance with applicable environmental guidelines and implementing adequate safety precautions. Although we maintain pollution insurance against the costs of clean-up operations, public liability and physical damage, there is no assurance that such insurance will be adequate to cover all such costs or that such insurance will continue to be available in the future. We believe that it is reasonably likely that the trend in environmental legislation and regulation will continue toward stricter standards. We are committed to meeting our responsibilities to protect the environment wherever it operates and anticipate making increased expenditures of both a capital and expense nature as a result of increasingly stringent laws relating to the protection of the environment. 9 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS FORM 10-K, THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING FOREST. OIL AND GAS PRICE DECLINES AND THEIR VOLATILITY COULD ADVERSELY AFFECT FOREST'S REVENUE, CASH FLOWS AND PROFITABILITY. Prices for oil and natural gas fluctuate widely. Natural gas prices affect Forest more than oil prices, because most of our production and reserves are natural gas. At December 31, 2000, 61% of our estimated proved reserves consisted of natural gas on an MCFE basis and, during 2000, approximately 62% of our total production consisted of natural gas. Forest's revenues, profitability and future rate of growth depend substantially upon the prevailing prices of oil and natural gas. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. The amount we can borrow from banks may be subject to redetermination based on current prices. In addition, we may have ceiling test writedowns when prices decline. Lower prices may also reduce the amount of oil and natural gas that Forest can produce economically. We cannot predict future oil and natural gas prices. Factors that can cause this fluctuation include: - relatively minor changes in the supply of and demand for oil and natural gas; - market uncertainty; - the level of consumer product demand; - weather conditions; - domestic and foreign governmental regulations; - the price and availability of alternative fuels; - political and economic conditions in oil producing countries, particularly those in the Middle East; - the foreign supply of oil and natural gas; - the price of oil and gas imports; and - overall economic conditions. HEDGING TRANSACTIONS MAY LIMIT OUR POTENTIAL GAINS. In order to manage our exposure to price risks in the marketing of our oil and natural gas, we enter into oil and gas price hedging arrangements with respect to a portion of our expected production. Our hedges are limited in life, usually for periods of one year or less. While intended to reduce the effects of volatile oil and gas prices, such transactions may limit our potential gains if oil and gas prices were to rise substantially over the price established by the arrangements. In addition, such transactions may expose us to the risk of financial loss in certain circumstances, including instances in which: - our production is less than expected; - there is a widening of price differentials between delivery points for our production and the delivery point assumed in the hedge arrangement; or - the counterparties to our future contracts fail to perform under the contracts. For further information concerning prices, market conditions and energy swap and collar agreements, see Management's Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk--Commodity Price Risk, and Notes 9 and 11 of Notes to Consolidated Financial Statements. 10 CERTAIN PARTIES WITH WHOM WE HAVE LONG-TERM CONTRACTS MAY FAIL TO PERFORM. We have long-term contracts, including agreements for the sale of oil and gas. The other parties to these contracts could fail to perform their contractual obligations. This failure could be caused by financial difficulties of these parties that are beyond our control. Our ability to enforce these contractual obligations may be adversely affected by bankruptcy and other creditors' rights laws. WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO EXECUTE OUR OPERATING STRATEGY. We have historically addressed our long-term liquidity needs through the use of bank credit facilities, the issuance of debt and equity securities and the use of cash provided by operating activities. We continue to examine the following alternative sources of long-term capital: - bank borrowings or the issuance of debt securities; - the sale of common stock, preferred stock or other equity securities; - the issuance of nonrecourse production-based financing or net profits interests; - sales of non-strategic properties; - sales of prospects and technical information; and - joint venture financing. The availability of these sources of capital will depend upon a number of factors, some of which are beyond our control. These factors include general economic and financial market conditions, oil and natural gas prices and the value and performance of Forest. We may be unable to execute our operating strategy if we cannot obtain capital from these sources. ESTIMATES OF OIL AND GAS RESERVES ARE UNCERTAIN AND INHERENTLY IMPRECISE. This Form 10-K contains estimates of our proved oil and gas reserves and the estimated future net revenues from such reserves. These estimates are based upon various assumptions, including assumptions 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. In certain situations, hydrocarbon reservoirs underlying our properties may extend beyond the boundaries of our own acreage to adjacent acreage owned by others. In this case, our properties may also be susceptible to hydrocarbon drainage from production by the operators on those adjacent properties. Any significant variance could materially affect the estimated quantities and present value of reserves set forth. 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. At December 31, 2000, approximately 27% of our estimated proved reserves were undeveloped. Undeveloped reserves, by their nature, are less certain. 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 cannot assure you that the estimated costs are accurate, that development will occur as scheduled or that the results will be as estimated. See Note 14 of Notes to Consolidated Financial Statements. 11 You should not assume that the present value of future net revenues referred to in this Form 10-K is the current market value of our estimated oil and gas reserves. In accordance with Securities and Exchange Commission 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 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 Securities and Exchange Commission to be used in calculating discounted future net cash flows for reporting purposes, is not necessarily the most accurate discount factor. The effective interest rate at various times and the risks associated with Forest or the oil and gas industry in general will affect the accuracy of the 10% discount factor. LEVERAGE WILL MATERIALLY AFFECT OUR OPERATIONS. As of December 31, 2000, our long-term debt was approximately $622 million, including approximately $334 million outstanding under our global bank credit facility with a syndicate of banks led by The Chase Manhattan Bank and The Chase Manhattan Bank of Canada. Our long-term debt represented 42% of our total capitalization at December 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, 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. 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, our future performance and our ability to raise additional capital. Many of these factors are beyond our control. If Forest is unable to repay its debt at maturity out of cash on hand, it could attempt to refinance such debt, or repay such debt with the proceeds of any equity offering. We cannot assure you that Forest will be able to generate sufficient cash flow to pay the interest on its debt or that future debt or equity financing will be available to pay or refinance such debt. In addition, if Forest's bank credit facility rating is downgraded, Forest's ability to borrow under the global credit facility would be subject to a borrowing base that would re-determined semi-annually. If, following such a re-determination, Forest's outstanding borrowings exceeded the amount of the re-determined borrowing base, Forest would be forced to repay a portion of the outstanding borrowings in excess of the re-determined borrowing base. 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 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 12 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 or if purchasers cancel long-term contracts for our natural gas production. In 1998, we recorded after-tax writedowns of $175 million ($199.5 million pre-tax). We cannot assure you that we will not experience ceiling limitation writedowns in the future. WE MAY INCUR SIGNIFICANT ABANDONMENT COSTS OR BE REQUIRED TO POST SUBSTANTIAL PERFORMANCE BONDS IN CONNECTION WITH THE PLUGGING AND ABANDONMENT OF WELLS. We are responsible for the costs associated with the plugging of wells, the removal of facilities and equipment and site restoration on our oil and gas properties, pro rata to our working interest. We provide for expected future abandonment liabilities by accruing for such costs as a component of depletion, depreciation and amortization as production occurs. We also account for these future liabilities by including all projected abandonment costs as a reduction in the future cash flows from our reserves in our reserve reporting. As of December 31, 2000, total undiscounted future abandonment costs were estimated to be approximately $178.3 million, primarily for properties in offshore Gulf of Mexico and Alaska waters. Approximately $9.9 million in abandonment costs are anticipated to be incurred in 2001, all of which will be funded by cash flow from operations or from temporary borrowings. Estimates of abandonment costs and their timing may change due to many factors, including actual drilling and production results, inflation rates, changes in abandonment techniques and technology, and changes in environmental laws and regulations. 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. Production from Gulf of Mexico reservoirs represented approximately 56% of our total production in 2000. Our reserves will decline as they are produced unless we acquire properties with proved reserves or conduct successful exploration and development activities. Forest's future natural gas and oil production is highly dependent upon its level of success in finding or acquiring additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive and uncertain. We may be unable to make the necessary capital investment to maintain or expand our oil and gas reserves if cash flow from operations is reduced and external sources of capital become limited or unavailable. We cannot assure you that our future 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; 13 - equipment failures or accidents; - weather conditions; and - 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 wells and wells that are productive but do not produce sufficient net revenues after operating and other costs. 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. THE PROFITABILITY OF OUR GAS MARKETING ACTIVITIES MAY BE LIMITED. Our operations include gas marketing through our subsidiary, ProMark. ProMark's gas marketing operations consist of the marketing of gas production in Canada, the purchase and direct sale of third parties' natural gas, the handling of transportation and operations of third party gas and spot purchasing and selling of natural gas. The profitability of such natural gas marketing operations depends on our ability to assess and respond to changing market conditions, including credit risk. Profitability also depends on our ability to maximize the volume of third party natural gas that we purchase and resell or exchange and to obtain a satisfactory fee for service or margin between the negotiated purchase price and the sales price for such volumes. If we are unable to respond accurately to changing conditions in the gas marketing business, our results of operations could be materially adversely affected. ProMark does not buy or sell gas to hold as a speculative position. All transactions are immediately offset, fixing the margin. ProMark is exposed to credit risk because the counterparties to agreements might not perform their contractual obligations. OUR INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY CURRENCY FLUCTUATIONS AND ECONOMIC AND POLITICAL DEVELOPMENTS. We have significant oil and gas operations in Canada. The expenses of such operations, which represent approximately 10% of consolidated cash costs of oil and gas operations, are payable in Canadian dollars. Most of the revenue from Canadian natural gas and oil sales, which represents 9% of total oil and gas revenue, is based upon U.S. dollars 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. Although there are no material operations in these countries, our foreign operations may also be adversely affected by political and economic developments, royalty and tax increases and other laws or policies in these countries, as well as U.S. policies affecting trade, taxation and investment in other countries. 14 COMPETITION WITHIN OUR INDUSTRY MAY ADVERSELY AFFECT OUR OPERATIONS. We operate in a highly competitive environment. Forest competes with major and independent oil and gas companies for the acquisition of desirable oil and gas properties and the equipment and labor required to develop and operate such properties. Forest also competes with major and independent oil and gas companies in the marketing and sale of oil and natural gas. Many of these competitors have financial and other resources substantially greater than ours. 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. Such assessments are inexact and their accuracy is inherently uncertain. In connection with such assessments, we perform a review of the subject properties, which we believe is generally consistent with industry practices. However, such a review will not reveal all existing or potential problems. In addition, the review will not permit a buyer to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities. We do not inspect every platform or well. Even when a platform or well is inspected, structural and environmental problems are not necessarily discovered. We are generally not entitled to contractual indemnification for preclosing liabilities, including environmental liabilities. Normally, we acquire interests in properties on an "as is" basis with limited remedies for breaches of representations and warranties. In addition, competition for producing oil and gas properties is intense and many of our competitors have financial and other resources which are substantially greater than those available to us. Therefore, we cannot assure you that we will be able to acquire oil and gas properties that contain economically recoverable reserves or that we will acquire such properties at acceptable prices. THE MARKETABILITY OF FOREST'S PRODUCTION DEPENDS LARGELY 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 gas gathering systems, pipelines and processing facilities. Transportation space on such gathering systems and pipelines is occasionally limited and at times unavailable due to repairs or improvements being made to such facilities or due to such space being utilized by other companies with priority transportation agreements. Our access to transportation options can also be affected by U.S. federal and state and Canadian regulation of oil and gas production and transportation, general economic conditions, and changes in supply and demand. These factors and the availability of markets are beyond our control. If market factors dramatically change, the financial impact on Forest could be substantial and could adversely affect our ability to produce and market oil and natural gas. 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 and Canadian federal and provincial 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 OPA 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 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. We cannot predict the ultimate cost of compliance with these requirements or their effect on our operations. 15 THERE ARE UNCERTAINTIES IN SUCCESSFULLY INTEGRATING OUR ACQUISTIONS, SPECIFICALLY OUR RECENT MERGER WITH FORCENERGY. Integrating businesses involves a number of special risks, including the possibility that management may be distracted from regular business concerns by the need to integrate operations, that unforeseen difficulties can arise 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. THE SIGNIFICANT OWNERSHIP POSITION OF ANSCHUTZ COULD LIMIT FOREST'S ABILITY TO ENTER INTO CERTAIN TRANSACTIONS. As of March 1, 2001, The Anschutz Corporation owned approximately 31% of our outstanding common stock. Pursuant to a shareholder agreement between Anschutz and Forest, Anschutz designated three of Forest's directors. Therefore, Anschutz can substantially influence matters being considered by Forest's board of directors. The shareholder agreement, which also prohibited Anschutz from acquiring in excess of 49.9% of the outstanding Forest common shares, expired on July 27, 2000. Applicable law requires that the holders of two-thirds of the outstanding Forest common shares approve a future merger with a third party; therefore, control of Forest most likely could not be transferred to a third party without Anschutz's consent and agreement. A third party probably would not offer to pay a premium to acquire Forest without the prior agreement of Anschutz, even if the board of directors should choose to attempt to sell Forest in the future. In addition, shareholder approval would be required by New York Stock Exchange rules for the issuance of common stock to a third party in an amount in excess of 20% of the outstanding common stock. Anschutz's opposition to such a transaction could significantly reduce the likelihood of its approval. WE DO NOT PAY DIVIDENDS. We have not declared any cash dividends on our common stock in a number of years and have no intention to do so in the near future. In addition, we are limited in the amount we can pay by our global credit agreement and the indentures pursuant to which our 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 our 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. Our directors are elected to staggered terms. Also, our Restated Certificate of Incorporation authorizes our 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. Our board of directors has adopted a shareholder rights plan. The existence of the rights plan may impede a takeover of Forest not supported by the 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 our common stock. 16 CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS The information in this Form 10-K may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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: - budgeted capital expenditures; - increases in oil and gas production; - our outlook on oil and gas prices; - estimates of our oil and gas reserves; - the impact of political and regulatory developments; - our future financial condition or results of operations; and - our business strategy and other plans and objectives for future operations. When considering such forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-K. The risk factors noted in this Form 10-K and other factors noted throughout this Form 10-K, including certain risks and uncertainties, could cause our actual results to differ materially from those contained in any forward-looking statement. Prices for oil and natural gas fluctuate widely. Numerous uncertainties are inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures. Many of these uncertainties are beyond our control. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data and the interpretation of such data by geological engineers. As a result, estimates made by different engineers often vary from one another. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered. All forward-looking statements attributable to Forest are expressly qualified in their entirety by this cautionary statement. 17 ITEM 2. PROPERTIES Forest's principal reserves and producing properties are oil and gas properties located in the United States in the Gulf of Mexico, Louisiana, Texas and Alaska and in Canada in Alberta and the Northwest Territories. RESERVES Information regarding Forest's proved and proved developed oil and gas reserves and the standardized measure of discounted future net cash flows and changes therein is included in Note 14 of Notes to Consolidated Financial Statements. Since January 1, 2000 Forest has not filed any oil or natural gas reserve estimates or included any such estimates in reports to any Federal or foreign governmental authority or agency, other than the Securities and Exchange Commission (SEC) and the Department of Energy (DOE). There were no differences between the reserve estimates included in the SEC report, the DOE report and those included herein, except for production and additions and deletions due to the difference in the "as of" dates of such reserve estimates. PRODUCTION The following table shows net liquids and natural gas production for Forest and its subsidiaries for the years ended December 31, 2000, 1999 and 1998:
NET NATURAL GAS AND LIQUIDS PRODUCTION(1) ------------------------------ 2000 1999 1998 -------- -------- -------- United States: Natural Gas (MMCF)............................... 102,320 49,279 47,394 Liquids (MBBLS).................................. 9,891 2,712 2,405 Canada: Natural Gas (MMCF)............................... 11,522 12,423 14,916 Liquids (MBBLS).................................. 1,536 1,685 1,864 Total (MMCFE)...................................... 182,404 88,084 87,924
- ------------------------ (1) Volumes reported for natural gas include insignificant amounts of sulfur production on the basis that one long ton of sulfur is equivalent to 15 MCF of natural gas. Liquids volumes include both oil and condensate and natural gas liquids. 18 AVERAGE SALES PRICES AND PRODUCTION COSTS PER UNIT OF PRODUCTION The following table sets forth the average sales prices per MCF of natural gas and per barrel of liquids and the average production cost per equivalent unit of production for the years ended December 31, 2000, 1999 and 1998 for Forest and its subsidiaries:
UNITED STATES CANADA ------------------------------ ------------------------------ 2000 1999(1) 1998(1) 2000 1999(1) 1998(1) -------- -------- -------- -------- -------- -------- Average Sales Prices: Natural Gas Production (MMCF)(2)...................... 102,320 49,279 47,394 11,522 12,423 14,916 Sales price received (per MCF)............ $ 4.02 2.31 2.13 2.64 1.61 1.23 Effects of energy swaps (per MCF)(2)...... (.67) .03 .09 (.44) (.07) (.02) -------- ------ ------ ------ ------ ------ Average sales price (per MCF)............. $ 3.35 2.34 2.22 2.20 1.54 1.21 Liquids: Oil and condensate: Production (MBBLS)........................ 8,775 1,985 1,919 1,110 1,254 1,389 Sales price received (per BBL)............ $ 28.74 17.84 12.67 28.54 16.98 12.13 Effects of energy swaps (per BBL)(2)...... (5.65) (3.11) .45 (5.61) (2.37) 1.06 -------- ------ ------ ------ ------ ------ Average sales price (per BBL)............. $ 23.09 14.73 13.12 22.94 14.61 13.19 Natural gas liquids: Production (MBBLS)........................ 1,116 727 486 426 431 475 Average sales price (per BBL)............. $ 18.72 9.95 7.00 18.19 10.70 7.25 Total liquids production (MBBLS)............ 9,891 2,712 2,405 1,536 1,685 1,864 Average sales price (per BBL)............... $ 22.59 13.45 11.88 21.62 13.61 11.68 Average production cost (per MCFE)(3)......... $ .79 .55 .53 .62 .59 .47
- ------------------------ (1) Financial data for 1999 and 1998 have been restated to reflect the reclassification of transportation costs from oil and gas revenue to oil and gas production expense to comply with a recent accounting pronouncement. (2) Energy swaps were entered into to hedge the price of spot market volumes against price fluctuations. Hedged natural gas volumes were 53,078 MMCF, 32,481 MMCF and 26,527 MMCF for the years ended December 31, 2000, 1999 and 1998, respectively. Hedged oil and condensate volumes were 6,953,000 barrels, 2,075,000 barrels and 392,900 barrels for 2000, 1999 and 1998, respectively. The aggregate gains (losses) under energy swap agreements were $(129,091,000), $(8,684,000) and $6,305,000 respectively, for the years ended December 31, 2000, 1999 and 1998 and were accounted for as increases (reductions) to oil and gas sales. (3) Production costs were converted to common units of measure using a conversion ratio of one barrel of oil to six MCF of natural gas and one long ton of sulfur to 15 MCF of natural gas. Such production costs exclude all depreciation, depletion and provision for impairment associated with property and equipment. 19 PRODUCTIVE WELLS The following summarizes total gross and net productive wells of Forest and its subsidiaries at December 31, 2000:
PRODUCTIVE WELLS(1) ------------------------ UNITED STATES CANADA ------------- -------- Gross(2) Gas................................................... 817 201 Oil................................................... 2,025 280 ----- --- Totals(3)......................................... 2,842 481 ===== === Net(4) Gas................................................... 371 114 Oil................................................... 753 204 ----- --- Totals............................................ 1,124 318 ===== ===
- ------------------------ (1) Productive wells are producing wells and wells capable of production, including wells that are shut-in. (2) A gross well is a well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned. (3) Includes 23 dual completions in the United States and 5 dual completions in Canada. Dual completions are counted as one well. If one completion is an oil completion, the well is classified as an oil well. (4) A net well is deemed to exist when the sum of fractional ownership working interests in gross wells equals one. The number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof. 20 DEVELOPED AND UNDEVELOPED ACREAGE Forest and its subsidiaries held acreage as set forth below at December 31, 2000 and 1999. A majority of the developed acreage is subject to mortgage liens securing our bank indebtedness. See Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 4 of Notes to Consolidated Financial Statements.
DEVELOPED ACREAGE(1) UNDEVELOPED ACREAGE(2) -------------------- ----------------------- GROSS(3) NET(4) GROSS(3) NET(4) --------- -------- ---------- ---------- United States: Offshore................................ 717,079 333,591 187,200 142,570 Onshore................................. 356,908 111,461 639,391 108,867 Western................................. 46,147 18,034 132,373 73,563 Alaska.................................. 295,164 22,119 158,115 151,090 --------- ------- ---------- ---------- 1,415,298 485,205 1,117,079 476,090 Canada.................................... 262,684 134,015 1,508,266 610,702 International: South Africa............................ -- -- 10,266,218 7,186,352 Tunisia................................. -- -- 3,270,420 2,289,294 Gabon................................... -- -- 2,409,276 2,409,276 Australia(5)............................ -- -- 2,400,000 1,380,000 Switzerland............................. -- -- 1,850,000 925,000 Germany................................. -- -- 1,515,442 1,515,442 Albania................................. -- -- 1,647,141 494,141 Italy................................... -- -- 816,361 748,556 Romania................................. -- -- 766,899 766,899 Thailand................................ -- -- 241,122 241,122 --------- ------- ---------- ---------- -- -- 25,182,879 17,956,082 --------- ------- ---------- ---------- Total acreage at December 31, 2000........ 1,677,982 619,220 27,808,224 19,042,874 ========= ======= ========== ========== Total acreage at December 31, 1999........ 1,492,596 639,091 60,558,102 33,874,087 ========= ======= ========== ==========
- ------------------------ (1) Developed acres are those acres which are spaced or assigned to productive wells. (2) Undeveloped acres are considered to be those acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether such acreage contains proved reserves. It should not be confused with undrilled acreage held by production under the terms of a lease. (3) A gross acre is an acre in which a working interest is owned. The number of gross acres is the total number of acres in which a working interest is owned. (4) A net acre is deemed to exist when the sum of the fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof. (5) This acreage was sold in February 2001. The reduction in undeveloped acreage at December 31, 2000 compared to December 31, 1999 is attributable to expirations of foreign concessions held by Forcenergy. Approximately 4% of our net undeveloped acreage at December 31, 2000 is under leases that have terms expiring in 2001, if not held by 21 production, and approximately 1% of net undeveloped acreage will expire in 2002 if not also held by production. DRILLING ACTIVITY Forest and its subsidiaries owned interests in gross and net exploratory and development wells for the years ended December 31, 2000, 1999 and 1998 as set forth below. This information does not include wells drilled under farmout agreements.
UNITED STATES CANADA INTERNATIONAL ------------------------------ ------------------------------ ------------- 2000 1999 1998 2000 1999 1998 2000 -------- -------- -------- -------- -------- -------- ------------- Gross Exploratory Wells: Dry(1)...................................... 12 3 6 6 5 7 2 Productive(2)............................... 50 13 7 13 1 2 -- ---- --- --- --- --- ---- --- 62 16 13 19 6 9 2 ==== === === === === ==== === Net Exploratory Wells:(3) Dry(1)...................................... 6.3 1.7 4.3 2.0 2.4 5.6 1.4 Productive(2)............................... 26.5 5.7 4.7 7.6 1.0 .7 -- ---- --- --- --- --- ---- --- 32.8 7.4 9.0 9.6 3.4 6.3 1.4 ==== === === === === ==== === Gross Development Wells: Dry(1)...................................... -- -- -- -- -- 2 -- Productive(2)............................... 16 6 9 -- 8 14 -- ---- --- --- --- --- ---- --- 16 6 9 -- 8 16 -- ==== === === === === ==== === Net Development Wells: Dry(1)...................................... -- -- -- -- -- 2.0 -- Productive(2)............................... 8.9 3.2 2.6 -- 1.9 10.0 -- ---- --- --- --- --- ---- --- 8.9 3.2 2.6 -- 1.9 12.0 -- ==== === === === === ==== ===
- ------------------------ (1) A dry well (hole) is a well found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion as an oil or natural gas well. (2) Productive wells are producing wells and wells capable of production, including wells that are shut-in. (3) A net well is deemed to exist when the sum of fractional ownership working interests in gross wells equals one. The number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof. At December 31, 2000 Forest and its subsidiaries had seven exploratory wells (4.1 net) and six development wells (4.7 net) that were in the process of being drilled. Of the seven exploratory wells, one in Canada is still being evaluated (0.3 net), one in the United States is still being drilled (1.0 net), two in international are still being drilled (1.0 net), one in international (0.7 net) was successful and two in the United States were dry holes (1.1 net). Of the six development wells, two in Canada are still being evaluated (1.4 net), three in the United States were productive (2.5 net) and one in Canada was productive (0.8 net). DELIVERY COMMITMENTS Approximately 85% of Canadian Forest's natural gas production was sold through the ProMark Netback Pool in 2000. At December 31, 2000 the ProMark Netback Pool had entered into fixed price contracts to sell approximately 5.5 BCF of natural gas in 2001 at an average price of $2.52 CDN per MCF and approximately 5.5 BCF of natural gas in 2002 at an average price of approximately $2.61 CDN per MCF. Canadian Forest, as one of the producers in the ProMark Netback Pool, is obligated to deliver a portion of this gas. In 2000, Canadian Forest supplied approximately 37% of the gas for the Netback Pool. In addition to its commitments to the ProMark Netback Pool, Canadian Forest is committed to sell an additional .6 BCF of natural gas in 2001 at a fixed price of approximately $3.25 CDN per MCF and another .5 BCF of natural gas in 2002 at a fixed price of approximately $3.37 CDN per MCF. There are no long-term delivery commitments in the United States as of December 31, 2000. 22 ITEM 3. LEGAL PROCEEDINGS Forest, in the ordinary course of business, is a party to various legal actions. In the opinion of our management, none of these actions, either individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations. 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. Prior to its merger with Forest, Forcenergy was 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. Forest believes the Escopeta Group claim to be without merit and continues to vigorously contest it. Based on information currently available, Forest believes 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 Forest. Pursuant to its plan of reorganization, Forcenergy established a reserve of Forcenergy common stock to be distributed to claimants in the event their disputed claims are ultimately determined by the bankruptcy court to be allowed claims. The reserved shares of Forcenergy common stock became Forest common shares in accordance with the terms of the merger. Forest believes that the shares in the reserve are sufficient to cover any allowed claims. If the shares in the reserve are inadequate to cover all allowed claims, then under the Forcenergy plan of reorganization Forest would be required to issue additional shares of common stock to the holders of such claims. Forest believes, however, that the shares in the reserve are adequate to cover all remaining disputed claims that may be subsequently allowed. There can be no assurance, however, that this will be the case. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 7, 2000, a special meeting of Forest's shareholders was held in Denver, Colorado. The following proposals were submitted to a vote of shareholders and were adopted by the margins indicated: 1. Approving the issuance of the 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, and to approve the other transactions contemplated by the merger agreement.
NUMBER OF SHARES ---------------- FOR AGAINST ABSTENTIONS BROKER NON-VOTES - ---------- --------- ----------- ---------------- 42,563,791 1,837,817 26,753 9,866,939
2. Effecting a 1-for-2 reverse stock split of the Forest common stock.
NUMBER OF SHARES ---------------- FOR AGAINST ABSTENTIONS BROKER NON-VOTES - ---------- --------- ----------- ---------------- 46,245,791 4,370,388 26,949 3,652,172
23 ITEM 4A. EXECUTIVE OFFICERS OF FOREST The following information with respect to the executive officers of Forest is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
YEARS WITH NAME AGE FOREST OFFICE (1) - ---- -------- ---------- ------------------------------------------------ Robert S. Boswell................. 51 15 Chairman of the Board since March 2000. Chief Executive Officer since December 1995 and President from November 1993 to March 2000. Chief Financial Officer from May 1991 until December 1995. Member of the Board of Directors since 1986. Chairman of the Nominating Committee and member of the Executive Committee. Director of C.E. Franklin Ltd. Richard G. Zepernick, Jr.......... 40 -- President and Chief Operating Officer since December 2000. President and Chief Executive Officer of Forcenergy Inc from April 2000 to December 2000. Senior Vice President--Gulf of Mexico of Ocean Energy, Inc. from June 1998 to March 2000. Executive Vice President--North America for Ocean Energy, Inc. from May 1997 to May 1998. Executive Vice President and Chief Operating Officer of Ocean Energy, Inc. from January 1996 to April 1997. David H. Keyte.................... 44 13 Executive Vice President and Chief Financial Officer since November 1997. Vice President and Chief Financial Officer from December 1995 to November 1997. Vice President and Chief Accounting Officer from December 1993 until December 1995. Chairman of the Employee Benefits Committee. Gary E. Carlson................... 54 -- Senior Vice President--Alaska since December 2000. Vice President--Alaska Division of Forcenergy Inc from March 1997 to December 2000. General Manager for Health, Environment and Safety Support Worldwide of Unocal from 1996 to February 1997. Forest D. Dorn.................... 46 23 Senior Vice President--Corporate Services since December 2000. Senior Vice President--Gulf Coast Region from November 1997 to December 2000. Vice President--Gulf Coast Region from August 1996 to November 1997. Vice President and General Business Manager from December 1993 to August 1996. Member of the Employee Benefits Committee. Neal A. Stanley................... 53 4 Senior Vice President--Western Region since November 1997. Vice President--Western Region from August 1996 to November 1997. Prior thereto President of Teton Oil and Gas Corporation.
24
YEARS WITH NAME AGE FOREST OFFICE (1) - ---- -------- ---------- ------------------------------------------------ Robert G. Gerdes.................. 44 -- Senior Vice President--Gulf Offshore Metairie since December 2000. Vice President--Gulf of Mexico, Onshore and International of Forcenergy Inc from March 2000 to December 2000. Vice President--Geosciences of Forcenergy Inc from October 1997 to March 2000. Geologist and Evaluations Manager of Forcenergy Inc from 1994 to October 1997. James W. Knell.................... 50 13 Senior Vice President--Gulf Coast Region since December 2000. Vice President--Gulf Coast Region from May 1999 to December 2000. Gulf Coast Business Unit Manager from November 1997 to May 1999. Corporate Drilling and Production Manager from December 1991 to November 1997. Newton W. Wilson, III............. 50 -- Senior Vice President--Legal Affairs and Corporate Secretary since December 2000. Consultant to Mariner Energy LLC from 1999 to December 2000. Consultant to Sterling City Capital from 1998 to 1999. President and Chief Operations Officer of Union Texas Americas Ltd. from 1996 to 1998. General Counsel, Vice-President Administration and Secretary of Union Texas Americas Ltd. from 1993 to 1996. Member of the Employee Benefits Committee. Cecil N. Colwell.................. 50 12 Vice President--Drilling since December 2000. Prior thereto, Drilling Manager since November 1988. Joan C. Sonnen.................... 47 11 Vice President--Controller, Chief Accounting Officer and Assistant Secretary since December 2000. Vice President--Controller and Corporate Secretary from May 1999 to December 2000. Corporate Secretary from March 1999 to December 2000. Controller since December 1993. Member of the Employee Benefits Committee. Donald H. Stevens................. 48 3 Vice President--Capital Markets and Treasurer since December 1998. Vice President--Capital Markets and Strategic Initiatives from August 1997 to December 1998. Prior thereto Vice President-Corporate Relations and Capital Markets of Barrett Resources Corporation. Director of FieldPoint Petroleum Corporation. Matthew A. Wurtzbacher............ 38 2 Vice President--Corporate Planning and Development since December 2000. Manager--Operational Planning and Corporate Engineering from June 1998 to December 2000. Financial Engineering Manager of Schlumberger Oilfield Services, North America from 1996 to 1998. Senior Reservoir Engineer of Enron Oil and Gas Company from 1993 to 1996.
- ------------------------ (1) The term of office of each officer is one year from the date of his or her election immediately following the last annual meeting of shareholders and until the officer's respective successor has been elected and qualified or until his or her earlier death, resignation or removal from office whichever occurs first. Each of the named persons has held the office indicated since the last annual meeting of shareholders, except as otherwise indicated. 25 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK Forest has one class of common shares outstanding, its Common Stock, par value $.10 per share (Common Stock). On February 28, 2001, 48,480,706 shares of Common Stock were held by 2,652 holders of record. The number of holders does not include the shareholders for whom shares are held in a "nominee" or "street" name. Forest's Common Stock is listed on the New York Stock Exchange. The high and low intraday sales prices of the Common Stock for each quarterly period of the years presented are listed in the chart below. Periods prior to December 2000 have been restated giving retroactive effect to the 1-for-2 reverse stock split. See Note 7 of Notes to Consolidated Financial Statements. There were no dividends declared on the Common Stock in 1999, 2000, or in the first quarter of 2001.
HIGH LOW -------- -------- 1999: First Quarter...................................... $17.875 $ 10.75 Second Quarter..................................... 27.125 15.00 Third Quarter...................................... 36.25 25.375 Fourth Quarter..................................... 33.75 18.00 2000: First Quarter...................................... $ 25.25 $14.375 Second Quarter..................................... 34.50 20.25 Third Quarter...................................... 38.00 23.50 Fourth Quarter..................................... 37.50 24.75 2001: First Quarter (through March 1).................... $ 36.99 $ 31.25
WARRANTS At February 28, 2001, Forest had outstanding 238,831 warrants expiring on February 15, 2004 that entitle the holder to purchase shares of Common Stock (the 2004 Warrants). Each 2004 Warrant entitles the holder to purchase 0.8 shares of Common Stock for $16.67, or an equivalent per share price of $20.84. On February 28, 2001, the 2004 Warrants were held by 483 holders of record. The 2004 Warrants are quoted on the NASDAQ OTC Bulletin Board. The high and low closing sales prices of the 2004 Warrants for each quarterly period of the years presented are listed in the chart below:
HIGH LOW -------- -------- 2000: First Quarter...................................... $ N/A $ N/A Second Quarter..................................... 9.00 0.25 Third Quarter...................................... 13.00 5.00 Fourth Quarter..................................... 15.50 8.00 2001: First Quarter (through March 1).................... $ 15.00 $ 12.25
At February 28, 2001, Forest also had outstanding 239,029 warrants expiring on February 15, 2005 that entitle the holder to purchase shares of Common Stock (the 2005 Warrants). Each 2005 Warrant entitles the holder to purchase 0.8 shares of Common Stock for $20.83, or an equivalent per share price of $26.04. On February 28, 2001, the 2005 Warrants were held by 484 holders of record. 26 The 2005 Warrants are quoted on the NASDAQ OTC Bulletin Board. The high and low closing sales prices of the 2005 Warrants for each quarterly period of the years presented are listed in the chart below:
HIGH LOW -------- -------- 2000: First Quarter...................................... $ N/A $ N/A Second Quarter..................................... 6.00 0.03 Third Quarter...................................... 8.50 3.00 Fourth Quarter..................................... 14.00 6.00 2001: First Quarter (through March 1).................... $ 13.63 $ 11.50
At February 28, 2001, Forest also had outstanding 1,773,885 subscription warrants that entitle the holder to purchase shares of Common Stock (Subscription Warrants). Each Subscription Warrant entitles the holder to purchase 0.8 shares of Common Stock for $10.00, or an equivalent per share price of $12.50. The Subscription Warrants are detachable and expire on March 20, 2010 or earlier upon notice of expiration by Forest if, after March 20, 2004, the market price of the Common Stock has exceeded the exercise price of the Subscription Warrants for a period of 30 consecutive trading days. On February 28, 2001, the Subscription Warrants were held by 13 holders of record. The Subscription Warrants are quoted on the NASDAQ OTC Bulletin Board. The high and low closing sales prices of the Subscription Warrants for each quarterly period of the years presented are listed in the chart below:
HIGH LOW -------- -------- 2000: First Quarter...................................... $ N/A $ N/A Second Quarter..................................... N/A N/A Third Quarter...................................... 17.13 12.00 Fourth Quarter..................................... 23.50 12.00 2001: First Quarter (through March 1).................... $ 23.50 $ 19.75
DIVIDEND RESTRICTIONS Forest's present or future ability to pay dividends is restricted by (i) the provisions of the New York Business Corporation Law (NYBCL), (ii) certain restrictive provisions in the Indentures executed in connection with Canadian Forest's 8 3/4% Senior Subordinated Notes due September 15, 2007 which are guaranteed by Forest and Forest's 10 1/2% Senior Subordinated Notes due 2006, and (iii) the Credit Agreement dated as of October 10, 2000 with The Chase Manhattan Bank, as global administrative agent for a group of banks. Under these restrictions, Forest was not prohibited from paying dividends on its Common Stock as of March 1, 2001. Forest has not paid dividends on its Common Stock during the past five years and does not anticipate that it will do so in the foreseeable future. The future payment of dividends, if any, on the Common Stock is within the discretion of the Board of Directors and will depend on Forest's earnings, capital requirements, financial condition and other relevant factors. There is no assurance that Forest will pay any dividends. For further information regarding our equity securities and our ability to pay dividends on our Common Stock, see Notes 4 and 7 of Notes to Consolidated Financial Statements. 27 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA The following table sets forth selected financial and operating data of Forest on a historical basis as of and for each of the years in the five-year period ended December 31, 2000. This data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto. Financial data for years prior to 2000 have been restated to reflect the reclassification of transportation costs from oil and gas revenue to oil and gas production expense to comply with a recent accounting pronouncement. On December 7, 2000, Forest completed its merger with Forcenergy Inc (Forcenergy). The merger was 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 were carried forward to the combined company at their recorded amounts, and income of the combined company includes income of Forest and Forcenergy for the entire year. The results of operations of Forcenergy prior to December 31, 1999, the effective date of its reorganization and fresh-start reporting, are not included in the financial statements of the combined company.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 2000 1999 1998 1997 1996 ----------- ---------- --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, VOLUMES AND PRICES) FINANCIAL DATA Revenue: Marketing and processing................ $ 288,133 166,283 151,079 184,399 187,374 Oil and gas sales....................... 624,925 193,841 173,701 158,450 130,547 ---------- --------- -------- ------- ------- Total revenue........................... $ 913,058 360,124 324,780 342,849 317,921 Earnings (loss) before extraordinary items................................... $ 130,608 19,641 (197,786) 3,089 1,139 Net earnings (loss)....................... $ 130,608 19,043 (191,590) (9,270) 3,305 Weighted average number of common shares outstanding............................. 46,330 23,971 20,455 16,834 12,531 Net earnings (loss) attributable to common stock................................... $ 126,440 19,043 (191,590) (9,459) 1,147 Basic earnings (loss) per share: Earnings (loss) attributable to common stock before extraordinary items...... $ 2.73 .82 (9.67) .17 (.08) Extraordinary items..................... -- (.03) .30 (.73) .17 ---------- --------- -------- ------- ------- Earnings (loss) attributable to common stock....................... $ 2.73 .79 (9.37) (.56) .09 Diluted earnings (loss) per share: Earnings (loss) attributable to common stock before extraordinary items...... $ 2.64 .81 (9.67) .18 (.08) Extraordinary items..................... -- (.02) .30 (.72) .17 ---------- --------- -------- ------- ------- Earnings (loss) attributable to common stock....................... $ 2.64 .79 (9.37) (.54) .09 Total assets.............................. $1,752,378 1,474,689 759,736 647,782 563,458 Long-term debt............................ $ 622,234 686,153 505,450 254,760 168,859 Other long-term liabilities............... $ 31,241 25,112 24,267 51,787 61,151 Shareholders' equity...................... $ 858,966 558,984 168,991 261,827 242,443
28
YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 2000 1999 1998 1997 1996 ----------- ---------- --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, VOLUMES AND PRICES) OPERATING DATA Annual production: Gas (MMCF).............................. 113,842 61,702 62,310 49,035 42,496 Liquids (MBBLS)......................... 11,427 4,397 4,269 3,207 2,749 Average price received: Gas (per MCF)........................... $ 3.23 2.17 1.98 2.10 1.91 Liquids (per Barrel).................... $ 22.46 13.51 11.79 17.29 17.93 Capital expenditures, net of asset sales................................... $ 372,688 104,612 461,452 147,130 234,556 Proved Reserves: Gas (MMCF).............................. 844,058 825,623 564,264 378,315 334,180 Liquids (MBBLS)......................... 89,241 97,086 35,069 24,636 24,014 Standardized measure of discounted future net cash flows relating to proved oil and gas reserves........................ $3,694,431 1,419,022 522,831 439,570 559,869
29 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with Forest's Consolidated Financial Statements and Notes thereto. On December 7, 2000, Forest completed its merger with Forcenergy Inc (Forcenergy). The merger was 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 were carried forward to the combined company at their recorded amounts, and income of the combined company includes income of Forest and Forcenergy for the entire year. The results of operations of Forcenergy prior to December 31, 1999, the effective date of its reorganization and fresh-start reporting, are not included in the financial statements of the combined company. RESULTS OF OPERATIONS Net earnings for 2000 were $130,608,000 compared to net earnings of $19,043,000 in 1999. Exclusive of unusual or non-recurring items, net earnings were $136,777,000 for 2000 compared to $9,080,000 in 1999. Items excluded from this computation consist of merger-related expenses of $28,491,000 (net of tax) in 2000, impairment of oil and gas properties of $5,876,000 in 2000, non-cash foreign currency translation losses of $7,102,000 in 2000, a one-time tax credit of $35,300,000 in 2000, non-cash foreign currency translation gains of $10,561,000 in 1999 and an extraordinary loss on extinguishment of debt of $598,000 in 1999. The improvement in earnings was primarily due to higher production volumes resulting from the merger with Forcenergy and higher product prices. Net earnings for 1999 were $19,043,000 compared to a net loss of $191,590,000 in 1998. Exclusive of unusual or non-recurring items, net earnings were $9,080,000 for 1999 compared to a net loss of $14,466,000 in 1998. Items excluded from the 1998 computation consist of a writedown of oil and gas properties of $175,000,000 ($199,500,000 pre-tax), non-cash foreign currency translation losses of $8,320,000, and an extraordinary gain on extinguishment of debt of $6,196,000. The improvement in earnings was due primarily to higher prices and lower depletion expense. Marketing and processing revenue increased by 73% to $288,133,000 in 2000 from $166,283,000 in 1999, and the related marketing and processing expense increased by 75% to $285,039,000 in 2000 from $162,617,000 in the previous year. The gross margin for marketing and processing activities decreased to $3,094,000 in 2000 from $3,666,000 in 1999. The decrease in the margin is due primarily to lower margins on processing activities in the United States. Marketing and processing revenue increased by 10% to $166,283,000 in 1999 from $151,079,000 in 1998 and the related marketing and processing expense increased by 12% to $162,617,000 in 1999 from $144,758,000 in the previous year. The gross margin reported for marketing and processing activities decreased to $3,666,000 in 1999 from $6,321,000 in 1998. The decrease resulted primarily from the effects of an increasingly competitive market which caused trading margins to tighten, and lower gas processing income due to the sale of processing facilities in the first quarter of 1999. Oil and gas sales revenue increased by 222% to $624,925,000 in 2000 from $193,841,000 in 1999 due primarily to higher production volumes resulting from the merger with Forcenergy and higher oil and gas prices. The average sales prices received for natural gas and liquids in 2000 increased 48% and 66%, respectively, compared to the average sales prices received in 1999. Production volumes on an MMCFE basis were 107% higher in 2000 compared to 1999. Oil and gas sales revenue increased by 12% to $193,841,000 in 1999 from $173,701,000 in 1998 due primarily to higher natural gas and liquids prices. The average sales prices received for natural gas and liquids in 1999 increased 10% and 15%, respectively, compared to the average sales prices received in 1998. Production volumes for natural gas and liquids on an MCFE basis were less than 1% higher in 1999 compared to 1998. 30 Oil and gas production expense increased 185% to $140,218,000 in 2000 from $49,145,000 in 1999. On an MMCFE basis, production expense was $.77 per MCFE in 2000 compared to $.56 per MCFE in 1999. The increase in expense and per-unit rates are due primarily to higher operating costs associated with Forcenergy properties, higher production taxes and increased workover activity. Oil and gas production expense increased 9% to $49,145,000 in 1999 from $44,944,000 in 1998, due primarily to non-recurring direct operating expenses and expensed workovers. On an MCFE basis, production expense was $.56 per MCFE in 1999 compared to $.51 in 1998. The increase in the per-unit expense is attributable to higher costs being spread over essentially the same production base. Production volumes, weighted average sales prices and production expenses for the years ended December 31, 2000, 1999 and 1998 for Forest and its subsidiaries were as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999(1) 1998(1) -------- -------- -------- NATURAL GAS Production (MMCF)......................................... 113,842 61,702 62,310 Sales price received (per MCF)............................ $ 3.87 2.17 1.92 Effects of energy swaps (per MCF)(2)...................... (.64) 0.01 0.06 ------- ------ ------ Average sales price(per MCF).............................. $ 3.23 2.18 1.98 LIQUIDS Oil and condensate: Production (MBBLS)........................................ 9,885 3,239 3,308 Sales price received (per BBL)............................ $ 28.72 17.51 12.44 Effects of energy swaps (per BBL)(2)...................... (5.65) (2.82) 0.71 ------- ------ ------ Average sales price (per BBL)............................. $ 23.07 14.69 13.15 Natural gas liquids: Production (MBBLS)........................................ 1,542 1,158 961 Average sales price (per BBL)............................. $ 18.57 10.23 7.13 Total liquids production (MBBLS).......................... 11,427 4,397 4,269 Average sales price (per BBL)............................. $ 22.46 13.51 11.79 TOTAL PRODUCTION Production volumes (MMCFE).................................. 182,404 88,084 87,924 Average sales price (per MCFE).............................. $ 3.43 2.20 1.97 Operating expense (per MCFE)................................ 0.77 0.56 0.51 ------- ------ ------ Netback (per MCFE).......................................... $ 2.66 1.64 1.46 ======= ====== ======
- ------------------------ (1) Financial data for 1999 and 1998 have been restated to reflect the reclassification of transportation costs from oil and gas revenue to oil and gas production expense to comply with a recent accounting pronouncement. (2) Energy swaps were entered into to hedge the price of spot market volumes against price fluctuations. Hedged natural gas volumes were 53,078 MMCF, 32,481 MMCF and 26,527 MMCF in 2000, 1999 and 1998, respectively. Hedged oil and condensate volumes were 6,953,000 barrels, 2,075,000 barrels and 392,900 barrels in 2000, 1999 and 1998, respectively. The aggregate net gains (losses) under energy swap agreements were $(129,091,000), $(8,684,000) and $6,305,000, respectively, for the years ended December 31, 2000, 1999 and 1998 and were accounted for as increases (reductions) to oil and gas sales. 31 General and administrative expense increased 132% to $35,580,000 in 2000 compared to $15,362,000 in 1999. The increase was due primarily to general and administrative expenses related to Forcenergy operations in 2000. General and administrative expense decreased 23% to $15,362,000 in 1999 compared to $19,849,000 in 1998. The 1998 period included approximately $1,500,000 of non-recurring expenses of a Canadian subsidiary, Saxon Petroleum Inc., as a result of its decision to investigate strategic alternatives, whereas the 1999 period reflected the efficiencies achieved by combining Saxon's operations with those of Canadian Forest. Total overhead costs (capitalized and expensed general and administrative costs) were $56,666,000 in 2000, $24,235,000 in 1999 and $27,996,000 in 1998. Total overhead costs increased 134% in 2000 compared to 1999 due primarily to overhead attributable to Forcenergy operations, and decreased by 13% in 1999 compared to 1998. The following table summarizes total overhead costs incurred during the periods:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Overhead costs capitalized......................... $21,086 8,873 8,117 General and administrative costs expensed(1)....... 35,580 15,362 19,849 ------- ------ ------ Total overhead costs............................. $56,666 24,235 27,966 ======= ====== ====== Number of salaried employees at end of year........ 530 207 211 ======= ====== ======
- ------------------------ (1) Includes $1,386,000, $2,059,000 and $2,819,000 in 2000, 1999 and 1998, respectively, related to marketing and processing operations. Merger and seismic licensing costs of $31,577,000 in 2000 include banking, legal, accounting, printing and other consulting costs related to the merger; severance paid to terminated employees; expenses for office closures, employee relocation, data migration and systems integration; and costs of transferring seismic licenses from Forcenergy to Forest. Depreciation and depletion expense increased 141% to $212,480,000 in 2000 from $88,190,000 in 1999 due primarily to increased production as a result of the merger with Forcenergy and an increased per-unit rate. The depletion rate increased to $1.15 per MCFE in 2000 compared to $.96 per MCFE in 1999, due primarily to higher finding costs in 2000 and higher than anticipated future development costs in the current inflationary environment for oilfield services. Depreciation and depletion expense decreased 12% to $88,190,000 in 1999 from $100,105,000 in 1998 due to a lower per-unit rate. The depletion rate decreased to $.96 per MCFE in 1999 compared to $1.10 per MCFE in 1998. This decline is attributable to favorable per-unit costs associated with 1998 acquisitions and Gulf of Mexico discoveries, as well as to writedowns of oil and gas properties in the third and fourth quarters of 1998. At December 31, 2000 Forest had undeveloped properties with a cost basis of approximately $132,807,000 in the United States and $33,524,000 in Canada which were not subject to depletion, compared to $114,545,000 in the United States and $39,580,000 in Canada at December 31, 1999 and $58,609,000 in the United States and $26,443,000 in Canada at December 31, 1998. The increase in 2000 is due primarily to wells in progress in Alaska, offset partially by surrendered and abandoned leases. The increase in 1999 compared to 1998 is due primarily to undeveloped properties acquired in the merger with Forcenergy and to wells in progress in Canada. Forest also had capitalized costs related to international interests of approximately $40,432,000, $21,493,000 and $14,435,000 at December 31, 2000, 1999 and 1998, respectively, which were not being depleted pending establishment of proved reserves. In the fourth quarter of 2000, Forest recorded an impairment of $5,876,000 related to unsuccessful exploratory wells drilled in Switzerland and Thailand. In the third and fourth quarters of 1998, Forest recorded writedowns of its oil and gas properties pursuant to the ceiling test limitation prescribed by the 32 Securities and Exchange Commission for companies using the full cost method of accounting. The writedowns totaled $175,000,000 ($199,500,000 pre-tax) and were primarily a result of declining oil and gas prices. Additional writedowns of the full cost pools in the United States and Canada may be required if oil and gas prices decline, undeveloped property values decrease, estimated proved reserve volumes are revised downward or costs incurred in exploration, development, or acquisition activities in the respective full cost pools exceed the discounted future net cash flows from the additional reserves, if any, attributable to each of the cost pools. Other income of $1,757,000 in 2000 included interest income of approximately $1,972,000, equity income of approximately $998,000 from a pipeline investment and a gain of approximately $704,000 from the sale of an investment, offset partially by approximately $755,000 of franchise taxes and approximately $454,000 of unsuccessful acquisition costs. Other income of $2,629,000 in 1999 included a gain of approximately $2,500,000 from the sale of gas processing facilities in the first quarter of 1999. Other income of $8,078,000 in 1998 included approximately $6,600,000 (before tax) relating to a gas contract settlement in Canada and $1,400,000 of death benefits received under a life insurance policy covering a former executive officer. Interest expense of $60,269,000 in 2000 increased $19,396,000 or 47% compared to 1999 due primarily to the merger with Forcenergy. Interest expense of $40,873,000 in 1999 increased $1,887,000 or 5% compared to 1998 due primarily to the issuance of the 10 1/2% Senior Subordinated Notes due 2006 (the 10 1/2% Notes), partially offset by lower bank debt balances. Foreign currency translation gains (losses) were $(7,102,000) in 2000, $10,561,000 in 1999 and $(8,320,000) in 1998. Foreign currency translation gains and losses relate to translation of the 8 3/4% Notes issued by Canadian Forest, and are attributable to the increases and decreases in the value of the Canadian dollar relative to the U.S. dollar during the period. The value of the Canadian dollar was $.6672 per $1.00 U.S. at December 31, 2000 compared to $.6924 at December 31, 1999, $.6535 at December 31, 1998 and $.6992 at December 31, 1997. Forest is required to recognize the noncash foreign currency translation gains or losses related to the 8 3/4% Notes because the debt is denominated in U.S. dollars and the functional currency of Canadian Forest is the Canadian dollar. Income tax expense of $6,066,000 was recognized in 2000 compared to income tax benefits of $2,514,000 in 1999 and $25,818,000 in 1998. The changes are attributable primarily to improvements in profitability. Expense of $6,066,000 in 2000 represents expense of $34,661,000 attributable to United States operations and $6,705,000 recorded by Canadian Forest, offset by an income tax benefit of $35,300,000 attributable to expected utilization of the deferred income tax assets of Forest. Realization of Forcenergy's fresh start deferred tax assets was required to be recorded as an adjustment of additional paid-in capital. The extraordinary loss on extinguishment of debt of $598,000 in 1999 resulted from redemption of $8,631,000 remaining principal amount of 11 1/4% Senior Subordinated Notes at 103.792% of par value. The extraordinary gain of $6,196,000 on extinguishment of debt in 1998 resulted from settlement of Forest's remaining nonrecourse production payment obligation in exchange for 135,607 shares of Forest common stock valued at $3,750,000. LIQUIDITY AND CAPITAL RESOURCES Forest has historically addressed its long-term liquidity needs through the issuance of debt and equity securities, when market conditions permit, and through the use of bank credit facilities and cash provided by operating activities. The prices we receive for future oil and natural gas production and the level of production will significantly impact future operating cash flows. No prediction can be made as to the prices we will receive for our future oil and gas production. 33 We continue to examine alternative sources of long-term capital, including bank borrowings, the issuance of debt instruments, the sale of common stock, preferred stock or other equity securities of Forest, the issuance of net profits interests, sales of non-strategic assets, prospects and technical information, and joint venture financing. Availability of these sources of capital and, therefore, our ability to execute our operating strategy will depend upon a number of factors, some of which are beyond Forest's control. SECURITIES REPURCHASES. During 2000, we repurchased 152,400 shares of Forest common stock and $10,600,000 principal amount of subordinated notes. BANK CREDIT FACILITIES. In connection with the merger with Forcenergy, Forest and its subsidiaries, Canadian Forest and ProMark, negotiated a new global credit facility through a syndicate of banks led by The Chase Manhattan Bank and The Chase Manhattan Bank of Canada. This facility replaced the senior facilities of Forest and Forcenergy and was effective on December 7, 2000, the date of completion of the merger. Due to the recent upgrade in Forest's bank credit facility rating, the borrowing base limitations previously imposed upon us were removed. As such, the current global credit facility commitments and borrowing limits in the United States and Canada are $500,000,000 and $100,000,000, respectively. If Forest's bank credit facility rating is downgraded, the ability to borrow under the global credit facility would be limited to a borrowing base that would be re-determined semi-annually. Funds borrowed under the global credit facility can be used for general corporate purposes. Under the terms of the global credit facility, Forest and its restricted subsidiaries are subject to certain covenants and financial tests, including restrictions or requirements with respect to dividends, additional debt, liens, asset sales, investments, hedging activities, mergers and reporting responsibilities. The global credit facility is secured by a lien on, and a security interest in, a portion of our proved oil and gas properties in the United States and Canada, related assets, pledges of accounts receivable, and a pledge of 65% of the capital stock of Canadian Forest and 100% of the capital stock of Forest Pipeline Company. If Forest's bank credit facility rating is downgraded, we may be obligated to pledge additional properties. At December 31, 2000, the outstanding borrowings under the global credit facility were $305,000,000 in the United States and $28,690,000 in Canada. At March 1, 2001, the outstanding borrowings were $258,000,000 in the United States and $13,058,000 in Canada, with an average effective interest rate of 7.65%. At March 1, 2001, Forest had also used the global credit facility for letters of credit in the amount of $5,882,000 in the United States and $1,725,000 CDN in Canada. WORKING CAPITAL. Forest had a working capital deficit of approximately $1,109,000 at December 31, 2000 compared to a working capital surplus of approximately $26,885,000 at December 31, 1999. The decrease in working capital is due primarily to an increase in payables related to exploration and development activities in the fourth quarter of 2000 compared to the corresponding period in 1999, merger-related payables outstanding at December 31, 2000 and a decrease in cash as a result of reduction of long-term debt, offset partially by an increase in revenue-related accounts receivable balances due to higher oil and gas prices at the end of 2000. Periodically, Forest reports working capital deficits at the end of a period. Such working capital deficits are principally the result of accounts payable for capitalized exploration and development costs. Settlement of these payables is funded by cash flow from operations or, if necessary, by drawdowns on long-term bank credit facilities. For cash management purposes, drawdowns on the credit facilities are not made until the due dates of the payables. CASH FLOW. Historically, one of Forest's primary sources of capital has been net cash provided by operating activities. Net cash provided by operating activities increased to $306,532,000 in 2000 compared to $110,513,000 in 1999. The 2000 period included higher production revenue due to higher oil and gas prices and increased production due primarily to the merger with Forcenergy. We used $376,061,000 for investing activities in 2000 compared to $105,646,000 in 1999. The increase was due primarily to higher 34 exploration and development expenditures in 2000 as a result of the merger with Forcenergy. Cash used by financing activities in 2000 was $16,172,000 compared to $91,367,000 in 1999. The 2000 period included net repayments of bank debt of $52,006,000, offset partially by net proceeds of $38,800,000 from Forcenergy's issuance of 14% Series A Cumulative Preferred Stock. The 1999 period included net proceeds of $98,561,000 from the issuance of the 10 1/2% Notes, net proceeds of $131,188,000 from the issuance of common stock, and $96,506,000 of cash acquired in the merger with Forcenergy, offset by net repayments of bank borrowings of $225,765,000. Net cash provided by operating activities increased to $110,513,000 in 1999 compared to $89,444,000 in 1998. The 1999 period included higher production revenue due to higher oil and gas prices and additional funds provided by net working capital changes. We used $105,646,000 for investing activities in 1999 compared to $365,294,000 in 1998. Cash used in the 1998 period was greater than cash used in the 1999 period due primarily to the acquisition of our onshore Louisiana properties. Cash provided by financing activities in 1999 was $91,367,000 compared to $260,954,000 in 1998. The 1999 period included net proceeds of $98,561,000 from the issuance of the 10 1/2% Notes and net proceeds of $131,188,000 from the issuance of common stock, and $96,506,000 of cash at the date of fresh-start of Forcenergy, offset by net repayments of bank borrowings of $225,765,000. The 1998 period included net bank borrowings of $187,620,000 and net proceeds of $74,589,000 from the issuance of the 8 3/4% Notes. CAPITAL EXPENDITURES. Expenditures for property acquisition, exploration and development for the past three years were as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Property acquisition costs: Proved properties............................. $ 20,213 1,043 290,915 Undeveloped properties........................ 2,486 1,200 48,249 -------- ------- ------- 22,699 2,243 339,164 Exploration costs: Direct costs.................................. 126,367 61,978 57,149 Overhead capitalized.......................... 7,013 3,789 3,265 -------- ------- ------- 133,380 65,767 60,414 Development costs: Direct costs.................................. 217,886 49,259 65,721 Overhead capitalized.......................... 14,073 5,084 4,852 -------- ------- ------- 231,959 54,343 70,573 -------- ------- ------- $388,038 122,353 470,151 ======== ======= =======
Forest's anticipated expenditures for exploration and development in 2001 are approximately $400,000,000. We intend to meet our 2001 capital expenditure financing requirements using cash flows generated by operations, sales of non-strategic assets and, if necessary, borrowings under existing lines of credit. There can be no assurance, however, that we will have access to sufficient capital to meet these capital requirements. The planned levels of capital expenditures could be reduced if we experience lower than anticipated net cash provided by operations or other liquidity needs, or could be increased if we experience increased cash flow or access additional sources of capital. In addition, while Forest intends to continue a strategy of acquiring reserves that meet our investment criteria, no assurance can be given that we can locate or finance any property acquisitions. 35 DISPOSITIONS OF NON-STRATEGIC ASSETS. As a part of our ongoing operations, we dispose of non-strategic assets. Assets with little value or which are not consistent with our operating strategy are identified for sale or trade. At the present time, Forest is offering for sale certain properties in each of our operating regions. During 2000, Forest disposed of properties with estimated proved reserves of approximately 28.3 BCF of natural gas and 913,000 barrels of oil for total net proceeds of $17,304,000. During 1999, we disposed of properties with estimated proved reserves of approximately 7.7 BCF of natural gas and 956,000 barrels of oil for total net proceeds of $8,756,000. Also during 1999, we disposed of gas processing facilities for net proceeds of $7,174,000 and disposed of a long-term investment for net proceeds of $4,565,000. During 1998, we disposed of properties with estimated proved reserves of approximately 6.2 BCF of natural gas and 2,440,000 barrels of oil for total proceeds of $10,302,000. RECENT ACCOUNTING PRONOUNCEMENTS. As of January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires the recognition of all derivative instruments as assets or liabilities in the balance sheet and measurement of those instruments at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and if so, the type of hedge. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income until the hedged item is recognized in earnings. We periodically hedge a portion of our oil and gas production through swap and collar agreements. The purpose of the hedges is to provide a measure of stability in the volatile environment of oil and gas prices and to manage our exposure to commodity price risk. All of Forest's energy swap and collar agreements and a portion of our basis swaps in place at December 31, 2000 have been designated as cash flow hedges. Upon adoption of SFAS No. 133 on January 1, 2001 we will record a liability of approximately $52,700,000 (of which $10,900,000 will be classified as current) and a deferred tax asset of approximately $20,000,000 (of which $4,200,000 will be classified as current) and a corresponding reduction in other comprehensive income of approximately $32,700,000. In March 2000, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--an interpretation of APB Opinion No. 25 (FIN 44). This opinion provides guidance on the accounting for certain stock option transactions and subsequent amendments to stock option transactions. FIN 44 was effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have an impact on Forest's financial position or results of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, Revenue Recognition (SAB 101), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Subsequently, the SEC released SAB 101B, which delayed the implementation date of SAB 101 for registrants with fiscal years beginning between December 16, 1999 and March 15, 2000 until the fourth quarter of 2000. The implementation of the provisions of SAB 101 did not have a material impact on the financial position or results of operations of Forest. 36 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Forest is exposed to market risk, including the effects of adverse changes in commodity prices, foreign currency exchange rates and interest rates as discussed below. COMMODITY PRICE RISK Forest produces and sells natural gas, crude oil and natural gas liquids for its own account in the United States and Canada and, through ProMark, its marketing subsidiary, markets natural gas for third parties in Canada. As a result, our financial results are affected when prices for these commodities fluctuate. Such effects can be significant. In order to manage commodity prices and to reduce the impact of fluctuations in prices, we enter into long-term contracts and use a hedging strategy. Under our hedging strategy, Forest enters into energy swaps, collars and other financial instruments. These arrangements, which are based on prices available in the financial markets at the time the contracts are entered into, are settled in cash and do not require physical deliveries of hydrocarbons. We use the hedge or deferral method of accounting for these activities and, as a result, gains and losses on the related instruments are generally offset by similar changes in the realized prices of the commodities. ProMark also enters into trading activities on a limited basis in Canada. LONG-TERM SALES CONTRACTS. A significant portion of Canadian Forest's natural gas production is sold through the ProMark Netback Pool. At December 31, 2000 the ProMark Netback Pool had entered into fixed price contracts to sell approximately 5.5 BCF of natural gas in 2001 at an average price of $2.52 CDN per MCF and approximately 5.5 BCF of natural gas in 2002 at an average price of approximately $2.61 CDN per MCF. Canadian Forest, as one of the producers in the ProMark Netback Pool, is obligated to deliver a portion of this gas. In 2000 Canadian Forest supplied approximately 37% of the gas for the ProMark Netback Pool. In addition to its commitments to the ProMark Netback Pool, Canadian Forest is committed to sell .6 BCF of natural gas in 2001 at a fixed price of approximately $3.25 CDN per MCF and .5 BCF of natural gas in 2002 at a fixed price of approximately $3.37 CDN per MCF. HEDGING PROGRAM. In a typical swap agreement, Forest receives the difference between a fixed price per unit of production and a price based on an agreed upon third-party index if the index price is lower. If the index price is higher, Forest pays the difference. By entering into swap agreements we effectively fix the price that we will receive in the future for the hedged production. Our current swaps are settled in cash on a monthly basis. We enter into swap agreements when prices are less volatile or when collar arrangements are not attractively priced. As of December 31, 2001, Forest had the following swaps in place:
NATURAL GAS OIL ----------------------- ----------------------- AVERAGE AVERAGE BBTU'S HEDGED PRICE BARRELS HEDGED PRICE PER DAY PER MMBTU PER DAY PER BBL -------- ------------ -------- ------------ 2001................................ 27.1 $3.57 1,000 $28.43 2002................................ 16.7 $2.48 -- $ --
We also enter into collar agreements with third parties that are accounted for as hedges. A collar agreement is similar to a swap agreement, except that we receive the difference between the floor price and the index price only if the index price is below the floor price, and we pay the difference between the ceiling price and the index price only if the index price is above the ceiling price. Collars are also settled in cash, either on a monthly basis or at the end of their terms. By entering into collars we effectively provide a floor for the price that we will receive for the hedged production; however, the collar also establishes a maximum price that we will receive for the hedged production if prices increase above the ceiling price. We enter into collars during periods of volatile commodity prices in order to protect against a significant 37 decline in prices in exchange for forgoing the benefit of price increases in excess of the ceiling price on the hedged production. As of December 31, 2001, we had the following collars in place:
NATURAL GAS ------------------------------------------------ AVERAGE FLOOR AVERAGE CEILING PRICE PRICE PER MMBTU PER MMBTU BBTU'S PER DAY ------------- --------------- -------------- 2001................................ $4.45 $6.61 53.8
OIL ------------------------------------------------- AVERAGE FLOOR AVERAGE CEILING PRICE PRICE PER BBL PER BBL BARRELS PER DAY ------------- --------------- --------------- 2001................................. $25.39 $31.70 6,000
We also use basis swaps in connection with natural gas swaps to fix the differential price between the NYMEX price and the index price at which the hedged gas is sold. At December 31, 2000 there were basis swaps in place with weighted average volumes of 64,562 MMBTU's per day in 2001. Forest periodically assesses the estimated portion of its anticipated production that is subject to hedging arrangements, and we adjust this percentage based on our assessment of market conditions and the availability of hedging arrangements which meet our criteria. Hedging arrangements covered 52%, 51% and 33% of our consolidated production, on an equivalent basis, during the years ended December 31, 2000, 1999 and 1998, respectively. TRADING ACTIVITIES. Profits or losses generated by the purchase and sale of third parties' gas are based on the spread between the prices of natural gas purchased and sold. ProMark does not enter into agreements to buy or sell natural gas to hold as a speculative position. All transactions are immediately offset, thereby fixing the margin. At December 31, 2000, ProMark's trading operations had contracts to purchase an aggregate of 5.4 BCF of natural gas in 2001 at an average price of $5.03 CDN per MCF and had contracts to sell an aggregate of 5.4 BCF of natural gas in 2001 at an average price of $5.05 CDN per MCF. FOREIGN CURRENCY EXCHANGE RISK Forest conducts business in several foreign currencies and thus is subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions. In the past, we have not entered into any foreign currency forward contracts or other similar financial instruments to manage this risk. CANADA. The Canadian dollar is the functional currency of Canadian Forest. As a result, Canadian Forest is exposed to foreign currency translation risk related to translation of the principal amount of the 8 3/4% Notes issued by it in late 1997 and early 1998 because these notes are denominated in U.S. dollars. The $192,400,000 principal amount of the debt is due in 2007. OPERATIONS OUTSIDE OF NORTH AMERICA. The foreign concessions held by Forest are in relatively early stages of exploratory activities. Expenditures incurred relative to these interests have been primarily U.S. dollar-denominated. INTEREST RATE RISK At the present time, Forest has no financial instruments in place to manage the impact of changes in interest rates. Therefore, our exposure to changes in interest rates results from short-term and long-term 38 debt with both fixed and floating interest rates. The following table presents principal or notional amounts and related average interest rates by year of maturity for Forest's debt obligations at December 31, 2000:
2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE -------- -------- -------- -------- -------- ---------- -------- ---------- (DOLLAR AMOUNTS IN THOUSANDS) Bank credit facilities: Variable rate................ $ -- -- -- -- 333,690 -- 333,690 333,690 Average interest rate........ -- -- -- -- 8.12% -- 8.12% Long-term debt: Fixed rate................... $ -- -- -- -- -- 288,544 288,544 289,190 Average interest rate........ -- -- -- -- -- 9.34% 9.34%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information concerning this Item begins on the following page. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 39 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Forest Oil Corporation: We have audited the accompanying consolidated balance sheets of Forest Oil Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Forest Oil Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Denver, Colorado February 12, 2001 40 FOREST OIL CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------- 2000 1999 ---------- --------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................. $ 14,003 99,661 Accounts receivable....................................... 203,245 110,733 Other current assets...................................... 21,580 20,931 ---------- --------- Total current assets.................................... 238,828 231,325 Net property and equipment, at cost, full cost method (Notes 3 and 4)........................................... 1,359,756 1,209,709 Deferred income taxes (Note 5).............................. 119,300 -- Goodwill and other intangible assets, net................... 19,412 22,092 Other assets................................................ 15,082 11,563 ---------- --------- $1,752,378 1,474,689 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 192,200 137,133 Accrued interest.......................................... 11,436 31,022 Accrued reorganization costs.............................. -- 11,236 Other current liabilities................................. 36,301 25,049 ---------- --------- Total current liabilities............................... 239,937 204,440 Long-term debt (Notes 3, 4 and 15).......................... 622,234 686,153 Other liabilities........................................... 16,376 16,161 Deferred income taxes (Note 5).............................. 14,865 8,951 Shareholders' equity (Notes 2, 3, 4, 6 and 7) Common stock, 48,397,177 shares (46,104,575 shares in 1999)................................................... 4,840 4,611 Capital surplus........................................... 1,139,136 962,602 Accumulated deficit....................................... (269,567) (396,007) Accumulated other comprehensive loss...................... (12,177) (11,774) Treasury stock, at cost, 167,931 shares in 2000 and 15,531 shares in 1999.......................................... (3,266) (448) ---------- --------- Total shareholders' equity.............................. 858,966 558,984 ---------- --------- $1,752,378 1,474,689 ========== =========
See accompanying Notes to Consolidated Financial Statements. 41 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenue: Marketing and processing.................................. $288,133 166,283 151,079 Oil and gas sales: Gas..................................................... 368,245 134,426 123,352 Oil, condensate and natural gas liquids................. 256,680 59,415 50,349 -------- ------- -------- Total oil and gas sales............................... 624,925 193,841 173,701 -------- ------- -------- Total revenue....................................... 913,058 360,124 324,780 Operating expenses: Marketing and processing.................................. 285,039 162,617 144,758 Oil and gas production.................................... 140,218 49,145 44,944 General and administrative................................ 35,580 15,362 19,849 Merger and seismic licensing (Note 2)..................... 31,577 -- -- Depreciation and depletion................................ 212,480 88,190 100,105 Impairment of oil and gas properties...................... 5,876 -- 199,500 -------- ------- -------- Total operating expenses............................ 710,770 315,314 509,156 -------- ------- -------- Earnings (loss) from operations............................. 202,288 44,810 (184,376) Other income and expense: Other income, net......................................... (1,757) (2,629) (8,078) Interest expense.......................................... 60,269 40,873 38,986 Translation (gain) loss on subordinated debt (Note 4)..... 7,102 (10,561) 8,320 -------- ------- -------- Total other income and expense...................... 65,614 27,683 39,228 -------- ------- -------- Earnings (loss) before income taxes and extraordinary items..................................................... 136,674 17,127 (223,604) Income tax expense (benefit) (Note 5): Current................................................... 1,666 (2,921) 1,272 Deferred.................................................. 4,400 407 (27,090) -------- ------- -------- 6,066 (2,514) (25,818) -------- ------- -------- Earnings (loss) before extraordinary items.................. 130,608 19,641 (197,786) Extraordinary items--gain (loss) on extinguishment of debt (Note 4).................................................. -- (598) 6,196 -------- ------- -------- Net earnings (loss)......................................... $130,608 19,043 (191,590) ======== ======= ======== Earnings (loss) attributable to common stock................ $126,440 19,043 (191,590) ======== ======= ======== Weighted average number of common shares outstanding........ 46,330 23,971 20,455 ======== ======= ======== Basic earnings (loss) per common share: Earnings (loss) attributable to common stock before extraordinary items..................................... $ 2.73 .82 (9.67) Extraordinary items--gain (loss) on extinguishment of debt.................................................... -- (.03) .30 -------- ------- -------- Earnings (loss) attributable to common stock.............. $ 2.73 .79 (9.37) ======== ======= ======== Diluted earnings (loss) per common share: Earnings (loss) attributable to common stock before extraordinary items..................................... $ 2.64 .81 (9.67) Extraordinary items--gain (loss) on extinguishment of debt.................................................... -- (.02) .30 -------- ------- -------- Earnings (loss) attributable to common stock.............. $ 2.64 .79 (9.37) ======== ======= ========
See accompanying Notes to Consolidated Financial Statements. 42 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED OTHER PREFERRED COMMON CAPITAL ACCUMULATED COMPREHENSIVE TREASURY STOCK STOCK SURPLUS DEFICIT INCOME (LOSS) STOCK --------- -------- --------- ------------ -------------- -------- (IN THOUSANDS) Balance December 31, 1997........................ $ -- 1,816 490,724 (223,460) (7,253) -- Net loss....................................... -- -- -- (191,590) -- -- Common Stock issued in the Louisiana Acquisition (Notes 3 and 7).................... -- 50 14,169 -- -- -- Common Stock issued in the Anschutz Acquisition (Notes 3 and 7).................... -- 297 67,268 -- -- -- Common Stock issued to minority shareholders of Saxon (Notes 3 and 7)........................ -- 55 15,974 -- -- (448) Common Stock issued for settlement of production payment obligation (Notes 4 and 7)........................................... -- 14 3,736 -- -- -- Common Stock issued as compensation (Note 7)..................................... -- 1 333 -- -- -- Increase in unfunded pension liability (Note 8)..................................... -- -- -- -- (804) -- Foreign currency translation................... -- -- -- -- (1,891) -- -------- ----- --------- -------- ------- ------ Balance December 31, 1998........................ -- 2,233 592,204 (415,050) (9,948) (448) Net earnings................................... -- -- -- 19,043 -- -- Common Stock issued, net of offering costs (Note 7)..................................... -- 450 130,738 -- -- -- Common Stock issued as compensation (Note 7)..................................... -- 1 103 -- -- -- Stock options exercised (Note 7)............... -- 7 1,421 -- -- -- Employee stock purchase plan (Note 7).......... -- -- 56 -- -- -- Reduction in unfunded pension liability (Note 8)..................................... -- -- -- -- 493 -- Foreign currency translation................... -- -- -- -- (2,319) -- Equity of Forcenergy on a fresh-start basis (Note 2)..................................... -- 1,920 238,080 -- -- -- -------- ----- --------- -------- ------- ------ Balance December 31, 1999........................ -- 4,611 962,602 (396,007) (11,774) (448) Net earnings................................... -- -- -- 130,608 -- -- Preferred Stock issued (Note 6)................ 38,858 -- -- -- -- -- Preferred Stock dividends paid in kind (Note 6)..................................... 4,168 -- -- (4,168) -- -- Preferred Stock exchanged for Common Stock (Note 6)..................................... (43,026) 152 42,874 -- -- -- Exercise of warrants (Note 7).................. -- 2 294 -- -- -- Stock options exercised (Note 7)............... -- 69 11,849 -- -- -- Employee stock purchase plan (Note 7).......... -- 3 338 -- -- -- Common stock issued as compensation (Note 7)..................................... -- 3 595 -- -- -- Stock option compensation (Note 7)............. -- -- 3,013 -- -- -- Tax benefit of stock options exercised......... -- -- 2,900 -- -- -- Purchase of treasury stock (Note 7)............ -- -- -- -- -- (2,818) Increase in unfunded pension liability (Note 8)..................................... -- -- -- -- (2,072) -- Unrealized gain on market value of investment................................... -- -- -- -- 39 -- Foreign currency translation................... -- -- -- -- 1,630 -- Fresh start tax benefits recognized (Note 5)..................................... -- -- 114,671 -- -- -- -------- ----- --------- -------- ------- ------ Balance December 31, 2000........................ $ -- 4,840 1,139,136 (269,567) (12,177) (3,266) ======== ===== ========= ======== ======= ======
See accompanying Notes to Consolidated Financial Statements. 43 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 --------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net earnings (loss) before preferred dividends and extraordinary items..................................... $ 130,608 19,641 (197,786) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and depletion.............................. 212,480 88,190 100,105 Impairment of oil and gas properties.................... 5,876 -- 199,500 Amortization of deferred debt costs..................... 1,517 1,341 902 Translation loss (gain) on subordinated debt............ 7,102 (10,561) 8,320 Deferred income tax expense (benefit)................... 4,400 407 (27,090) Stock and stock option compensation..................... 3,611 -- -- Other, net.............................................. (1,452) (3,529) (698) (Increase) decrease in accounts receivable.............. (97,195) (4,949) 8,539 (Increase) decrease in other current assets............. 2,983 (3,304) 1,663 Increase (decrease) in accounts payable................. 10,661 18,244 (13,809) Increase in accrued interest and other current liabilities............................................ 37,177 5,033 9,798 --------- -------- -------- Net cash provided by operating activities before reorganization item.................................. 317,768 110,513 89,444 Decrease in reorganization costs payable................ (11,236) -- -- --------- -------- -------- Net cash provided by operating activities after reorganization item.................................. 306,532 110,513 89,444 Cash flows from investing activities: Capital expenditures for property and equipment......... (389,992) (125,083) (374,378) Proceeds from sale of assets............................ 17,304 20,471 10,302 Increase in other assets, net........................... (3,373) (1,034) (1,218) --------- -------- -------- Net cash used by investing activities................. (376,061) (105,646) (365,294) Cash flows from financing activities: Proceeds from bank borrowings........................... 638,407 112,427 464,088 Repayments of bank borrowings........................... (690,413) (338,192) (276,468) Repayments of production payment obligation............. -- -- (58) Issuance of 10 1/2% senior subordinated notes, net of issuance costs......................................... -- 98,561 -- Issuance of 8 3/4% senior subordinated notes, net of issuance costs......................................... -- -- 74,589 Redemption of 10 1/2% notes............................. (3,067) -- -- Redemption of 8 3/4% notes.............................. (7,184) -- -- Redemption of 11 1/4% senior subordinated notes......... -- (9,083) -- Proceeds from issuance of preferred stock............... 38,800 -- -- Cash balance of Forcenergy at date of fresh-start....... -- 96,506 -- Proceeds of common stock offering, net of offering costs.................................................. -- 131,188 -- Proceeds from exercise of options and warrants.......... 12,556 1,589 -- Purchase of treasury stock.............................. (2,818) -- -- Decrease in other liabilities, net...................... (2,453) (1,629) (1,197) --------- -------- -------- Net cash provided (used) by financing activities...... (16,172) 91,367 260,954 Effect of exchange rate changes on cash..................... 43 12 120 --------- -------- -------- Net decrease in cash and cash equivalents................... (85,658) 96,246 (14,776) Cash and cash equivalents at beginning of year.............. 99,661 3,415 18,191 --------- -------- -------- Cash and cash equivalents at end of year.................... $ 14,003 99,661 3,415 ========= ======== ======== Cash paid (refunded) during the year for: Interest.................................................. $ 79,381 42,596 35,534 Income taxes.............................................. $ (2,167) (101) 1,172
See accompanying Notes to Consolidated Financial Statements. 44 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF THE BUSINESS--Forest Oil Corporation is engaged in the acquisition, exploration, development, production and marketing of natural gas and liquids. The Company was incorporated in New York in 1924, the successor to a company formed in 1916, and has been publicly held since 1969. The Company is active in several of the major exploration and producing areas in and offshore the United States and in Canada, and has exploratory interests in various other foreign countries. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of Forest Oil Corporation and its consolidated subsidiaries (Forest or the Company). Significant intercompany balances and transactions are eliminated. The Company generally consolidates all subsidiaries in which it controls over 50% of the voting interests. Entities in which the Company does not have a direct or indirect majority voting interest are generally accounted for using the equity method. On December 7, 2000, Forest completed its merger with Forcenergy Inc (Forcenergy). The merger was 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 were carried forward to the combined company at their recorded amounts, and income of the combined company includes income of Forest and Forcenergy for the entire year. The results of operations of Forcenergy prior to December 31, 1999, the effective date of its reorganization and fresh start reporting, are not included in the financial statements of the combined company. In the course of preparing the consolidated financial statements, management makes various assumptions and estimates to determine the reported amounts of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts estimated. CASH EQUIVALENTS--For purposes of the statements of cash flows, the Company considers all debt instruments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT--The Company uses the full cost method of accounting for oil and gas properties. Separate cost centers are maintained for each country in which the Company has operations. During 2000, 1999 and 1998, the Company's primary oil and gas operations were conducted in the United States and in Canada. All costs incurred in the acquisition, exploration and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration and development activities) are capitalized. Capitalized costs applicable to each cost center are depleted using the units of production method based on conversion to common units of measure using one barrel of oil as an equivalent to six thousand cubic feet (MCF) of natural gas. A reserve is provided for estimated future costs of site restoration, dismantlement and abandonment activities as a component of depletion. Unusually significant investments in unproved properties, including related capitalized interest costs, are not depleted pending the determination of the existence of proved reserves. Unproved properties are assessed annually to ascertain whether impairment has occurred. Unproved properties whose costs are individually significant are assessed individually by considering the primary lease terms of the properties, the holding period of the properties, and geographic and geologic data obtained relating to the properties. Where it is not practicable to individually assess the amount of impairment of properties for which costs 45 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) are not individually significant, such properties are grouped for purposes of assessing impairment. The amount of impairment assessed is added to the costs to be amortized. As of December 31, 2000, 1999 and 1998, there were undeveloped property costs of $132,807,000, $114,545,000 and $58,609,000, respectively, which were not being depleted in the United States and $33,524,000, $39,580,000 and $26,443,000, respectively, which were not being depleted in Canada. Of the undeveloped costs in the United States not being depleted at December 31, 2000, approximately 38% were incurred in 2000, 29% in 1999, 27% in 1998, 3% in 1997 and 3% in 1996. Of the undeveloped costs in Canada not being depleted at December 31, 2000, 46% were incurred in 2000, 24% in 1999, 6% in 1998, 7% in 1997 and 17% in 1996. The Company holds interests in various international projects. As of December 31, 2000, 1999 and 1998, costs related to these international interests of approximately $40,432,000, $21,493,000 and $14,435,000, respectively, were not being depleted pending determination of the existence of proved reserves. In the fourth quarter of 2000, Forest recorded an impairment of $5,876,000 related to unsuccessful exploratory wells drilled in Switzerland and Thailand. Depletion per unit of production (MCFE) for each of the Company's cost centers was as follows:
UNITED STATES CANADA ------------- -------- 2000.................................... $1.18 .87 1999.................................... 1.06 .70 1998.................................... 1.20 .85
Pursuant to full cost accounting rules, capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using current prices and a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. As a result of this limitation on capitalized costs, the accompanying financial statements included a provision for impairment of oil and gas property costs in 1998 of $139,500,000 in the United States and $35,500,000 ($60,000,000 pre-tax) in Canada. There were no provisions for impairment of oil and gas properties in 1999. Gain or loss is not recognized on the sale of oil and gas properties unless the sale significantly alters the relationship between capitalized costs and proved oil and gas reserves attributable to a cost center. Buildings, transportation and other equipment are depreciated on the straight-line method based upon estimated useful lives of the assets ranging from five to forty-five years. 46 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Net property and equipment at December 31 consists of the following:
2000 1999 ----------- ---------- (IN THOUSANDS) Oil and gas properties.............................. $ 3,020,778 2,664,607 Buildings, transportation and other equipment....... 21,399 16,593 ----------- ---------- 3,042,177 2,681,200 Less accumulated depreciation, depletion and valuation allowance............................... (1,682,421) (1,471,491) ----------- ---------- $ 1,359,756 1,209,709 =========== ==========
GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill and other intangible assets recorded in the acquisition of the Company's gas marketing subsidiary consist of the following at December 31, 2000 and 1999:
2000 1999 -------- -------- (IN THOUSANDS) Goodwill................................................... $15,295 15,873 Gas marketing contracts.................................... 13,344 13,848 ------- ------ 28,639 29,721 Less accumulated amortization.............................. (9,227) (7,629) ------- ------ $19,412 22,092 ======= ======
Goodwill is being amortized on a straight line basis over 20 years. The amount attributed to the value of gas marketing contracts acquired is being amortized on a straight line basis over the average life of such contracts of 12 years. GAS MARKETING--The Company's gas marketing subsidiary, ProMark, enters into fixed price agreements to purchase and sell natural gas. ProMark's general strategy for this business is to enter into offsetting purchase and sales contracts. Net open positions relating to these contracts do occur, but have not been significant to date. Revenue from the sale of the gas is recorded as marketing revenue and the cost of the gas sold is recorded as marketing expense. ProMark also provides natural gas marketing aggregation services for third parties. Fees earned for such services are recorded as marketing revenue as the services are performed. OIL AND GAS SALES--The Company accounts for oil and gas sales using the entitlements method. Under the entitlements method, revenue is recorded based upon the Company's share of volumes sold, regardless of whether the Company has taken its proportionate share of volumes produced. The Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. As of December 31, 2000 the Company had produced approximately 489 MMCF more than its entitled share of production. The estimated value of this imbalance of approximately $1,655,000 is included in the accompanying consolidated balance sheet as a long-term liability. No single customer accounted for more than 10% of total revenue in 2000, 1999 or 1998. 47 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) HEDGING TRANSACTIONS--In order to minimize exposure to fluctuations in oil and natural gas prices, the Company hedges the price of future oil and natural gas production by entering into certain contracts and financial arrangements. These instruments are accounted for as hedges when the instrument is designated as a hedge of the related production and there exists a high degree of correlation between the fair value of the instrument and the fair value of the hedged production. The degree of correlation is assessed periodically. If an instrument does not meet the designation or effectiveness criteria, any gain or loss on the instrument is recognized immediately in earnings. Otherwise, gains and losses related to hedging transactions are recognized as adjustments to the revenue recorded for the related production. If an instrument is settled early, any gains or losses are deferred and recognized as adjustments to the revenue recorded for the related hedged production. Costs associated with the purchase of certain hedging instruments are also deferred and amortized against revenue related to the hedged production. INCOME TAXES--The Company uses the asset and liability method of accounting for income taxes which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. FOREIGN CURRENCY TRANSLATION--The functional currency of Canadian Forest Oil Ltd. (Canadian Forest), the Company's wholly owned Canadian subsidiary, is the Canadian dollar. Assets and liabilities related to the Company's Canadian operations are generally translated at current exchange rates, and related translation adjustments are reported as a component of shareholders' equity in accumulated other comprehensive loss. Income statement accounts are translated at the average rates during the period. The Company is also required to recognize foreign currency translation gains or losses related to its 8 3/4% Senior Subordinated Notes due 2007 (the 8 3/4% Notes) because the debt is denominated in U.S. dollars and the functional currency of Canadian Forest is the Canadian dollar. As a result of the change in the value of the Canadian dollar relative to the U.S. dollar, the Company reported noncash translation gains (losses) of approximately ($7,102,000), $10,561,000 and ($8,320,000) for the years ended December 31, 2000, 1999 and 1998, respectively. EARNINGS (LOSS) PER SHARE--Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stock by the weighted average number of common shares outstanding during each period, excluding treasury shares. Net earnings (loss) attributable to common stock represents net earnings (loss) less preferred stock dividends of $4,168,000 in 2000. Diluted earnings (loss) per share is computed by adjusting the average number of common shares outstanding for the dilutive effect, if any, of convertible preferred stock, stock options and warrants. The effect of potentially dilutive securities is based on earnings (loss) before extraordinary items. 48 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) The following sets forth the calculation of basic and diluted earnings per share for income before extraordinary items for the years ended December 31:
2000(1) 1999(2) 1998(3) -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Earnings (loss) before extraordinary items...... $130,608 19,641 (197,786) Less: Preferred stock dividends................. (4,168) -- -- -------- ------ -------- Earnings (loss) before extraordinary items available to common stockholders.............. $126,440 19,641 (197,786) ======== ====== ======== Weighted average common shares outstanding during the period............................. 46,330 23,971 20,455 Add dilutive effects of: Employee options................................ 1,178 162 -- Warrants........................................ 469 -- -- -------- ------ -------- Weighted average common shares outstanding during the period including the effects of dilutive securities........................... 47,977 24,133 20,455 ======== ====== ======== Basic earnings (loss) per share before extraordinary items........................... $ 2.73 .82 (9.67) ======== ====== ======== Diluted earnings (loss) per share before extraordinary items........................... $ 2.64 .81 (9.67) ======== ====== ========
- ------------------------ (1) At December 31, 2000, options to purchase 1,867,400 shares of common stock at prices ranging from $27.30 to $50.00 per share were outstanding, but were not included in the computation of diluted loss per share for the year ended December 31, 2000. The exercise prices of these options were greater than the average market price of the common shares. These options expire at various dates from 2002 to 2010. (2) At December 31, 1999, options to purchase 829,680 shares of common stock at prices ranging from $22.50 to $50.00 per share were outstanding, but were not included in the computation of diluted loss per share for the year ended December 31, 1999. The exercise prices of these options were greater than the average market price of the common shares. These options expire at various dates from 2002 to 2008. (3) At December 31, 1998, options to purchase 937,680 shares of common stock at prices ranging from $16.76 to $50.00 per share were outstanding, but were not included in the computation of diluted loss per share for the year ended December 31, 1998. The effect of the assumed exercises of these options was antidilutive. These options expire at various dates from 2002 to 2008. 49 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) COMPREHENSIVE INCOME (LOSS)--The components of total comprehensive income (loss) consist of net earnings (loss), preferred stock dividends, foreign currency translation, changes in the unfunded pension liability and unrealized gain on securities available for sale and are as follows:
UNREALIZED GAIN ON ACCUMULATED FOREIGN UNFUNDED SECURITIES OTHER NET PREFERRED TOTAL CURRENCY PENSION AVAILABLE FOR COMPREHENSIVE EARNINGS STOCK COMPREHENSIVE TRANSLATION LIABILITY SALE INCOME (LOSS) (LOSS) DIVIDENDS INCOME (LOSS) ----------- --------- ------------- -------------- -------- --------- -------------- (IN THOUSANDS) Balance at December 31, 1997... $(4,031) (3,222) -- (7,253) (223,460) -- (230,713) 1998 activity (1,891) (804) -- (2,695) (191,590) -- (194,285) ------- ------ --- ------- -------- ------ -------- Balance at December 31, 1998... (5,922) (4,026) -- (9,948) (415,050) -- (424,998) 1999 activity (2,319) 493 -- (1,826) 19,043 -- 17,217 ------- ------ --- ------- -------- ------ -------- Balance at December 31, 1999... (8,241) (3,533) -- (11,774) (396,007) -- (407,781) 2000 activity 1,630 (2,072) 39 (403) 130,608 (4,168) 126,037 ------- ------ --- ------- -------- ------ -------- Balance at December 31, 2000... $(6,611) (5,605) 39 (12,177) (265,399) (4,168) (281,744) ======= ====== === ======= ======== ====== ========
RECLASSIFICATIONS--Certain amounts in prior years' financial statements have been reclassified to conform to the 2000 financial statement presentation. (2) MERGER WITH FORCENERGY INC: On December 7, 2000 Forest announced the completion of its merger with Forcenergy. Pursuant to the terms of the merger agreement, and after giving effect to the reverse split of Forest common shares, Forcenergy stockholders received 0.8 of a Forest common share for each share of Forcenergy common stock they owned and 34.307 Forest common shares for each $1,000 stated value amount of Forcenergy preferred stock. In addition, each warrant to purchase Forcenergy common stock was exchanged for a warrant to purchase 0.8 shares of Forest common stock. The merger was 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 were carried forward to the combined company at their recorded amounts, and income of the combined company includes income of Forest and Forcenergy for the entire year. The results of operations of Forcenergy prior to December 31, 1999, the effective date of its reorganization and fresh start reporting, are not included in the financial statements of the combined company. The results of operations previously reported by the separate companies for the nine months ended September 30, 2000 are as follows:
NINE MONTHS ENDED SEPTEMBER 30, 2000 -------------------------------- FOREST FORCENERGY COMBINED -------- ---------- -------- (IN THOUSANDS) Total revenue................................. $353,942 250,835 604,777 Net earnings.................................. $ 28,936 46,132 75,068
There were no intercompany transactions between Forest and Forcenergy prior to the combination. 50 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (2) MERGER WITH FORCENERGY INC: (CONTINUED) Merger and seismic licensing costs reported in the Statements of Operations for the year ended December 31, 2000 of $31,577,000 (approximately $28,500,000 net of tax) included the following merger-related costs: banking, legal, accounting, printing and other consulting costs related to the merger; severance paid to terminated employees; expenses for office closures, employee relocation, data migration and systems integration; and costs of transferring seismic licenses from Forcenergy to Forest. (3) ACQUISITIONS: ANSCHUTZ ACQUISITION: In June 1998, Forest issued 2,975,000 shares of common stock valued at $67,565,000 to The Anschutz Corporation (Anschutz) in exchange for certain oil and gas assets. The oil and gas assets acquired included an interest in the Anschutz Ranch East Field located in Utah and Wyoming. The acquisition also included certain of Anschutz's international oil and gas projects encompassing approximately 18 million net acres of undeveloped land. LOUISIANA ACQUISITION: In February 1998 the Company purchased interests in oil and natural gas properties in 13 fields located onshore Louisiana from a private company for total consideration of approximately $230,776,000. The consideration consisted of approximately $216,557,000 of cash, funded primarily from the Company's bank credit facility and from the issuance of $75,000,000 principal amount of 8 3/4% Notes and 1,000,000 shares of the Company's Common Stock. SAXON PETROLEUM INC.: Prior to 1998, the Company acquired a majority interest in Saxon Petroleum Inc. (Saxon). In August 1998, the Company acquired all of the outstanding common shares of Saxon Petroleum Inc. not previously owned by Forest in exchange for 540,628 shares of Forest Common Stock valued at $16,029,000. Canadian Forest received 10,570 shares of Forest Common Stock for the shares of common stock of Saxon that it owned. A former officer of Saxon returned 4,961 shares of Forest Common Stock in exchange for extinguishment of a loan. These shares have been recorded as treasury stock at December 31, 2000 and 1999. In October 1998, ownership of Saxon was transferred from Forest to its wholly owned subsidiary Canadian Forest Oil Ltd. In June 1999, Saxon was liquidated into Canadian Forest. 51 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (4) LONG-TERM DEBT: Long-term debt at December 31 consisted of the following:
2000 1999 -------- -------- (IN THOUSANDS) Global Credit facility: U.S. borrowings........................................ $305,000 353,973 Canadian borrowings.................................... 28,690 33,235 8 3/4% Senior Subordinated Notes......................... 192,382 199,978 10 1/2% Senior Subordinated Notes........................ 96,162 98,967 -------- ------- Long-term debt........................................... $622,234 686,153 ======== =======
GLOBAL CREDIT FACILITY: The Company, Canadian Forest and ProMark have a global credit facility through a syndicate of banks led by The Chase Manhattan Bank and The Chase Manhattan Bank of Canada. The maximum credit facility allocations in the United States and Canada are $500,000,000 and $100,000,000, respectively. Funds borrowed under the global credit facility can be used for general corporate purposes. Under the terms of the global credit facility, the Company and its restricted subsidiaries are subject to certain covenants and financial tests, including restrictions or requirements with respect to dividends, additional debt, liens, asset sales, investments, hedging activities, mergers and reporting responsibilities. The global credit facility is secured by a lien on, and a security interest in, a portion of the Company's proved oil and gas properties in the United States and Canada, related assets, pledges of accounts receivable and a pledge of 65% of the capital stock of Canadian Forest and 100% of the capital stock of Forest Pipeline Company. At December 31, 2000 the outstanding balance under the global credit facility was $305,000,000 in the United States and $28,690,000 in Canada with a weighted average interest rate of 8.12% per annum. The Company had also used the global credit facility for letters of credit in the approximate amount of $5,884,000 in the United States and $1,770,000 CDN in Canada. 8 3/4% SENIOR SUBORDINATED NOTES: In September 1997 Canadian Forest completed an offering of $125,000,000 of 8 3/4% Senior Subordinated Notes due 2007 (the 8 3/4% Notes), which were sold at 99.745% of par and guaranteed on a senior subordinated basis by the Company. In February 1998 Canadian Forest issued $75,000,000 principal amount of 8 3/4% Notes, an add-on to the September 1997 offering. The Company is required to recognize foreign currency translation gains or losses related to the 8 3/4% Notes because the debt is denominated in U.S. dollars and the functional currency of Canadian Forest is the Canadian dollar. As a result of the change in the value of the Canadian dollar relative to the U.S. dollar during 2000, 1999 and 1998, the Company reported noncash translation gains (losses) of approximately $(7,102,000), $10,561,000 and $(8,320,000) respectively, in those years. In April 2000, the Company purchased $5,000,000 principal amount of 8 3/4% Notes at an average price of 92.6% of par value. In December 2000, the Company purchased $2,600,000 principal amount of 8 3/4% 52 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (4) LONG-TERM DEBT: (CONTINUED) Notes at 96.7% of par value. As a result of these purchases, Forest recorded gains of $192,000 and $47,000 in the second and fourth quarters of 2000, respectively. 10 1/2% SENIOR SUBORDINATED NOTES: In February 1999, Forest issued $100,000,000 principal amount of 10 1/2% Senior Subordinated Notes due 2006 (the 10 1/2% Notes) at 98.811% of par. In December 2000, the Company purchased $3,000,000 principal amount of 10 1/2% Notes at an average price of 102.3% of par value, resulting in a loss of $110,000 in the fourth quarter of 2000. PRODUCTION PAYMENT OBLIGATION: In June 1998 the Company settled its remaining nonrecourse production payment obligation for 135,607 shares of the Company's Common Stock. The stock was valued at $3,750,000 based upon the weighted average trading price for the 10 day trading period preceding the closing date. The obligation, which originated in May 1992, had a remaining book value of approximately $9,966,000 at the time of the settlement. As a result of this settlement, the Company recorded an extraordinary gain on extinguishment of debt of $6,196,000 (net of related expenses) in 1998. 11 1/4% SENIOR SUBORDINATED NOTES: In September 1999 Forest redeemed the remaining principal amount of its 11 1/4% Notes at 103.792% of par. As a result of this redemption, Forest recorded an extraordinary loss on extinguishment of debt of $598,000 in the third quarter of 1999. 53 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (5) INCOME TAXES: The income tax expense (benefit) was different from amounts computed by applying the statutory Federal income tax rate for the following reasons:
2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Tax expense (benefit) at 35% of income (loss) before income taxes and extraordinary item...... $ 47,836 5,994 (78,261) State tax expense at 3% of income (loss) before income taxes and extraordinary item............. 4,100 -- -- Change in the valuation allowance for deferred tax assets attributable to income (loss) before income taxes and extraordinary item............. (55,833) (8,346) 51,620 Tax expense (benefit) of higher effective rate on Canadian income (loss).......................... 404 425 (7,200) Canadian branch income taxable in both Canada and United States................................... -- 409 1,733 Canadian Crown payments (net of Alberta Royalty Tax Credit) not deductible for tax purposes..... 6,079 3,261 2,012 Canadian resource allowance....................... (6,781) (4,853) (2,210) Canadian non-deductible depletion and amortization.................................... 945 1,335 3,960 Canadian large corporation tax.................... 513 314 519 Expiration of tax carryforwards................... 523 515 450 Nondeductible (nontaxable) foreign exchange (gains) losses.................................. 2,100 (1,634) -- Nondeductible merger costs........................ 4,318 -- -- Adjustment to deferred tax assets for filed returns and other............................... 1,862 66 1,559 -------- ------ ------- Total income tax expense (benefit)................ $ 6,066 (2,514) (25,818) ======== ====== =======
Deferred income taxes generally result from recognizing income and expenses at different times for financial and tax reporting. In the United States, the largest differences are the tax effect of the capitalization of certain development, exploration and other costs under the full cost method of accounting, recording proceeds from the sale of properties in the full cost pool, and the provision for impairment of oil and gas properties for financial accounting purposes. In Canada, differences result in part from accelerated cost recovery of oil and gas capital expenditures for tax purposes. 54 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (5) INCOME TAXES: (CONTINUED) The components of the net deferred tax liability by geographical segment at December 31, 2000 and 1999 were as follows:
DECEMBER 31, 2000 ----------------------------------- UNITED STATES CANADA TOTAL ------------- -------- -------- (IN THOUSANDS) Deferred tax assets: Property and equipment...................... $ 45,834 -- 45,834 Investment in subsidiaries.................. 2,366 -- 2,366 Accrual for medical and retirement benefits.................................. 2,920 (37) 2,883 Unrealized foreign exchange losses.......... -- 2,542 2,542 Net operating loss carryforward............. 144,361 3,450 147,811 Depletion carryforward...................... 7,554 -- 7,554 Investment tax credit carryforward.......... 73 -- 73 Alternative minimum tax credit carryforward.............................. 2,768 -- 2,768 Other....................................... 3,740 -- 3,740 -------- ------- ------- Total gross deferred tax assets........... 209,616 5,955 215,571 Less valuation allowance.................. (90,316) (2,542) (92,858) -------- ------- ------- Net deferred tax assets................... 119,300 3,413 122,713 Deferred tax liabilities: Property and equipment...................... -- (14,051) (14,051) Deferred income on long term contracts...... -- (3,514) (3,514) Other....................................... -- (713) (713) -------- ------- ------- Total gross deferred tax liabilities...... -- (18,278) (18,278) -------- ------- ------- Net deferred tax assets (liabilities)..... $119,300 (14,865) 104,435 ======== ======= =======
55 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (5) INCOME TAXES: (CONTINUED)
DECEMBER 31, 1999 ----------------------------------- UNITED STATES CANADA TOTAL ------------- -------- -------- (IN THOUSANDS) Deferred tax assets: Property and equipment..................... $ 102,760 -- 102,760 Investment in subsidiaries................. 2,746 -- 2,746 Accrual for medical and retirement benefits................................. 2,189 150 2,339 Unrealized foreign exchange losses......... -- 1,618 1,618 Net operating loss carryforward............ 142,039 3,781 145,820 Depletion carryforward..................... 6,958 -- 6,958 Investment tax credit carryforward......... 595 -- 595 Alternative minimum tax credit carryforward............................. 2,238 -- 2,238 Other...................................... 2,219 -- 2,219 --------- ------- -------- Total gross deferred tax assets.......... 261,744 5,549 267,293 --------- ------- -------- Less valuation allowance................. (261,744) (1,618) (263,362) --------- ------- -------- Net deferred tax assets.................. -- 3,931 3,931 Deferred tax liabilities: Property and equipment..................... -- (8,182) (8,182) Deferred income on long term contracts..... -- (4,163) (4,163) Other...................................... -- (537) (537) --------- ------- -------- Total gross deferred tax liabilities..... -- (12,882) (12,882) --------- ------- -------- Net deferred tax liability............... $ -- (8,951) (8,951) ========= ======= ========
The net changes in the valuation allowance for the years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998 --------- -------- -------- (IN THOUSANDS) Increase (decrease) in the valuation allowance for deferred tax assets attributable to income (loss) before income taxes and extraordinary item........................................... $ (55,833) (8,346) 51,620 Decrease in the valuation allowance attributable to the difference between book basis and tax basis of acquisitions.......................... -- (537) (17,073) Decrease in the valuation allowance attributable to fresh start deferred tax assets recognized..................................... (114,671) -- -- Increase (decrease) in the valuation allowance attributable to extraordinary gains (losses)... -- 209 (2,169) --------- ------ ------- Net increase (decrease) in the valuation allowance...................................... $(170,504) (8,674) 32,378 ========= ====== =======
56 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (5) INCOME TAXES: (CONTINUED) The Alternative Minimum Tax (AMT) credit carryforward available to reduce future U.S. Federal regular taxes aggregated $2,768,000 at December 31, 2000. This amount may be carried forward indefinitely. U.S. Federal regular and AMT net operating loss carryforwards at December 31, 2000 were approximately $379,897,000 and $266,761,000, respectively, and will expire in the years indicated below:
REGULAR AMT -------- -------- (IN THOUSANDS) 2005..................................................... $ 7,457 -- 2006..................................................... 3,381 -- 2007..................................................... 59,357 -- 2008..................................................... 61,716 36,204 2009..................................................... 48,926 33,847 2010..................................................... 84,906 85,778 2011..................................................... 647 2 2012..................................................... 3,944 2,743 2018..................................................... 71,632 68,764 2019..................................................... 37,931 39,423 -------- ------- $379,897 266,761 ======== =======
AMT net operating loss carryforwards can be used to offset 90% of AMT income in future years. Investment tax credit carryforwards available to reduce future U.S. Federal income taxes aggregated $73,000 at December 31, 2000 and expire in 2001. Percentage depletion carryforwards available to reduce future U.S. Federal taxable income aggregated $19,879,000 at December 31, 2000. This amount may be carried forward indefinitely. Canadian net operating losses available to reduce future Canadian Federal income taxes were $7,732,000 ($11,589,000 CDN) at December 31, 2000 and will expire in the years indicated below:
(IN THOUSANDS) 2003.......................................... $2,330 2004.......................................... 5,243 2005.......................................... 159 ------ $7,732 ======
Canadian tax pools relating to the exploration, development and production of oil and natural gas which are available to reduce future Canadian Federal income taxes aggregated approximately $156,751,000 ($234,938,000 CDN) at December 31, 2000. These tax pool balances are deductible on a declining balance basis ranging from 10% to 100% of the balance annually. The amounts may be carried forward indefinitely. The availability of some of the U.S. tax attributes to reduce current and future U.S. Federal taxable income of the Company is subject to various limitations under the Internal Revenue Code. In particular, the Company's ability to utilize such tax attributes could be limited due to the occurrence of an "ownership change" within the meaning of Section 382 of the Internal Revenue Code. "Ownership changes" occurred 57 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (5) INCOME TAXES: (CONTINUED) in Forest in 1995 following the Anschutz transaction, in 1996 following the public stock issuance, and in 1998 from the accumulated effect of several stock issuances and exchanges in 1996, 1997 and 1998. "Ownership changes" occurred in Forcenergy in 2000 following its emergence from bankruptcy. Under the general provisions of Section 382 of the Code, the Company's ability to utilize substantially all of Forest's net operating loss carryforwards will be subject to an annual limitation of approximately $5,700,000 and the Company's ability to utilize substantially all of Forcenergy's net operating loss carryforwards will be subject to an annual limitation of approximately $13,750,000. To the extent of any net unrealized built-in gains at the time of an ownership change, the annual limitation can be increased by (a) any gains recognized in the five years following an ownership change on the disposition of certain assets, to the extent that the value of the assets disposed of exceeded their tax basis on the date of the ownership change, or (b) any item of income which is properly taken into account in the five years following the ownership change but which is attributable to periods before the ownership change. The ability of the Company to fully utilize its net operating loss carryforwards may be limited by these provisions. Due to limitations in the Internal Revenue Code, other than the Section 382 limitations discussed above, the Company believes it is unlikely that it will be able to use any of its investment tax credit carryforwards before they expire. (6) PREFERRED STOCK: In March 2000, Forcenergy issued 40,000 shares of 14% Series A Cumulative Preferred Stock (the Preferred Stock) for net proceeds of approximately $38,800,000 as part of a rights offering to holders of unsecured claims. The Preferred Stock was non-convertible, and dividends were payable quarterly in additional shares of Preferred Stock. On December 7, 2000, in conjunction with the merger with Forcenergy, the Company issued 1,514,004 shares of Common Stock in exchange for the 44,131 outstanding shares of Preferred Stock. (7) COMMON STOCK: COMMON STOCK: The Company has 200,000,000 shares of Common Stock, par value $.10 per share, authorized. On December 7, 2000, in conjunction with the merger with Forcenergy, a 1-for-2 reverse stock split was approved by the Company's shareholders. Unless otherwise indicated, all share and per share amounts in these financial statements have been adjusted to give retroactive effect to the 1-for-2 reverse stock split. In March 2000, the Company purchased 152,400 shares of Common Stock for approximately $2,818,000. In August 1999, 4,500,000 shares of Common Stock were sold for $30.875 per share in a public offering. The net proceeds to Forest from the issuance of shares totaled approximately $131,000,000 after deducting issuance costs and underwriting fees. During 1998, the Company issued 4,151,235 shares of Common Stock in connection with acquisitions, the purchase of the minority interest in Saxon Petroleum and the settlement of a production payment obligation, as described in Notes 3 and 4. 58 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (7) COMMON STOCK: (CONTINUED) RIGHTS AGREEMENT: In October 1993, the Board of Directors adopted a shareholders' rights plan (the Plan) and entered into the Rights Agreement. The Company distributed one Preferred Share Purchase Right (the Rights) for each outstanding share of the Company's Common Stock. The Rights are exercisable only if a person or group acquires 20% or more of the Company's Common Stock or announces a tender offer which would result in ownership by a person or group of 20% or more of the Common Stock. Each Right initially entitles each shareholder to buy 1/100th of a share of a new series of Preferred Stock at an exercise price of $60.00, subject to adjustment upon certain occurrences. Each 1/100th of a share of such new Preferred Stock that can be purchased upon exercise of a Right has economic terms designed to approximate the value of one share of Common Stock. The Rights will expire on October 29, 2003, unless extended or terminated earlier. The Company has amended the Rights Agreement to exempt from the provisions of the Rights Agreement certain shares of Common Stock held by Anschutz. WARRANTS: The Company has outstanding 238,831 warrants to purchase shares of its Common Stock (the 2004 Warrants). Each 2004 Warrant entitles the holder to purchase 0.8 shares of Common Stock for $16.67, or an equivalent per share price of $20.84. The 2004 Warrants expire on February 15, 2004. The Company has outstanding 239,029 warrants to purchase shares of its Common Stock (the 2005 Warrants). Each 2005 Warrant entitles the holder to purchase 0.8 shares of Common Stock for $20.83, or an equivalent per share price of $26.04. The 2005 Warrants expire on February 15, 2005. The Company has outstanding 1,773,885 warrants to purchase shares of its Common Stock (Subscription Warrants). Each Subscription Warrant entitles the holder to purchase 0.8 shares of Common Stock for $10.00, or an equivalent per share price of $12.50. The Subscription Warrants are detachable and expire on March 20, 2010 or earlier upon notice of expiration by the Company if, after March 20, 2004, the market price of the Common Stock has exceeded the exercise price of the Subscription Warrants for a period of 30 consecutive trading days. During 2000, 22,604 shares of Common Stock were issued for approximately $296,000 upon exercise of warrants. RESTRICTED STOCK AWARDS: During 2000, the Company issued 32,486 shares of restricted Common Stock to officers and employees as a portion of the bonuses earned pursuant to the Business Unit Annual Incentive Plan for the year ended December 31, 1999. During 1998, the Company issued 7,964 shares of restricted Common Stock to officers and employees as a portion of the bonuses earned pursuant to the Business Unit Annual Incentive Plan for the year ended December 31, 1997. All of the shares issued vested immediately upon issuance, but are subject to a two-year restriction on transfer. In 1999, the Company entered into restricted stock agreements with two executives covering 20,168 shares of Common Stock. The shares carry restrictions as to forfeiture, transfer and encumbrance. The restrictions lapse 20% annually beginning January 1, 2000. 59 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (7) COMMON STOCK: (CONTINUED) During 2000, 1999 and 1998, the Company issued 4,393, 5,497 and 4,345 shares of restricted common stock, respectively, to members of its board of directors as payment of a portion of their annual directors fees. All of the shares issued vested immediately upon issuance but are subject to a two-year restriction on transfer. STOCK OPTIONS: The Company has a Stock Incentive Plan under which non-qualified stock options may be granted to key employees and non-employee directors. The aggregate number of shares of Common Stock which the Company may issue under options granted pursuant to this plan may not exceed 10% of the total number of shares outstanding or issuable at the date of grant pursuant to outstanding rights, warrants, convertible or exchangeable securities or other options. The exercise price of an option may not be less than 85% of the fair market value of one share of Common Stock on the date of grant. Options under the plan generally vest 20% on the date of grant and an additional 20% on each grant anniversary date thereafter. On February 15, 2000, Forcenergy adopted the Forcenergy 1999 Stock Option Plan. On December 7, 2000, in connection with the merger, the Company assumed the obligations of the plan and all options outstanding on that date became fully vested. No additional awards will be granted under the Forcenergy 1999 Stock Option Plan. The following table summarizes the activity in the Company's stock-based compensation plans for the years ended December 31, 2000, 1999 and 1998:
WEIGHTED AVERAGE NUMBER OF NUMBER OF EXERCISE SHARES SHARES PRICE EXERCISABLE --------- -------- ----------- Outstanding at December 31, 1997.............. 918,180 $28.76 339,510 Granted at fair value....................... 96,250 29.34 Cancelled................................... (76,750) 28.44 --------- ------ Outstanding at December 31, 1998.............. 937,680 $28.84 499,150 Granted at fair value....................... 626,500 14.94 Granted in excess of fair value............. 384,000 20.00 Exercised................................... (73,000) 19.58 Cancelled................................... (60,950) 27.19 --------- ------ Outstanding at December 31, 1999.............. 1,814,230 $22.60 782,590 Granted at fair value....................... 2,512,011 22.34 Granted below fair value.................... 252,500 14.06 Exercised................................... (686,004) 17.06 Cancelled................................... (68,964) 22.38 --------- ------ Outstanding at December 31, 2000.............. 3,823,773 $22.86 2,046,573 ========= ======
60 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (7) COMMON STOCK: (CONTINUED) The fair value of each option granted in 2000, 1999 and 1998 was estimated using the Black-Scholes option pricing model. The following assumptions were used to compute the weighted average fair market value of options granted:
2000 1999 1998 ------------ ------------ ------------ Expected life of options... 5 years 5 years 5 years Risk free interest rates... 5.14%-6.68% 5.06%-6.31% 4.19%-5.57% Estimated volatility....... 60.64% 59.29% 57.22% Dividend yield............. 0.0% 0.0% 0.0% Weighted average fair market value of options granted during the year..................... $12.95 $9.16 $15.94
The following table summarizes information about options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF AS OF CONTRACTUAL EXERCISE AS OF EXERCISE EXERCISE PRICES 12/31/2000 LIFE PRICE 12/31/2000 PRICE - --------------- ----------- ----------- -------- ----------- -------- $12.50 915,293 9.15 $12.50 915,293 $12.50 14.88-20.00 836,300 8.59 17.28 280,150 17.71 20.63-29.50 441,130 6.23 25.78 382,630 25.89 29.75 1,385,050 9.92 29.75 278,450 29.75 29.88-50.00 246,000 6.24 36.37 190,050 36.96 --------- ---- ------ --------- ------ 3,823,773 8.78 $22.86 2,046,573 $20.34 ========= ==== ====== ========= ======
STOCK PURCHASE PLAN: In June 1999, the Company adopted the 1999 Employee Stock Purchase Plan, under which the Company is authorized to issue up to 125,000 shares of Common Stock to employees who are regularly scheduled to work more than 20 hours per week and more than five months in any calendar year. Under the terms of the plan, employees can choose each quarter to have up to 15% of their annual base earnings withheld to purchase Common Stock, up to a limit of $25,000 per calendar year. The purchase price of the stock is 85% of the lower of its beginning-of-quarter or end-of-quarter market price. The employee is restricted from selling the stock for a period of six months after purchase. Under this plan, the Company sold 6,735 shares and 2,445 shares of Common Stock to employees in 2000 and 1999, respectively. 61 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (7) COMMON STOCK: (CONTINUED) The fair value of each stock purchase right granted during 2000 and 1999 was estimated using the Black-Scholes option pricing model. The following assumptions were used to compute the weighted average fair market value of purchase rights granted:
2000 1999 -------------- -------------- Expected option life....................... 3 months 3 months Risk free interest rates................... 5.83% to 6.50% 4.65% to 4.86% Estimated volatility....................... 60.64% 57.93% Dividend yield............................. 0.0% 0.0% Weighted average fair market value of purchase rights granted.................. $7.00 $7.62
On February 15, 2000, Forcenergy adopted the Forcenergy Inc 1999 Employee Stock Purchase Plan, under which Forcenergy was authorized to issue up to 384,000 shares of common stock to employees who were full-time employees, or part-time employees meeting certain criteria. On December 7, 2000, in connection with the merger, the Company assumed the outstanding obligations of the plan through December 31, 2000, and the plan was terminated. The purchase price of the stock was 85% of the lower of the market price at the beginning or end of each semi-annual period. Under this plan, 26,377 shares of Common Stock were sold to employees in 2000. The fair value of each stock purchase right granted during 2000 was estimated using the Black-Sholes option pricing model. The following assumptions were used to compute the weighted average fair market value of the purchase rights granted:
2000 ------------------ Expected option life........................................ 6 months Risk free interest rates.................................... 6.12% to 6.50% Estimated volatility........................................ 60.64% Dividend yield.............................................. 0.0% Weighted average fair market value of purchase rights granted.................................................... $5.08
The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost is recognized for options granted at a price equal to or greater than the fair market value of the common stock. Compensation cost is recognized over the vesting period of options granted at a price less than the fair market value of the common stock at the date of the grant. No compensation cost is recognized for stock purchase rights that qualify under Section 423 of the Internal Revenue Code as a noncompensatory plan. Had compensation cost for the Company's stock-based compensation plans been determined using the fair value of the options at the grant date, the Company's net earnings (loss) for the years ended December 31, 2000, 1999 and 1998 would have been $109,818,000, $14,321,000 and $(195,187,000), respectively, and the basic earnings (loss) per share would have been $2.29, $.60 and $(9.54) per share, respectively. 62 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (8) EMPLOYEE BENEFITS: The Company has a qualified defined benefit pension plan which covers its employees in the United States (Pension Plan). The Pension Plan has been curtailed and all benefit accruals were suspended effective May 31, 1991. The Company also has a non-qualified unfunded supplementary retirement plan (the Supplemental Executive Retirement Plan) that provides certain officers with defined retirement benefits in excess of qualified plan limits imposed by Federal tax law. Benefit accruals were suspended effective May 31, 1991 in connection with suspension of benefit accruals under the Pension Plan. Amounts for both the Pension Plan and the Supplemental Executive Retirement Plan are combined in the "Pension Benefits" column below. In addition to the defined benefit pension plans described above, the Company also accrues expected costs of providing postretirement benefits to employees, their beneficiaries and covered dependents in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pension," (Statement No. 106). These amounts, which consist primarily of medical benefits payable on behalf of retirees in the United States, are presented in the "Postretirement Benefits" column below. The following tables set forth the plans' benefit obligations, fair value of plan assets and funded status at December 31, 2000 and 1999: BENEFIT OBLIGATIONS:
POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) Projected benefit obligation at the beginning of the year..................... $26,377 28,400 6,595 7,587 Service cost................................ -- -- 219 269 Interest cost............................... 1,974 1,931 507 478 Actuarial (gain) loss....................... 691 (1,684) 248 (1,252) Benefits paid............................... (2,353) (2,270) (471) (563) Retiree contributions....................... -- -- 78 76 ------- ------ ----- ------ Projected benefit obligation at the end of the year.................................. $26,689 26,377 7,176 6,595 ======= ====== ===== ======
63 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (8) EMPLOYEE BENEFITS: (CONTINUED) FAIR VALUE OF PLAN ASSETS:
POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) Fair value of plan assets at beginning of the year.................................. $23,815 25,287 -- -- Actual return on plan assets................ 618 741 -- -- Plan participants' contribution............. -- -- 78 76 Employer contribution....................... 128 57 393 546 Benefits paid............................... (2,353) (2,270) (471) (622) ------- ------ ----- ------ Fair value of plan assets at the end of the year...................................... $22,208 23,815 -- -- ======= ====== ===== ======
FUNDED STATUS:
POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) Excess of projected benefit obligation over plan assets............................... $(4,480) (2,562) (7,176) (6,595) Unrecognized actuarial loss................. 5,603 3,532 592 344 ------- ------ ------ ------ Net amount recognized....................... $ 1,123 970 (6,584) (6,251) ======= ====== ====== ====== Amounts recognized in the balance sheet consist of: Prepaid pension cost........................ $ 1,542 1,399 -- -- Accrued benefit liability................... (4,480) (2,562) (6,584) (6,251) Accumulated other comprehensive income...... 4,061 2,133 -- -- ------- ------ ------ ------ Net amount recognized....................... $ 1,123 970 (6,584) (6,251) ======= ====== ====== ======
64 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (8) EMPLOYEE BENEFITS: (CONTINUED) The following tables set forth the components of the net periodic cost of the plans and the underlying weighted average actuarial assumptions for the years ended December 31, 2000, 1999 and 1998:
PENSION BENEFITS POSTRETIREMENT BENEFITS ------------------------------------ ------------------------------------ 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) Service cost............................... $ -- -- -- 219 269 191 Interest cost.............................. 1,932 1,931 1,924 507 478 486 Expected return on plan assets............. (2,032) (2,165) (2,130) -- -- -- Recognized actuarial loss.................. 29 232 62 -- 39 25 ------- ------ ------ ---- ---- ---- Total net periodic expense (benefit)....... $ (71) (2) (144) 726 786 702 ======= ====== ====== ==== ==== ==== Discount rate.............................. 7.50% 8.00% 6.75% 7.50% 8.00% 6.75% ======= ====== ====== ==== ==== ==== Expected return on plan assets............. 9.00% 9.00% 9.00% n/a n/a n/a ======= ====== ====== ==== ==== ====
Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement benefits. A one-percentage-point change in assumed health care cost trend rates would have the following effects for 2000:
POSTRETIREMENT BENEFITS ------------------------- 1% INCREASE 1% DECREASE ----------- ----------- (IN THOUSANDS) Effect on service and interest cost components........ $ 131 (103) Effect on postretirement benefit obligation........... $1,033 (843)
65 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (8) EMPLOYEE BENEFITS: (CONTINUED) For measurement purposes, a 7.1% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease .8% per year until it reaches 5.5% in 2003 and to remain at that level thereafter. As a result of suspension of benefit accruals under the Pension Plan and the Supplemental Executive Retirement Plan, the Company records as a liability the unfunded pension liabilities attributable to these plans. The following changes in the minimum unfunded pension liability were recorded as adjustments to other comprehensive income: 2000............................................... $(2,072) 1999............................................... $ 493 1998............................................... $ (804)
Canadian Forest has a non-contributory defined benefit pension plan (the Canadian Defined Benefit Plan). Benefits under the Canadian Defined Benefit Plan are based on years of service, the employee's average annual compensation during the highest consecutive sixty month period of pensionable service and the employee's age at retirement. The following tables set forth the estimated benefit obligations, fair value of plan assets and funded status of the Canadian Defined Benefit Plan at December 31, 2000 and 1999: BENEFIT OBLIGATIONS:
2000 1999 -------- -------- (IN THOUSANDS OF CANADIAN DOLLARS) Projected benefit obligation at the beginning of the year..................................................... $ 6,062 6,888 Service cost............................................... 326 400 Interest cost.............................................. 362 426 Actuarial (gain) loss...................................... 220 (1,272) Benefits paid.............................................. (463) (380) Benefit obligation settled on conversion of employees to members of the defined contribution plan................. (1,548) -- ------- ------ Projected benefit obligation at the end of the year........ $ 4,959 6,062 ======= ======
FAIR VALUE OF PLAN ASSETS:
2000 1999 -------- -------- (IN THOUSANDS OF CANADIAN DOLLARS) Fair value of plan assets at beginning of the year.......... $ 9,031 8,572 Actual return on plan assets................................ 524 839 Employer contributions...................................... 81 -- Benefits paid............................................... (463) (380) Settlement payments on conversion to defined contribution plan...................................................... (1,984) -- ------- ----- Fair value of plan assets at the end of the year............ $ 7,189 9,031 ======= =====
66 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (8) EMPLOYEE BENEFITS: (CONTINUED) FUNDED STATUS:
2000 1999 -------- -------- (IN THOUSANDS OF CANADIAN DOLLARS) Excess of assets over projected benefit obligation......... $ 2,230 2,969 Unamortized transitional obligation asset.................. (2,272) (3,334) Unamortized net actuarial loss............................. 165 -- ------- ------ Prepaid pension cost (accrued benefit liability)........... $ 123 (365) ======= ======
On April 1, 2000, a defined contribution plan (the Canadian Defined Contribution Plan) was introduced and many of Canadian Forest's employees elected to be covered under the new plan. Employees who did not elect to be covered under the Canadian Defined Contribution Plan continue to be covered under the Canadian Defined Benefit Plan. The Company recorded a curtailment gain of $323,000 for the decrease in the projected benefit obligation related to those employees who are no longer covered by the Canadian Defined Benefit Plan. The following table sets forth the components of net periodic pension cost and the underlying weighted average actuarial assumptions for the years ended December 31, 2000, 1999 and 1998. The amounts shown include costs of both of the Canadian plans because the surplus attributable to the defined benefits plan is being used to meet the obligations of both plans:
2000 1999 1998 -------- -------- -------- (IN THOUSANDS OF CANADIAN DOLLARS) Service cost............................................ $ 326 400 260 Interest cost........................................... 362 426 446 Expected return on plan assets.......................... (525) (477) (510) Amortization of transition asset........................ (246) (68) (69) Recognized actuarial gains.............................. -- (138) (45) Settlement gain......................................... (323) -- -- ----- ---- ---- Total net periodic pension cost......................... $(406) 143 82 ===== ==== ==== Discount rate........................................... 7.25% 6.00% 7.00% ===== ==== ==== Expected return on plan assets.......................... 7.00% 6.00% 7.00% ===== ==== ====
RETIREMENT SAVINGS PLANS: The Company sponsors a qualified tax-deferred savings plan for its employees in the United States in accordance with the provisions of Section 401(k) of the Internal Revenue Code. Employees may defer up to 15% of their compensation, subject to certain limitations. The Company matches employee contributions up to 5% of employee compensation. The expense associated with the Company's contributions was $578,000 in 2000, $518,000 in 1999 and $551,000 in 1998. The Company also sponsors a qualified tax-deferred savings plan in accordance with the provisions of Section 401(k) of the Internal Revenue Code for employees formerly employed by Forcenergy. Employees 67 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (8) EMPLOYEE BENEFITS: (CONTINUED) may defer up to 15% of their compensation, subject to certain limitations. The Company matches employee contributions up to 50% of the first 5% of the employee compensation. Certain limitations are in effect with respect to withdrawals from the plan. The expense associated with the Company's contributions was $183,000 in 2000. Canadian Forest also provides a savings plan which is available to all of its employees. Employees may contribute up to 4% of their salary, subject to certain limitations, with Canadian Forest matching the employee contribution in full. The expense associated with Canadian Forest's contributions to the plan was $153,000 in 2000, $150,000 in 1999 and $132,000 in 1998. LIFE INSURANCE: The Company provides life insurance benefits for certain key employees and retirees under split dollar life insurance plans. The premiums for the life insurance policies were $543,000 in 2000, of which $496,000 was for policies for retired executives. The premiums for the life insurance policies were $596,000 in 1999 of which $506,000 was for policies for retired executives. The premiums for the life insurance policies were $921,000 in 1998, of which $831,000 was for policies for retired executives. Under the life insurance plans, the Company is assigned a portion of the benefits which is designed to recover the premiums paid. (9) FINANCIAL INSTRUMENTS: ENERGY SWAPS AND COLLARS: In order to hedge against the effects of declines in oil and natural gas prices on the Company's future oil and gas production, the Company enters into various agreements with third parties and accounts for the agreements as hedges based on analogy to the criteria set forth in Statement of Financial Accounting Standards No. 80, "Accounting for Futures Contracts." For the years ended December 31, 2000, 1999 and 1998, the Company's gains (losses) under these agreements were $(129,092,000), $(8,684,000) and $6,305,000, respectively. In a typical swap agreement, the Company receives the difference between a fixed price per unit of production and a price based on an agreed-upon third party index if the index price is lower. If the index price is higher, the Company pays the difference. By entering into swap agreements the Company effectively fixes the price that it will receive in the future for the hedged production. The Company's current swaps are settled on a monthly basis. As of December 31, 2000 Forest had the following swaps in place:
NATURAL GAS OIL ----------------------- ----------------------- AVERAGE BARRELS AVERAGE BBTU'S HEDGED PRICE PER HEDGED PRICE PER DAY PER MMBTU DAY PER BBL -------- ------------ -------- ------------ 2001................................. 27.1 $3.57 1,000 $28.43 2002................................. 16.7 $2.48 -- $ --
The Company also enters into collar agreements with third parties that are accounted for as hedges. A collar agreement is similar to a swap agreement, except that the Company receives the difference between 68 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (9) FINANCIAL INSTRUMENTS: (CONTINUED) the floor price and the index price only if the index price is below the floor price, and the Company pays the difference between the ceiling price and the index price only if the index price is above the ceiling price. Collars are also settled in cash on a monthly basis. By entering into collars the Company effectively provides a floor for the price that it will receive for the hedged production; however, the collar also establishes a maximum price that the Company will receive for the hedged production if prices increase above the ceiling price. The Company enters into collars during periods of volatile commodity prices in order to protect against a significant decline in prices in exchange for forgoing the benefit of price increases in excess of the ceiling price of the hedged production. As of December 31, 2000, the Company had the following collars in place:
NATURAL GAS ------------------------------------------------------------ AVERAGE FLOOR PRICE AVERAGE CEILING PRICE PER MMBTU PER MMBTU BBTU'S PER DAY ------------------- --------------------- -------------- 2001........................ $4.45 $6.61 53.8
OIL ------------------------------------------------------------- AVERAGE FLOOR PRICE AVERAGE CEILING PRICE PER BBL PER BBL BARRELS PER DAY ------------------- --------------------- --------------- 2001........................ $25.39 $31.70 6,000
The Company also uses basis swaps in connection with natural gas swaps to fix the differential price between the NYMEX price and the index price at which the hedged gas is sold. At December 31, 2000 there were basis swaps in place with weighted average volumes of 64,562 MMBTU per day in 2001. The Company is exposed to off-balance-sheet risks associated with swap and collar agreements arising from movements in the prices of oil and natural gas and from the unlikely event of non-performance by the counterparties to the swap and collar agreements. As of January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires the recognition of all derivative instruments as assets or liabilities in the Company's balance sheet and the measurement of those instruments at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and, if so, the type of hedge. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income until the hedged item is recognized in earnings. All of the Company's energy swap and collar agreements and a portion of the Company's basis swaps in place at December 31, 2000 have been designated as cash flow hedges. Upon adoption of SFAS No. 133 on January 1, 2001 the Company will record a liability of approximately $52,700,000 (of which $10,900,000 will be classified as current) and a deferred tax asset of approximately $20,000,000 (of which $4,200,000 will be classified as current) and a corresponding reduction in other comprehensive income of approximately $32,700,000. 69 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (9) FINANCIAL INSTRUMENTS: (CONTINUED) Set forth below is the estimated fair value of certain on- and off-balance sheet financial instruments, along with the methods and assumptions used to estimate such fair values as of December 31, 2000: CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE: The carrying amount of these instruments approximates fair value due to their short maturity. SENIOR SUBORDINATED NOTES: The fair value of the Company's 8 3/4% Notes was approximately $189,033,000, based upon quoted market prices of the notes. The fair value of the Company's 10 1/2% Notes was approximately $100,153,000, based upon quoted market prices of the notes. ENERGY SWAP AGREEMENTS: The fair value of the Company's energy swap agreements was a loss of approximately $44,152,000, based upon the estimated net amount the Company would pay to terminate the agreements. ENERGY COLLAR AGREEMENTS: The fair value of the Company's energy collar agreements was a loss of approximately $9,411,000, based upon the estimated net amount the Company would pay to terminate the agreements. BASIS SWAP AGREEMENTS: The fair value of the Company's basis swap agreements was a gain of approximately $887,000, based upon the estimated net amount the Company would receive to terminate the agreements. (10) RELATED PARTY TRANSACTIONS Beginning in 1995, the Company consummated certain transactions with the Anschutz pursuant to which Anschutz acquired a significant ownership position in the Company. As of December 31, 2000 Anschutz owned 15,233,539 shares of Forest's Common Stock, or approximately 31% of the outstanding shares and held warrants to purchase an additional 522,216 shares. In 1998, the Company purchased certain oil and gas assets from Anschutz for $67,565,000 as described in Note 3. Included in the purchase were exploration concessions in Tunisia and South Africa. Forest and Anschutz subsequently agreed to acquire additional concessions in Tunisia and South Africa. Effective October 1, 1999, Forest and Anschutz entered into an agreement under which Anschutz repurchased 30% of the original Tunisia and South Africa blocks sold to Forest and Forest purchased 20% of the new Tunisia and South Africa concessions from Anschutz. Consideration was based on the original purchase price paid to Anschutz by Forest and on actual costs incurred by the respective parties in obtaining the new concessions. As a result of the agreement, Forest has a 70% interest in all four of the concessions, is the operator of the concession blocks and is reimbursed by Anschutz for general, technical and administrative overhead. 70 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (11) COMMITMENTS AND CONTINGENCIES: Future rental payments for office facilities and equipment under the remaining terms of noncancelable operating leases are $3,814,000, $3,458,000, $2,614,000, $2,488,000 and $1,966,000 for the years ending December 31, 2001 through 2005, respectively. Net rental payments applicable to exploration and development activities and capitalized in the oil and gas property accounts aggregated $4,021,000 in 2000, $3,144,000 in 1999 and $2,137,000 in 1998. Net rental payments charged to expense amounted to $7,011,000 in 2000, $4,806,000 in 1999 and $3,948,000 in 1998. Rental payments include the short-term lease of vehicles. There are no leases which are accounted for as capital leases. A significant portion of Canadian Forest's natural gas production is sold through the ProMark Netback Pool. At December 31, 2000 the ProMark Netback Pool had entered into fixed price contracts to sell approximately 5.5 BCF of natural gas in 2001 at an average price of $2.52 CDN per MCF and approximately 5.5 BCF of natural gas in 2002 at an average price of approximately $2.61 CDN per MCF. Canadian Forest, as one of the producers in the ProMark Netback Pool, is obligated to deliver a portion of this gas. In 2000 Canadian Forest supplied 37% of the gas for the Netback Pool. In addition to its commitments to the ProMark Netback Pool, Canadian Forest is committed to sell .6 BCF of natural gas in 2001 at a fixed price of approximately $3.25 CDN per MCF and .5 BCF of natural gas in 2002 at a fixed price of approximately $3.37 CDN per MCF. As part of ProMark's gas marketing activities, ProMark has entered into fixed price contracts to purchase and to resell natural gas. ProMark has commitments to purchase and commitments to resell approximately 14,717 MCF per day through October 2001 and approximately 1,046 MCF per day thereafter through October 2002. The Company could be exposed to loss in the event that a counterparty to these agreements failed to perform in accordance with the terms of the agreements. The Company, in the ordinary course of business, is a party to various legal actions. In the opinion of management, none of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, liquidity or results of operations. 71 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (12) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 Revenue(1)............................................. $176,984 197,308 230,485 308,281 ======== ======= ======= ======= Earnings from operations............................... $ 44,434 44,214 67,325 46,315 ======== ======= ======= ======= Net earnings........................................... $ 22,451 18,823 33,794 55,540 ======== ======= ======= ======= Net earnings attributable to common stock.............. $ 22,280 17,423 32,334 54,403 ======== ======= ======= ======= Basic and diluted earnings per share before extraordinary item................................... $ .48 .38 .70 1.16 Basic and diluted earnings per share................... $ .48 .37 .68 1.11 1999 Revenue(1)............................................. $ 84,157 88,165 93,798 94,004 ======== ======= ======= ======= Earnings from operations............................... $ 5,745 9,835 15,076 14,154 ======== ======= ======= ======= Earnings before extraordinary item..................... $ 450 4,043 5,404 9,744 ======== ======= ======= ======= Net earnings........................................... $ 450 4,043 4,806 9,744 ======== ======= ======= ======= Basic and diluted earnings per share before extraordinary item................................... $ .02 .18 .22 .36 Basic and diluted earnings per share................... $ .02 .18 .20 .36
- ------------------------ (1) Revenue has been restated to reflect the reclassification of transportation costs from oil and gas revenue to oil and gas production expense to comply with a recent accounting pronouncement. (13) BUSINESS AND GEOGRAPHICAL SEGMENTS: Segment information has been prepared in accordance with Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information (Statement No. 131). Forest has six reportable segments: oil and gas operations in the Gulf Coast Offshore Region, Gulf Coast Onshore Region, Western Region, Alaska and Canada, and marketing and processing operations in Canada. The segments were determined based upon the type of operations in each segment and the geographical location of each segment. The segment data presented below was prepared on the same basis as the consolidated Forest financial statements. 72 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (13) BUSINESS AND GEOGRAPHICAL SEGMENTS: (CONTINUED) YEAR ENDED DECEMBER 31, 2000
OIL AND GAS OPERATIONS ---------------------------------------------------------------------------- GULF COAST REGION ------------------- WESTERN TOTAL OFFSHORE ONSHORE REGION ALASKA U.S. CANADA TOTAL -------- -------- -------- -------- --------- -------- --------- (IN THOUSANDS) Revenue............................ $359,843 49,302 95,442 62,882 567,469 58,570 626,039 Marketing and processing expense... -- 901 -- -- 901 -- 901 Oil and gas production expense..... 64,862 11,885 26,807 23,877 127,431 12,787 140,218 General and administrative expense.......................... 16,272 4,559 6,083 3,220 30,134 4,060 34,194 Depreciation and depletion expense.......................... 123,020 20,576 27,158 20,148 190,902 18,056 208,958 -------- ------- ------- ------- --------- ------- --------- Earnings (loss) from operations.... $155,689 11,381 35,394 15,637 218,101 23,667 241,768 ======== ======= ======= ======= ========= ======= ========= Capital expenditures............... $218,540 10,083 25,504 58,085 312,212 50,802 363,014 ======== ======= ======= ======= ========= ======= ========= Property and equipment, net........ $515,973 257,336 199,456 135,528 1,108,293 202,941 1,311,234 ======== ======= ======= ======= ========= ======= ========= MARKETING AND PROCESSING TOTAL CANADA COMPANY ------------- --------- (IN THOUSANDS) Revenue............................ 287,019 913,058 Marketing and processing expense... 284,138 285,039 Oil and gas production expense..... -- 140,218 General and administrative expense.......................... 1,386 35,580 Depreciation and depletion expense.......................... 2,227 211,185 ------- --------- Earnings (loss) from operations.... (732) 241,036 ======= ========= Capital expenditures............... -- 363,014 ======= ========= Property and equipment, net........ -- 1,311,234 ======= =========
Information for Forest's reportable segments relates to the Company's 2000 consolidated totals as follows:
(IN THOUSANDS) -------------- EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM: Earnings from operations for reportable segments............ $ 241,036 Administrative asset depreciation........................... (1,295) Other income, net........................................... 1,757 Merger and seismic licensing expense........................ (31,577) Interest expense............................................ (60,269) Impairment of international oil and gas properties.......... (5,876) Translation loss on subordinated debt....................... (7,102) ---------- Earnings before income taxes and extraordinary item......... $ 136,674 ========== CAPITAL EXPENDITURES: Reportable segments......................................... $ 363,014 International interests..................................... 25,024 Administrative assets and other............................. 1,954 ---------- Total capital expenditures.................................. $ 389,992 ========== PROPERTY AND EQUIPMENT, NET: Reportable segments......................................... $1,311,234 International interests..................................... 40,432 Administrative assets, net and other........................ 8,090 ---------- Total property and equipment, net........................... $1,359,756 ==========
73 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (13) BUSINESS AND GEOGRAPHICAL SEGMENTS: (CONTINUED) YEAR ENDED DECEMBER 31, 1999
OIL AND GAS OPERATIONS ---------------------------------------------------------------------------- GULF COAST REGION ------------------- WESTERN TOTAL OFFSHORE ONSHORE REGION ALASKA U.S. CANADA TOTAL -------- -------- -------- -------- --------- -------- --------- (IN THOUSANDS) Revenue............................. $ 81,478 40,525 30,413 -- 152,416 42,072 194,488 Marketing and processing expense.... -- -- -- -- -- -- -- Oil and gas production expense...... 14,598 14,899 6,417 -- 35,914 13,231 49,145 General and administrative expense........................... 3,790 3,580 2,542 -- 9,912 3,391 13,303 Depreciation and depletion expense........................... 41,904 18,331 8,936 -- 69,171 15,726 84,897 -------- ------- ------- ------ --------- ------- --------- Earnings (loss) from operations..... $ 21,186 3,715 12,518 -- 37,419 9,724 47,143 ======== ======= ======= ====== ========= ======= ========= Capital expenditures................ $ 28,744 35,201 6,837 -- 70,782 42,665 113,447 ======== ======= ======= ====== ========= ======= ========= Property and equipment, net......... $420,860 277,025 207,168 96,900 1,001,953 178,561 1,180,514 ======== ======= ======= ====== ========= ======= ========= MARKETING AND PROCESSING TOTAL CANADA COMPANY ------------- --------- (IN THOUSANDS) Revenue............................. 165,636 360,124 Marketing and processing expense.... 162,617 162,617 Oil and gas production expense...... -- 49,145 General and administrative expense........................... 2,059 15,362 Depreciation and depletion expense........................... 2,321 87,218 ------- --------- Earnings (loss) from operations..... (1,361) 45,782 ======= ========= Capital expenditures................ -- 113,447 ======= ========= Property and equipment, net......... -- 1,180,514 ======= =========
Information for Forest's reportable segments relates to the Company's 1999 consolidated totals as follows:
(IN THOUSANDS) -------------- EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM: Earnings from operations for reportable segments............ $ 45,782 Administrative asset depreciation........................... (972) Other income, net........................................... 2,629 Interest expense............................................ (40,873) Translation gain on subordinated debt....................... 10,561 ---------- Earnings before income taxes and extraordinary item......... $ 17,127 ========== CAPITAL EXPENDITURES: Reportable segments......................................... $ 113,447 International interests..................................... 8,905 Administrative assets and other............................. 2,731 ---------- Total capital expenditures.................................. $ 125,083 ========== PROPERTY AND EQUIPMENT, NET: Reportable segments......................................... $1,180,514 International interests..................................... 21,493 Administrative assets, net and other........................ 7,702 ---------- Total property and equipment, net........................... $1,209,709 ==========
74 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (13) BUSINESS AND GEOGRAPHICAL SEGMENTS: (CONTINUED) YEAR ENDED DECEMBER 31, 1998
OIL AND GAS OPERATIONS --------------------------------------------------------------- GULF COAST REGION MARKETING AND ------------------- WESTERN TOTAL PROCESSING TOTAL OFFSHORE ONSHORE REGION U.S. CANADA TOTAL CANADA COMPANY -------- -------- -------- -------- -------- -------- ------------- -------- (IN THOUSANDS) Revenue.............................. $ 71,571 42,057 20,761 134,389 39,746 174,135 150,645 324,780 Marketing and processing expense..... -- -- -- -- -- -- 144,758 144,758 Oil and gas production expense....... 13,851 12,851 5,893 32,595 12,349 44,944 -- 44,944 General and administrative expense... 4,625 4,346 1,965 10,936 7,496 18,432 1,417 19,849 Depreciation and depletion expense... 47,005 20,558 6,919 74,482 22,226 96,708 2,252 98,960 Impairment of oil and gas properties......................... 51,500 59,500 28,500 139,500 60,000 199,500 -- 199,500 -------- ------- ------- -------- ------- -------- ------- -------- Earnings (loss) from operations...... $(45,410) (55,198) (22,516) (123,124) (62,325) (185,449) 2,218 (183,231) ======== ======= ======= ======== ======= ======== ======= ======== Capital expenditures................. $ 61,483 263,479 85,169 410,131 44,222 454,353 (10) 454,343 ======== ======= ======= ======== ======= ======== ======= ======== Property and equipment, net.......... $127,542 260,940 103,752 492,234 146,105 638,339 4,766 643,105 ======== ======= ======= ======== ======= ======== ======= ========
Information for Forest's reportable segments relates to the Company's 1998 consolidated totals as follows:
(IN THOUSANDS) -------------- LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM: Loss from operations for reportable segments................ $(183,231) Administrative asset depreciation........................... (1,145) Other income, net........................................... 7,561 Interest expense............................................ (38,986) Minority interest in loss of subsidiary..................... 517 Translation loss on subordinated debt....................... (8,320) --------- Loss before income taxes and extraordinary item............. $(223,604) ========= CAPITAL EXPENDITURES: Reportable segments......................................... $ 454,343 International interests..................................... 14,435 Administrative assets and other............................. 2,976 --------- Total capital expenditures.................................. $ 471,754 ========= PROPERTY AND EQUIPMENT, NET: Reportable segments......................................... $ 643,105 International interests..................................... 14,435 Administrative assets, net and other........................ 5,770 --------- Total property and equipment, net........................... $ 663,310 =========
75 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, "Disclosure about Oil and Gas Producing Activities," (Statement No. 69). (A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES--The following costs were incurred in oil and gas exploration and development activities during the years ended December 31, 2000, 1999 and 1998:
UNITED INTER- STATES CANADA NATIONAL TOTAL -------- -------- -------- -------- (IN THOUSANDS) 2000 Property acquisition costs (undeveloped leases and proved properties)................................... $ 22,754 1 (56) 22,699 Exploration costs...................................... 87,051 21,249 25,080 133,380 Development costs...................................... 202,407 29,552 -- 231,959 -------- ------ ------ ------- Total................................................ $312,212 50,802 25,024 388,038 ======== ====== ====== ======= 1999 Property acquisition costs (undeveloped leases and proved properties)................................... $ 1,203 -- 1,040 2,243 Exploration costs...................................... 20,752 37,150 7,865 65,767 Development costs...................................... 48,827 5,516 -- 54,343 Cost of Forcenergy properties at fresh start........... 510,000 -- -- 510,000 -------- ------ ------ ------- Combined total....................................... $580,782 42,666 8,905 632,353 ======== ====== ====== ======= 1998 Property acquisition costs (undeveloped leases and proved properties)................................... $310,536 17,628 11,000 339,164 Exploration costs...................................... 39,532 17,447 3,435 60,414 Development costs...................................... 61,436 9,137 -- 70,573 -------- ------ ------ ------- Total................................................ $411,504 44,212 14,435 470,151 ======== ====== ====== =======
(B) AGGREGATE CAPITALIZED COSTS--The aggregate capitalized costs relating to oil and gas activities at the end of each of the years indicated were as follows:
2000 1999 1998 ----------- ---------- ---------- (IN THOUSANDS) Costs related to proved properties....... $ 2,807,033 2,482,534 1,923,521 Costs related to unproved properties: Costs subject to depletion............. 6,982 6,455 6,344 Costs not subject to depletion......... 206,763 175,618 99,487 ----------- ---------- ---------- 3,020,778 2,664,607 2,029,352 Less accumulated depletion and valuation allowance.............................. (1,669,112) (1,459,738) (1,367,086) ----------- ---------- ---------- $ 1,351,666 1,204,869 662,266 =========== ========== ==========
76 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED) (C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES--Results of operations from producing activities for the years ended December 31, 2000, 1999 and 1998 are presented below. Income taxes are different from income taxes shown in the Consolidated Statements of Operations because this table excludes general and administrative and interest expense.
UNITED STATES CANADA INTERNATIONAL TOTAL --------- -------- ------------- -------- (IN THOUSANDS) 2000 Oil and gas sales................................ $ 555,582 69,343 -- 624,925 Production expense............................... 127,420 12,798 -- 140,218 Depletion expense................................ 190,902 18,057 -- 208,959 Provision for impairment of oil and gas properties..................................... -- -- 5,876 5,876 Income tax expense............................... 83,041 16,551 -- 99,592 --------- ------- ------ -------- 401,363 47,406 5,876 454,645 --------- ------- ------ -------- Results of operations from producing activities..................................... $ 154,219 21,937 (5,876) 170,280 ========= ======= ====== ======== 1999 Oil and gas sales................................ $ 150,589 43,252 -- 193,841 Production expense............................... 35,914 13,231 -- 49,145 Depletion expense................................ 69,171 15,726 -- 84,897 Income tax expense............................... -- 5,240 -- 5,240 --------- ------- ------ -------- 105,085 34,197 -- 139,282 --------- ------- ------ -------- Results of operations from producing activities..................................... $ 45,504 9,055 -- 54,559 ========= ======= ====== ======== 1998 Oil and gas sales................................ $ 133,955 39,746 -- 173,701 Production expense............................... 32,595 12,349 -- 44,944 Depletion expense................................ 74,482 22,226 -- 96,708 Provision for impairment of oil and gas properties..................................... 139,500 60,000 -- 199,500 Income tax benefit............................... -- (23,418) -- (23,418) --------- ------- ------ -------- 246,577 71,157 -- 317,734 --------- ------- ------ -------- Results of operations from producing activities..................................... $(112,622) (31,411) -- (144,033) ========= ======= ====== ========
(D) ESTIMATED PROVED OIL AND GAS RESERVES--The Company's estimate of its proved and proved developed future net recoverable oil and gas reserves and changes for 2000, 1999 and 1998 follows. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions; i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangement, but not on escalations based on future conditions. Purchases of reserves in place represent volumes recorded on the closing dates of the acquisitions for financial accounting purposes. 77 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED) Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved mechanisms of primary recovery are included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
LIQUIDS GAS ------------------------------ ------------------------------ (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL -------- -------- -------- -------- -------- -------- Balance at December 31, 1997............... 6,126 18,510 24,636 257,923 120,392 378,315 Revisions of previous estimates.......... 347 (3,095) (2,748) 17,158 (9,231) 7,927 Extensions and discoveries............... 559 336 895 37,708 31,576 69,284 Production............................... (2,405) (1,864) (4,269) (47,394) (14,916) (62,310) Sales of reserves in place............... (2,008) (432) (2,440) (1,964) (4,215) (6,179) Purchases of reserves in place........... 18,965 30 18,995 161,089 16,138 177,227 ------ ------ ------- -------- ------- -------- Balance at December 31, 1998............... 21,584 13,485 35,069 424,520 139,744 564,264 Revisions of previous estimates.......... 2,108 (438) 1,670 (13,613) (497) (14,110) Extensions and discoveries............... 611 64 675 37,941 5,565 43,506 Production............................... (2,712) (1,685) (4,397) (49,279) (12,423) (61,702) Sales of reserves in place............... (308) (648) (956) (6,231) (1,462) (7,693) Purchases of reserves in place........... 66 -- 66 742 -- 742 Forcenergy reserves at fresh start....... 64,959 -- 64,959 300,616 -- 300,616 ------ ------ ------- -------- ------- -------- Balance at December 31, 1999............... 86,308 10,778 97,086 694,696 130,927 825,623 Revisions of previous estimates.......... (1,710) (641) (2,351) 2,680 (19,647) (16,967) Extensions and discoveries............... 5,780 529 6,309 116,911 23,206 140,117 Production............................... (9,891) (1,536) (11,427) (102,320) (11,522) (113,842) Sales of reserves in place............... (904) (9) (913) (26,084) (2,172) (28,256) Purchases of reserves in place........... 537 -- 537 37,383 -- 37,383 ------ ------ ------- -------- ------- -------- Balance at December 31, 2000............... 80,120 9,121 89,241 723,266 120,792 844,058 ====== ====== ======= ======== ======= ========
78 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED)
OIL AND CONDENSATE GAS ------------------------------ ------------------------------ (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL -------- -------- -------- -------- -------- -------- Proved developed reserves at: December 31, 1997............................. 5,493 14,291 19,784 179,986 109,849 289,835 December 31, 1998............................. 16,697 13,485 30,182 332,575 135,174 467,749 December 31, 1999............................. 57,746 10,715 68,461 539,802 124,201 664,003 December 31, 2000............................. 53,385 9,121 62,506 546,789 83,824 630,613
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS--Future oil and gas sales and production and development costs have been estimated using prices and costs in effect at the end of the years indicated, except in those instances where the sale of oil and natural gas is covered by contracts, in which case, the applicable contract prices, including fixed and determinable escalations, were used for the duration of the contract. Thereafter, the current spot price was used. All cash flow amounts, including income taxes, are discounted at 10%. Future income tax expenses are estimated using an estimated combined federal and state income tax rate of 38% in the United States and a combined Federal and Provincial rate of 44.62% in Canada. Estimates for future general and administrative and interest expense have not been considered. Changes in the demand for oil and natural gas, inflation and other factors make such estimates inherently imprecise and subject to substantial revision. This table should not be construed to be an estimate of the current market value of the Company's proved reserves. Management does not rely upon the information that follows in making investment decisions.
DECEMBER 31, 2000 ----------------------------------- UNITED STATES CANADA TOTAL ----------- -------- ---------- (IN THOUSANDS) Future oil and gas sales................... $ 8,805,617 958,776 9,764,393 Future production costs.................... (1,284,255) (111,954) (1,396,209) Future development costs................... (359,152) (13,910) (373,062) Future abandonment costs................... (174,197) (4,091) (178,288) Future income taxes........................ (1,913,585) (293,654) (2,207,239) ----------- -------- ---------- Future net cash flows...................... 5,074,428 535,167 5,609,595 10% annual discount for estimated timing of cash flows............................... (1,702,274) (212,890) (1,915,164) ----------- -------- ---------- Standardized measure of discounted future net cash flows........................... $ 3,372,154 322,277 3,694,431 =========== ======== ==========
Present value of future net cash flows before income taxes was $4,605,767,000 in the United States and $471,536,000 in Canada at December 31, 2000. 79 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED)
DECEMBER 31, 1999 ---------------------------------- UNITED STATES CANADA TOTAL ---------- -------- ---------- (IN THOUSANDS) Future oil and gas sales................... $3,589,560 444,147 4,033,707 Future production costs.................... (963,204) (113,450) (1,076,654) Future development costs................... (307,118) (18,473) (325,591) Future abandonment costs................... (166,574) (4,245) (170,819) Future income taxes........................ (269,011) (68,792) (337,803) ---------- -------- ---------- Future net cash flows...................... 1,883,653 239,187 2,122,840 10% annual discount for estimated timing of cash flows............................... (619,128) (84,690) (703,818) ---------- -------- ---------- Standardized measure of discounted future net cash flows........................... $1,264,525 154,497 1,419,022 ========== ======== ==========
Present value of future net cash flows before income taxes was $1,400,802,000 in the United States and $189,405,000 in Canada at December 31, 1999.
DECEMBER 31, 1998 --------------------------------- UNITED STATES CANADA TOTAL ---------- -------- --------- (IN THOUSANDS) Future oil and gas sales.................... $1,081,183 334,242 1,415,425 Future production costs..................... (278,277) (111,392) (389,669) Future development costs.................... (105,363) (20,776) (126,139) Future abandonment costs.................... (12,783) (5,543) (18,326) Future income taxes......................... (18,327) (38,910) (57,237) ---------- -------- --------- Future net cash flows....................... 666,433 157,621 824,054 10% annual discount for estimated timing of cash flows................................ (240,071) (61,152) (301,223) ---------- -------- --------- Standardized measure of discounted future net cash flows............................ $ 426,362 96,469 522,831 ========== ======== =========
Present value of future net cash flows before income taxes was $433,555,000 in the United States and $113,921,000 in Canada at December 31, 1998. 80 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED) CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES--An analysis of the changes in the standardized measure of discounted future net cash flows during each of the last three years is as follows.
DECEMBER 31, 2000 ----------------------------------- UNITED STATES CANADA TOTAL ----------- -------- ---------- (IN THOUSANDS) Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year..................................................... $ 1,264,525 154,497 1,419,022 Changes resulting from: Sales of oil and gas, net of production costs............ (428,162) (56,545) (484,707) Net changes in prices and future production costs........ 2,454,268 312,067 2,766,335 Net changes in future development costs.................. (135,125) (12,268) (147,393) Extensions, discoveries and improved recovery............ 833,232 61,298 894,530 Previously estimated development costs incurred during the period............................................. 188,891 28,995 217,886 Revisions of previous quantity estimates................. (15,250) (68,734) (83,984) Sales of reserves in place............................... (45,172) (1,621) (46,793) Purchases of reserves in place........................... 212,201 -- 212,201 Accretion of discount on reserves at beginning of year before income taxes.................................... 140,080 18,941 159,021 Net change in income taxes............................... (1,097,336) (114,351) (1,211,687) ----------- -------- ---------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year..................................................... $ 3,372,152 322,279 3,694,431 =========== ======== ==========
The computation of the standardized measure of discounted future net cash flows relating to proved oil and gas reserves at December 31, 2000 was based on average natural gas prices of approximately $9.52 per MCF in the U.S. and approximately $6.11 per MCF in Canada and on average liquids prices of approximately $23.84 per barrel in the U.S. and approximately $23.59 per barrel in Canada. Subsequent to December 31, 2000, the price of natural gas decreased significantly. During March 2001, the Company was receiving average natural gas prices of approximately $5.10 per MCF in the U.S. and approximately $4.14 per MCF in Canada. Had the lower prices been used, the Company's 81 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED) standardized measure of discounted future net cash flows relating to proved oil and gas reserves at December 31, 2000 would have been reduced.
DECEMBER 31, 1999 --------------------------------- UNITED STATES CANADA TOTAL ---------- -------- --------- (IN THOUSANDS) Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year...................................................... $ 426,362 96,469 522,831 Changes resulting from: Sales of oil and gas, net of production costs............. (114,675) (30,021) (144,696) Net changes in prices and future production costs......... 101,070 107,149 208,219 Net changes in future development costs................... (42,426) (450) (42,876) Extensions, discoveries and improved recovery............. 68,365 3,859 72,224 Previously estimated development costs incurred during the period.................................................. 41,855 5,246 47,101 Revisions of previous quantity estimates.................. 10,737 (15,746) (5,009) Sales of reserves in place................................ (786) (5,945) (6,731) Purchases of reserves in place............................ 1,421 -- 1,421 Accretion of discount on reserves at beginning of year before income taxes..................................... 43,356 11,392 54,748 Net change in income taxes................................ (39,683) (17,456) (57,139) ---------- ------- --------- 495,596 154,497 650,093 Reserves of Forcenergy at fresh start..................... 768,929 -- 768,929 ---------- ------- --------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year... $1,264,525 154,497 1,419,022 ========== ======= =========
The computation of the standardized measure of discounted future net cash flows relating to proved oil and gas reserves at December 31, 1999 was based on average natural gas prices of approximately $2.37 82 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED) per MCF in the U.S. and approximately $1.66 per MCF in Canada and on average liquids prices of approximately $22.38 per barrel in the U.S. and approximately $19.98 per barrel in Canada.
DECEMBER 31, 1998 ------------------------------- UNITED STATES CANADA TOTAL --------- -------- -------- (IN THOUSANDS) Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year...................................................... $ 289,300 150,270 439,570 Changes resulting from: Sales of oil and gas, net of production costs............. (101,360) (27,397) (128,757) Net changes in prices and future production costs......... (236,581) (73,799) (310,380) Net changes in future development costs................... (15,191) (737) (15,928) Extensions, discoveries and improved recovery............. 46,269 23,140 69,409 Previously estimated development costs incurred during the period.................................................. 57,285 8,436 65,721 Revisions of previous quantity estimates.................. 18,629 (10,909) 7,720 Sales of reserves in place................................ (6,592) (3,788) (10,380) Purchases of reserves in place............................ 330,977 3,937 334,914 Accretion of discount on reserves at beginning of year before income taxes..................................... 30,920 17,731 48,651 Net change in income taxes................................ 12,706 9,585 22,291 --------- ------- -------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year... $ 426,362 96,469 522,831 ========= ======= ========
The computation of the standardized measure of discounted future net cash flows relating to proved oil and gas reserves at December 31, 1998 was based on average natural gas prices of approximately $2.03 per MCF in the U.S. and approximately $1.38 per MCF in Canada and on average liquids prices of approximately $9.56 per barrel in the U.S. and approximately $8.91 per barrel in Canada. (15) SUPPLEMENTAL GUARANTOR INFORMATION: Canadian Forest is the issuer of the 8 3/4% Notes (see Note 4). The 8 3/4% Notes are unconditionally guaranteed on a senior subordinated basis by Forest. The indenture executed in connection with the 8 3/4% Notes does not place significant restrictions on a subsidiary's ability to make distributions to the parent. Saxon became a subsidiary guarantor of the 8 3/4% Notes in August 1998 when it became a wholly owned subsidiary of Forest Oil Corporation. In October 1998, ownership of Saxon was transferred from Forest to Canadian Forest. In June 1999, Saxon was liquidated into Canadian Forest. ProMark, which is a wholly owned subsidiary of Canadian Forest, became a subsidiary guarantor of the 8 3/4% Notes during 1998. The Company has not presented separate financial statements and other disclosures concerning Canadian Forest, ProMark or Saxon because management has determined that such information is not material to holders of the 8 3/4% Notes; however, the following condensed consolidating financial information is being provided as of December 31, 2000, 1999 and 1998 and for the years then ended. Investments in subsidiaries are accounted for on the cost basis. Earnings or losses of subsidiaries are therefore not reflected in the related investment accounts. The principal eliminating entries eliminate investments in subsidiaries and intercompany balances. 83 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2000
CANADIAN PRODUCERS CONSOLIDATED FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL CORPORATION LTD. LTD. ENTRIES CORPORATION ----------- ---------- ---------- ----------- ------------ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents.................... $ 14,778 (659) (116) -- 14,003 Accounts receivable.......................... 141,932 7,349 53,964 -- 203,245 Other current assets......................... 20,039 1,106 435 -- 21,580 ---------- ------- ------- ------- --------- Total current assets..................... 176,749 7,796 54,283 -- 238,828 Net property and equipment, at cost, full cost method......................................... 1,161,420 198,276 60 -- 1,359,756 Deferred income taxes............................ 119,300 -- -- -- 119,300 Goodwill and other intangible assets, net........ -- -- 19,412 -- 19,412 Intercompany investments......................... 27,840 25,713 -- (53,553) -- Other assets..................................... 12,096 2,986 -- -- 15,082 ---------- ------- ------- ------- --------- $1,497,405 234,771 73,755 (53,553) 1,752,378 ========== ======= ======= ======= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable............................. $ 123,944 16,569 51,687 -- 192,200 Accrued interest............................. 6,393 5,043 -- -- 11,436 Other current liabilities.................... 35,443 852 6 -- 36,301 ---------- ------- ------- ------- --------- Total current liabilities................ 165,780 22,464 51,693 -- 239,937 Long-term debt................................... 401,162 221,072 -- -- 622,234 Other liabilities................................ 16,458 (82) -- -- 16,376 Deferred income taxes............................ -- 26,300 (11,435) -- 14,865 Shareholders' equity Common stock................................. 4,840 27,840 25,265 (53,105) 4,840 Capital surplus.............................. 1,139,136 -- -- -- 1,139,136 Accumulated deficit.......................... (220,648) (59,766) 10,847 -- (269,567) Accumulated other comprehensive loss......... (6,505) (3,057) (2,615) -- (12,177) Treasury stock, at cost...................... (2,818) -- -- (448) (3,266) ---------- ------- ------- ------- --------- Total shareholders' equity............... 914,005 (34,983) 33,497 (53,553) 858,966 ---------- ------- ------- ------- --------- $1,497,405 234,771 73,755 (53,553) 1,752,378 ========== ======= ======= ======= =========
84 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000
CANADIAN PRODUCERS CONSOLIDATED FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL CORPORATION LTD. LTD. ENTRIES CORPORATION ----------- ---------- ---------- ----------- ------------ (IN THOUSANDS) Revenue: Marketing and processing..................... $ 1,114 -- 287,019 -- 288,133 Oil and gas sales: Gas...................................... 337,785 29,986 474 -- 368,245 Oil, condensate and natural gas liquids................................ 217,797 38,363 520 -- 256,680 -------- ------- ------- ----- ------- Total oil and gas sales...................... 555,582 68,349 994 -- 624,925 -------- ------- ------- ----- ------- Total revenue............................ 556,696 68,349 288,013 -- 913,058 Expenses: Marketing and processing..................... 901 -- 284,138 -- 285,039 Oil and gas production....................... 127,420 12,722 76 -- 140,218 General and administrative................... 30,134 4,060 1,386 -- 35,580 Merger and seismic licensing expense......... 31,577 -- -- -- 31,577 Depreciation and depletion................... 192,181 18,022 2,277 -- 212,480 Impairment of oil and gas properties......... 5,876 -- -- -- 5,876 -------- ------- ------- ----- ------- Total operating expenses................. 388,089 34,804 287,877 -- 710,770 -------- ------- ------- ----- ------- Earnings from operations......................... 168,607 33,545 136 -- 202,288 Other income and expense: Other (income) expense, net.................. (1,833) (5,468) 5,180 364 (1,757) Interest expense............................. 39,874 20,308 451 (364) 60,269 Translation gain on subordinated debt........ -- 7,102 -- -- 7,102 -------- ------- ------- ----- ------- Total other income and expense........... 38,041 21,942 5,631 -- 65,614 -------- ------- ------- ----- ------- Earnings (loss) before income taxes and extraordinary item............................. 130,566 11,603 (5,495) -- 136,674 Income tax expense (benefit): Current...................................... 1,090 435 141 -- 1,666 Deferred..................................... (1,729) 25,222 (19,093) -- 4,400 -------- ------- ------- ----- ------- (639) 25,657 (18,952) -- 6,066 -------- ------- ------- ----- ------- Earnings (loss) before extraordinary item........ 131,205 (14,054) 13,457 -- 130,608 Extraordinary item -- loss on extinguishment of debt........................................... -- -- -- -- -- -------- ------- ------- ----- ------- Net earnings (loss).............................. $131,205 (14,054) 13,457 -- 130,608 ======== ======= ======= ===== =======
85 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000
CANADIAN PRODUCERS CONSOLIDATED FOREST OIL FOREST OIL MARKETING FOREST OIL CORPORATION LTD. LTD. CORPORATION ----------- ---------- ---------- ------------ (IN THOUSANDS) Cash flow from operating activities: Net earnings (loss) before extraordinary item............... $ 131,205 (14,054) 13,457 130,608 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and depletion.............................. 192,181 18,022 2,277 212,480 Impairment of oil and gas properties.................... 5,876 -- -- 5,876 Amortization of deferred debt costs..................... 1,118 399 -- 1,517 Translation loss on subordinated notes.................. -- 7,102 -- 7,102 Deferred income tax expense (benefit)................... (1,729) 25,222 (19,093) 4,400 Stock and stock option compensation..................... 3,611 -- -- 3,611 Other, net.............................................. (1,215) (237) -- (1,452) Increase in accounts receivable......................... (58,946) (4,371) (33,878) (97,195) (Increase) decrease in other current assets............. (672) 1,574 2,081 2,983 Increase (decrease) in accounts payable................. 6,372 (31,572) 35,861 10,661 Increase in accrued interest and other current liabilities........................................... 2,733 34,443 1 37,177 --------- ------- ------- -------- Net cash provided by operating activities before reorganization items.............................. 280,534 36,528 706 317,768 Decrease in accrued reorganization costs payable........ (11,236) -- -- (11,236) --------- ------- ------- -------- Net cash provided by operating activities after reorganization items.............................. 269,298 36,528 706 306,532 Cash flows from investing activities: Capital expenditures for property and equipment......... (338,932) (51,060) -- (389,992) Proceeds from sale of assets............................ 15,589 1,715 -- 17,304 Decrease in other assets, net........................... (3,373) -- -- (3,373) --------- ------- ------- -------- Net cash used by investing activities............... (326,716) (49,345) -- (376,061) Cash flows from financing activities: Proceeds from bank borrowings........................... 626,157 12,250 -- 638,407 Repayments of bank borrowings........................... (675,130) (15,283) -- (690,413) Redemption of 10 1/2% notes............................. (3,067) -- -- (3,067) Redemption of 8 3/4% notes.............................. -- (7,184) -- (7,184) Proceeds from issuance of preferred stock............... 38,800 -- -- 38,800 Proceeds from exercise of options and warrants.......... 12,556 -- -- 12,556 Purchase of treasury stock.............................. (2,818) -- -- (2,818) Decrease in other liabilities, net...................... (1,613) (840) -- (2,453) --------- ------- ------- -------- Net cash used by financing activities............... (5,115) (11,057) -- (16,172) Intercompany advances, net.................................. (22,837) 23,462 (625) -- Effect of exchange rate changes on cash..................... 12 100 (69) 43 --------- ------- ------- -------- Net decrease in cash and cash equivalents................... (85,358) (312) 12 (85,658) Cash and cash equivalents at beginning of year.............. 100,136 (347) (128) 99,661 --------- ------- ------- -------- Cash and cash equivalents at end of year.................... $ 14,778 (659) (116) 14,003 ========= ======= ======= ========
86 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 1999
CANADIAN PRODUCERS CONSOLIDATED FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL CORPORATION LTD. LTD. ENTRIES CORPORATION ----------- ---------- ---------- ----------- ------------ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents.................... $ 100,136 (343) (132) -- 99,661 Accounts receivable.......................... 82,986 4,921 22,826 -- 110,733 Other current assets......................... 19,675 1,176 80 -- 20,931 ---------- ------- ------ -------- --------- Total current assets..................... 202,797 5,754 22,774 -- 231,325 Intercompany receivables......................... 226 65,646 -- (65,872) -- Net property and equipment, at cost, full cost method......................................... 1,035,633 121,196 52,880 -- 1,209,709 Goodwill and other intangible assets, net........ -- -- 22,092 -- 22,092 Intercompany investments......................... 24,315 25,713 -- (50,028) -- Other assets..................................... 8,387 3,176 -- -- 11,563 ---------- ------- ------ -------- --------- $1,271,358 221,485 97,746 (115,900) 1,474,689 ========== ======= ====== ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable............................. $ 106,336 14,733 16,064 -- 137,133 Accrued interest............................. 25,761 5,261 -- -- 31,022 Accrued reorganization costs................. 11,236 -- -- -- 11,236 Other current liabilities.................... 24,828 221 -- -- 25,049 ---------- ------- ------ -------- --------- Total current liabilities................ 168,161 20,215 16,064 -- 204,440 Intercompany payables............................ 12,746 -- 53,126 (65,872) -- Long-term debt................................... 452,940 233,213 -- -- 686,153 Other liabilities................................ 15,823 338 -- -- 16,161 Deferred income taxes............................ -- 1,714 7,237 -- 8,951 Shareholders' equity Common stock................................. 4,611 24,315 25,265 (49,580) 4,611 Capital surplus.............................. 962,602 -- -- -- 962,602 Accumulated deficit.......................... (341,993) (51,404) (2,610) -- (396,007) Accumulated other comprehensive loss......... (3,532) (6,906) (1,336) -- (11,774) Treasury stock, at cost...................... -- -- -- (448) (448) ---------- ------- ------ -------- --------- Total shareholders' equity............... 621,688 (33,995) 21,319 (50,028) 558,984 ---------- ------- ------ -------- --------- $1,271,358 221,485 97,746 (115,900) 1,474,689 ========== ======= ====== ======== =========
87 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
CANADIAN PRODUCERS CONSOLIDATED FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL CORPORATION LTD. LTD. ENTRIES CORPORATION ----------- ---------- ---------- ----------- ------------ (IN THOUSANDS) Revenue: Marketing and processing....................... $ 647 19 165,617 -- 166,283 Oil and gas sales: Gas.......................................... 115,469 18,660 297 -- 134,426 Oil, condensate and natural gas liquids...... 35,120 23,513 782 -- 59,415 -------- ------- ------- ------ ------- Total oil and gas sales........................ 150,589 42,173 1,079 -- 193,841 -------- ------- ------- ------ ------- Total revenue................................ 151,236 42,192 166,696 -- 360,124 Expenses: Marketing and processing....................... -- 21 162,596 -- 162,617 Oil and gas production......................... 35,914 13,172 59 -- 49,145 General and administrative..................... 9,912 3,391 2,059 -- 15,362 Depreciation and depletion..................... 70,163 15,706 2,321 -- 88,190 -------- ------- ------- ------ ------- Total operating expenses..................... 115,989 32,290 167,035 -- 315,314 -------- ------- ------- ------ ------- Earnings (loss) from operations.................. 35,247 9,902 (339) -- 44,810 Other income and expense: Other (income) expense, net.................... 138 (4,810) (1,733) 3,776 (2,629) Interest expense............................... 22,396 19,959 2,294 (3,776) 40,873 Translation gain on subordinated debt.......... -- (10,561) -- -- (10,561) -------- ------- ------- ------ ------- Total other income and expense............... 22,534 4,588 561 -- 27,683 -------- ------- ------- ------ ------- Earnings (loss) before income taxes and extraordinary item............................. 12,713 5,314 (900) -- 17,127 Income tax expense (benefit): Current........................................ -- (763) (2,158) -- (2,921) Deferred....................................... -- (2,084) 2,491 -- 407 -------- ------- ------- ------ ------- -- (2,847) 333 -- (2,514) -------- ------- ------- ------ ------- Earnings (loss) before extraordinary item........ 12,713 8,161 (1,233) -- 19,641 Extraordinary item -- loss on extinguishment of debt........................................... (598) -- -- -- (598) -------- ------- ------- ------ ------- Net earnings (loss).............................. $ 12,115 8,161 (1,233) -- 19,043 ======== ======= ======= ====== =======
88 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999
CANADIAN PRODUCERS CONSOLIDATED FOREST OIL FOREST OIL MARKETING FOREST OIL CORPORATION LTD. LTD. CORPORATION ----------- ---------- ----------- ------------ (IN THOUSANDS) Cash flow from operating activities: Net earnings (loss) before extraordinary item............... $ 12,713 8,161 (1,233) 19,641 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and depletion................................ 70,163 15,706 2,321 88,190 Amortization of deferred debt costs....................... 940 401 -- 1,341 Translation gain on subordinated notes.................... -- (10,561) -- (10,561) Deferred income tax expense (benefit)..................... -- (2,084) 2,491 407 Other, net................................................ (781) (2,748) -- (3,529) (Increase) decrease in accounts receivable................ (4,448) 356 (857) (4,949) (Increase) decrease in other current assets............... (981) 1,037 (3,360) (3,304) Increase (decrease) in accounts payable................... 14,894 3,932 (582) 18,244 Increase in accrued interest and other current liabilities............................................. 1,858 1,850 1,325 5,033 --------- ------- ------ -------- Net cash provided by operating activities............... 94,358 16,050 105 110,513 Cash flows from investing activities: Capital expenditures for property and equipment........... (82,248) (42,835) -- (125,083) Proceeds from sale of assets.............................. 9,772 10,699 -- 20,471 Decrease in other assets, net............................. (1,034) -- -- (1,034) --------- ------- ------ -------- Net cash used by investing activities................... (73,510) (32,136) -- (105,646) Cash flows from financing activities: Proceeds from bank borrowings............................. 78,600 33,827 -- 112,427 Repayments of bank borrowings............................. (300,500) (37,692) -- (338,192) Issuance of 10 1/2% senior subordinated notes, net of issuance costs.......................................... 98,561 -- -- 98,561 Redemption of 11 1/4% senior subordinated notes........... (9,083) -- -- (9,083) Cash balance of Forcenergy at date of frest-start......... 96,506 -- -- 96,506 Proceeds of common stock offering, net of offering costs................................................... 131,188 -- -- 131,188 Proceeds from exercise of options and warrants............ 1,589 -- -- 1,589 Decrease in other liabilities, net........................ (1,588) (41) -- (1,629) --------- ------- ------ -------- Net cash used by financing activities................... 95,273 (3,906) -- 91,367 Intercompany advances, net.................................. (19,713) 19,713 -- -- Effect of exchange rate changes on cash..................... 15 (31) 28 12 --------- ------- ------ -------- Net increase (decrease) in cash and cash equivalents........ 96,423 (310) 133 96,246 Cash and cash equivalents at beginning of year.............. 3,713 (33) (265) 3,415 --------- ------- ------ -------- Cash and cash equivalents at end of year.................... $ 100,136 (343) (132) 99,661 ========= ======= ====== ========
89 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 1998
CANADIAN PRODUCERS SAXON CONSOLIDATED FOREST OIL FOREST OIL MARKETING PETROLIUM, ELIMINATING FOREST OIL CORPORATION LTD. LTD. INC. ENTRIES CORPORATION ----------- ---------- ----------- ---------- ----------- ------------ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents.................... $ 3,713 (33) (265) -- -- 3,415 Accounts receivable........................ 32,524 3,150 18,376 1,537 -- 55,587 Other current assets....................... 1,513 117 532 212 -- 2,374 -------- ------- ------ ------- -------- -------- Total current assets..................... 37,750 3,234 18,643 1,749 -- 61,376 Intercompany receivables..................... 338 52,747 42,266 -- (95,351) -- Net property and equipment, at cost, full cost method................................ 516,715 106,447 169 39,979 -- 663,310 Goodwill and other intangible assets, net.... -- -- 22,689 -- -- 22,689 Intercompany investments..................... 41,775 68,513 -- -- (110,288) -- Other assets................................. 8,977 3,384 -- -- -- 12,361 -------- ------- ------ ------- -------- -------- $605,555 234,325 83,767 41,728 (205,639) 759,736 ======== ======= ====== ======= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable........................... $ 26,898 5,109 15,702 1,680 -- 49,389 Accrued interest........................... 4,783 5,187 -- -- -- 9,970 Other current liabilities.................. 1,463 206 -- -- -- 1,669 -------- ------- ------ ------- -------- -------- Total current liabilities................ 33,144 10,502 15,702 1,680 -- 61,028 Intercompany payables........................ 51,143 -- 42,266 1,942 (95,351) -- Long-term debt............................... 270,076 210,432 -- 24,942 -- 505,450 Other liabilities............................ 15,837 344 -- -- -- 16,181 Deferred income taxes........................ -- 12,352 4,490 (8,756) -- 8,086 Shareholders' equity Common stock............................... 4,465 41,775 25,265 42,800 (109,840) 4,465 Capital surplus............................ 589,972 -- -- -- -- 589,972 Accumulated deficit........................ (354,108) (40,805) (1,382) (18,755) -- (415,050) Accumulated other comprehensive loss....... (4,974) (275) (2,574) (2,125) -- (9,948) Treasury stock, at cost.................... -- -- -- -- (448) (448) -------- ------- ------ ------- -------- -------- Total shareholders' equity............... 235,355 695 21,309 21,920 (110,288) 168,991 -------- ------- ------ ------- -------- -------- $605,555 234,325 83,767 41,728 (205,639) 759,736 ======== ======= ====== ======= ======== ========
90 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998
CANADIAN PRODUCERS SAXON CONSOLIDATED FOREST OIL FOREST OIL MARKETING PETROLIUM, ELIMINATING FOREST OIL CORPORATION LTD. LTD. INC. ENTRIES CORPORATION ----------- ---------- ----------- ---------- ----------- ------------ (IN THOUSANDS) Revenue: Marketing and processing................... $ 434 14,269 136,083 293 -- 151,079 Oil and gas sales: Gas...................................... 105,378 14,293 -- 3,681 -- 123,352 Oil, condensate and natural gas liquids................................ 28,577 14,533 -- 7,239 -- 50,349 --------- ------- ------- ------- ------- -------- Total oil and gas sales.................... 133,955 28,826 -- 10,920 -- 173,701 --------- ------- ------- ------- ------- -------- Total revenue............................ 134,389 43,095 136,083 11,213 -- 324,780 Expenses: Marketing and processing................... -- 13,070 131,688 -- -- 144,758 Oil and gas production..................... 32,595 8,370 -- 3,979 -- 44,944 General and administrative................. 10,936 3,122 2,819 2,972 -- 19,849 Depreciation and depletion................. 75,108 17,541 2,011 5,445 -- 100,105 Impairment of oil and gas properties....... 139,500 30,800 -- 29,200 -- 199,500 --------- ------- ------- ------- ------- -------- Total operating expenses................. 258,139 72,903 136,518 41,596 -- 509,156 --------- ------- ------- ------- ------- -------- Loss from operations......................... (123,750) (29,808) (435) (30,383) -- (184,376) Other income and expense: Other income, net.......................... (1,405) (11,529) (5,373) (517) 10,746 (8,078) Interest expense........................... 24,430 17,933 5,817 1,552 (10,746) 38,986 Translation loss on subordinated debt...... -- 8,320 -- -- -- 8,320 --------- ------- ------- ------- ------- -------- Total other income and expense........... 23,025 14,724 444 1,035 -- 39,228 --------- ------- ------- ------- ------- -------- Loss before income taxes and extraordinary item....................................... (146,775) (44,532) (879) (31,418) -- (223,604) Income tax expense (benefit): Current.................................... -- 656 493 123 -- 1,272 Deferred................................... -- (13,455) (520) (13,115) -- (27,090) --------- ------- ------- ------- ------- -------- -- (12,799) (27) (12,992) -- (25,818) --------- ------- ------- ------- ------- -------- Loss before extraordinary item............... (146,775) (31,733) (852) (18,426) -- (197,786) Extraordinary item -- gain on extinguishment of debt.................................... 6,196 -- -- -- -- 6,196 --------- ------- ------- ------- ------- -------- Net loss..................................... $(140,579) (31,733) (852) (18,426) -- (191,590) ========= ======= ======= ======= ======= ========
91 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998
CANADIAN PRODUCERS SAXON CONSOLIDATED FOREST OIL FOREST OIL MARKETING PETROLIUM, FOREST OIL CORPORATION LTD. LTD. INC. CORPORATION ----------- ---------- ---------- ---------- ------------ (IN THOUSANDS) Cash flow from operating activities: Net loss before extraordinary item........................ $(146,775) (31,733) (852) (18,426) (197,786) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and depletion............................ 75,108 17,541 2,011 5,445 100,105 Impairment of oil and gas properties.................. 139,500 30,800 -- 29,200 199,500 Amortization of deferred debt costs................... 513 389 -- -- 902 Translation loss on subordinated notes................ -- 8,320 -- -- 8,320 Deferred income tax benefit........................... -- (13,455) (520) (13,115) (27,090) Other, net............................................ 167 2 (2) (865) (698) (Increase) decrease in accounts receivable............ 9,604 3,553 (5,958) 1,340 8,539 (Increase) decrease in other current assets........... 418 (199) 1,525 (81) 1,663 Increase (decrease) in accounts payable............... (9,296) (4,268) 2,421 (2,666) (13,809) Increase in accrued interest and other current liabilities......................................... 4,848 4,359 591 -- 9,798 --------- ------- ------ ------- -------- Net cash provided by operating activities........... 74,087 15,309 (784) 832 89,444 Cash flows from investing activities: Capital expenditures for property and equipment....... (432,767) (35,131) 4 (3,860) (471,754) Less stock issued for acquisition..................... 97,376 -- -- -- 97,376 --------- ------- ------ ------- -------- (335,391) (35,131) 4 (3,860) (374,378) Proceeds from sale of assets.......................... 6,218 4,084 -- -- 10,302 (Increase) decrease in other assets, net.............. 31,671 (32,794) -- (95) (1,218) --------- ------- ------ ------- -------- Net cash used by investing activities............... (297,502) (63,841) 4 (3,955) (365,294) Cash flows from financing activities: Proceeds from bank borrowings......................... 428,899 33,216 -- 1,973 464,088 Repayments of bank borrowings......................... (253,049) (22,322) -- (1,097) (276,468) Repayments of production payment obligation........... (58) -- -- -- (58) Issuance of 8 3/4% senior subordinated notes, net of issuance costs...................................... -- 74,589 -- -- 74,589 Decrease in other liabilities, net.................... (1,169) (28) -- -- (1,197) --------- ------- ------ ------- -------- Net cash provided by financing activities........... 174,623 85,455 -- 876 260,954 Intercompany advances, net................................ 46,669 (48,916) -- 2,247 -- Effect of exchange rate changes on cash................... 175 (36) (19) -- 120 --------- ------- ------ ------- -------- Net decrease in cash and cash equivalents................. (1,948) (12,029) (799) -- (14,776) Cash and cash equivalents at beginning of year............ 5,661 11,996 534 -- 18,191 --------- ------- ------ ------- -------- Cash and cash equivalents at end of year.................. $ 3,713 (33) (265) -- 3,415 ========= ======= ====== ======= ========
92 PART III For information concerning Item 10--Directors and Executive Officers of the Registrant, Item 11--Executive Compensation, Item 12--Security Ownership of Certain Beneficial Owners and Management and Item 13--Certain Relationships and Related Transactions, see the definitive Proxy Statement of Forest Oil Corporation relative to the Annual Meeting of Shareholders to be held in May 2001 which will be filed with the Securities and Exchange Commission, which information is incorporated herein by reference. For information concerning Item 10--Executive Officers of Registrant, see Part I--Item 4A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements 1. Independent Auditors' Report 2. Consolidated Balance Sheets--December 31, 2000 and 1999 3. Consolidated Statements of Operations--Years ended December 31, 2000, 1999 and 1998 4. Consolidated Statements of Shareholders' Equity--Years ended December 31, 2000, 1999 and 1998 5. Consolidated Statements of Cash Flows--Years ended December 31, 2000, 1999 and 1998 6. Notes to Consolidated Financial Statements--Years ended December 31, 2000, 1999 and 1998 (2) Financial Statement Schedules All schedules have been omitted because the information is either not required or is set forth in the financial statements or the notes thereto. Exhibits--See Index of Exhibits for a list of those exhibits filed herewith, which index also includes management contracts or compensatory plans or arrangements required to be filed as (3) exhibits to this Form 10-K by Item 601(10)(iii) of Regulation S-K. Forest shall, upon written request to the Corporate Secretary of Forest, addressed to Forest Oil Corporation, 1600 Broadway, Suite 2200, Denver, CO 80202, provide copies of each of the Exhibits listed in the Index of Exhibits. (b) Reports on Form 8-K On November 14, 2000, Forest filed a Form 8-K announcing (i) earnings for the third quarter of 2000 and (ii) operations results for the third quarter of 2000. On November 20, 2000, Forest filed a Form 8-K announcing completion of testing on South African well. On December 7, 2000, Forest filed a Form 8-K announcing (i) financial forecast information and (ii) merger with Forcenergy Inc and 1-for-2 reverse stock split of Forest common stock. (c) Index of Exhibits:
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of Incorporation dated as of July 20, 1995, incorporated herein by reference to Exhibit 3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
93 Exhibit 3(i)(b) Certificate of Amendment of the Certificate of Incorporation dated as of July 26, 1995, incorporated herein by reference to Exhibit 3(i)(b) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 3(i)(c) Certificate of Amendment of the Certificate of Incorporation dated as of January 5, 1996, incorporated herein by reference to Exhibit 3(i)(c) to Forest Oil Corporation's Registration Statement on Form S-2 (File No. 33-64949). *Exhibit 3(i)(d) Certificate of Amendment of the Certificate of Incorporation dated as of December 7, 2000. *Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation dated as of February 14, 2001. Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation and Shawmut Bank, Connecticut, (National Association), incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 4.2 First Supplemental Indenture dated as of February 8, 1996 among Forest Oil Corporation, 611852 Saskatchewan Ltd. and Fleet National Bank of Connecticut (formerly known as Shawmut Bank, Connecticut, National Association, which was formerly known as The Connecticut Bank), incorporated herein by reference to Exhibit 4.2 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1995 (File No. 0-4597). Exhibit 4.3 Second Supplemental Indenture dated as of September 12, 1997 between Forest Oil Corporation, 611852 Saskatchewan Ltd. and State Street Bank and Trust Company (as successor in interest to Fleet National Bank of Connecticut (formerly known as Shawmut Bank Connecticut, National Association)), incorporated herein by reference to Exhibit 4.3 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1997 (File No. 1-13515). Exhibit 4.4 Indenture dated as of September 29, 1997 among Canadian Forest Oil Ltd., Forest Oil Corporation and State Street Bank and Trust Company, incorporated herein by reference to Exhibit 4.1 to Forest Oil Corporation's Registration Statement on Form S-4 dated October 31, 1997 (File No. 333-39255). Exhibit 4.5 Indenture dated as of February 5, 1999 between Forest Oil Corporation and State Street Bank and Trust Company, incorporated herein by reference to Exhibit 4.16 to Forest Oil Corporation's Registration Statement on Form S-3 dated November 14, 1996, as amended (File No. 333-16125). Exhibit 4.6 Rights Agreement between Forest Oil Corporation and Mellon Securities Trust Company, as Rights Agent dated as of October 14, 1993, incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 4.7 Amendment No. 1 dated as of July 27, 1995 to Rights Agreement dated as of October 14, 1993 between Forest Oil Corporation and Mellon Securities Trust Company, incorporated herein by reference to Exhibit 99.5 of Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 4.8 Amendment No. 2, dated as of June 25, 1998 to Rights Agreement, dated as of October 14, 1993, between Forest Oil Corporation and Mellon Securities Trust Company, incorporated herein by reference to Exhibit 99.1 to Form 8-K for Forest Oil Corporation, dated June 25, 1998 (File No.1-13515).
94 Exhibit 4.9 Amendment No. 3, dated as of September 1, 1998 to Rights Agreement, dated as of October 14, 1993, between Forest Oil Corporation and Mellon Securities Trust Company, incorporated herein by reference to Exhibit 4.13 to Forest Oil Corporation Registration Statement on Form S-4, dated November 6, 2000 (File No. 333-49376). Exhibit 4.10 Amendment No. 4, dated as of July 10, 2000, to Rights Agreement, dated as of October 14, 1993, between Forest Oil Corporation and Mellon Securities Trust Company, incorporated herein by reference to Exhibit 4.14 to Forest Oil Corporation Registration Statement on Form S-4, dated November 6, 2000 (File No. 333-49376). Exhibit 4.11 Registration Rights Agreement, dated as of July 10, 2000, by and between Forest Oil Corporation and the other signatories thereto, incorporated herein by reference to Exhibit 4.15 to Forest Oil Corporation Registration Statement on Form S-4, dated November 6, 2000 (File No. 333-49376). *Exhibit 4.12 Credit Agreement, dated as of October 10, 2000, among Forest Oil Corporation, the lenders party thereto, Bank of America, N.A., as U.S. Syndication Agent, Citibank, N.A., as U.S. Documentation Agent, and The Chase Manhattan Bank, as Global Administrative Agent. *Exhibit 4.13 Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing from Forest Oil Corporation to Robert C. Mertensotto, trustee, and Gregory P. Williams, trustee (Utah), and The Chase Manhattan Bank, as Global Administrative Agent, dated as of December 7, 2000. *Exhibit 4.14 Canadian Credit Agreement, dated as of October 10, 2000, among Canadian Forest Oil Ltd., the subsidiary borrowers from time to time parties thereto, the lenders party thereto, Bank of Montreal, as Canadian Syndication Agent, The Toronto-Dominion Bank, as Canadian Documentation Agent, The Chase Manhattan Bank of Canada, as Canadian Administrative Agent, and The Chase Manhattan Bank, as Global Administrative Agent. Exhibit 10.1 Description of Executive Life Insurance Plan, incorporated herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.2 Form of non-qualified Executive Deferred Compensation Agreement, incorporated herein by reference to Exhibit 10.3 to Form 10-Q for Forest Oil Corporation for the years ended December 31, 1990 (File No. 0-4597). Exhibit 10.3 Form of non-qualified Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.4 Form of Executive Retirement Agreement, incorporated herein by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.5 Forest Oil Corporation Stock Incentive Plan and Option Agreement, incorporated herein by reference to Exhibit 4.1 to Form S-8 for Forest Oil Corporation dated June 7, 1996 (File No. 0-4597).
95 Exhibit 10.6 Form of Executive Severance Agreement, incorporated herein by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 10.7 Shareholders Agreement dated as of January 24, 1996 between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 10.12 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1995 (File No. 0-4597). *Exhibit 21 List of Subsidiaries of the Registrant. *Exhibit 23 Consent of KPMG LLP *Exhibit 24 Powers of Attorney of the following Officers and Directors: Philip F. Anschutz, William L. Britton, Cortlandt S. Dietler, Dod A. Fraser, Cannon Y. Harvey, Forrest E. Hoglund, Stephen A. Kaplan, James H. Lee, J. J. Simmons, III, Craig D. Slater, Michael B. Yanney.
- ------------------------ * Filed herewith. 96 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FOREST OIL CORPORATION (Registrant) Date: March 12, 2001 By: /s/ ROBERT S. BOSWELL ----------------------------------------- Robert S. Boswell CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ ROBERT S. BOSWELL Chairman and Chief Executive March 12, 2001 ------------------------------------------- Officer (Principal Executive (Robert S. Boswell) Officer) /s/ DAVID H. KEYTE Executive Vice President and March 12, 2001 ------------------------------------------- Chief Financial Officer (David H. Keyte) (Principal Financial Officer) /s/ JOAN C. SONNEN Vice President--Controller and March 12, 2001 ------------------------------------------- Chief Accounting Officer (Joan C. Sonnen) (Principal Accounting Officer) PHILIP F. ANSCHUTZ* Directors of the Registrant ------------------------------------------- (Philip F. Anschutz) /s/ ROBERT S. BOSWELL March 12, 2001 ------------------------------------------- (Robert S. Boswell) WILLIAM L. BRITTON* ------------------------------------------- (William L. Britton)
97
SIGNATURES TITLE DATE ---------- ----- ---- CORTLANDT S. DIETLER* ------------------------------------------- (Cortlandt S. Dietler) DOD A. FRASER* ------------------------------------------- (Dod. A. Fraser) CANNON Y. HARVEY* ------------------------------------------- (Cannon Y. Harvey) FORREST E. HOGLUND* ------------------------------------------- (Forrest E. Hoglund) STEVEN A. KAPLAN* ------------------------------------------- (Steven A. Kaplan) JAMES H. LEE* ------------------------------------------- (James H. Lee) J. J. SIMMONS, III* ------------------------------------------- (J. J. Simmons, III) CRAIG D. SLATER* ------------------------------------------- (Craig D. Slater) MICHAEL B. YANNEY* ------------------------------------------- (Michael B. Yanney)
*By /s/ NEWTON W. WILSON III March 12, 2001 -------------------------------------- Newton W. Wilson III (as attorney-in-fact for each of the persons indicated)
98 EX-3.(I)(D) 2 a2040776zex-3_id.txt EXHIBIT(I)(D) CERTIFICATE OF AMENDMENT OF THE 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. In order to change by reclassification of each two shares of the Corporation's Common Stock into one new share of the Corporation's Common Stock, the Certificate of Incorporation of the Corporation is hereby amended by adding the following as paragraph 9 thereof: Effective as of the effective time of the merger of Forest Acquisition I Corporation with and into Forcenergy Inc (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. Without limiting the generality of the foregoing, upon exchange of certificates that immediately prior to the Effective Time represented shares of Forcenergy Inc common stock or preferred stock, shares of New Common Stock shall be issued in respect thereof at the appropriate exchange ratio. 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. The number of shares authorized to be issued by the Corporation will not change. 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. Based upon the 54,273,249 shares of Old Common Stock outstanding as of November 1, 2000, the stated capital of the Corporation would be reduced from $5,427,324 to $2,713,662 to reflect the reduction in outstanding shares of the Corporation. At a meeting of the Board of Directors held on August 16, 2000, and at a meeting of the shareholders held on December 7, 2000, the foregoing amendment was approved by more than a majority of 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. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, this certificate has been signed and the truth of the statements therein affirmed under penalty of perjury, on this 7th day of December, 2000. /s/ Robert S. Boswell -------------------------------- Robert S. Boswell Chairman and Chief Executive Officer /s/ Joan C. Sonnen -------------------------------- Joan C. Sonnen Vice President--Controller and Corporate Secretary EX-3.(II) 3 a2040776zex-3_ii.txt EXHIBIT 3(II) BY-LAWS OF FOREST OIL CORPORATION RESTATED AS OF FEBRUARY 14, 2001 ARTICLE I MEETINGS OF SHAREHOLDERS SECTION 1. Annual meetings of shareholders shall be held on the second Wednesday in May of each year if not a legal holiday, and if a legal holiday, then on the next business day following, at 10 a.m., or at such other date and time as may be fixed from time to time by the board of directors at such place within or without the State of New York as may be fixed from time to time by the board of directors and all as stated in the notice of the meeting, at which meeting the shareholders shall elect by a plurality of the votes cast at such meeting persons nominated to serve on the board of directors and transact such other business as may be properly brought before the meeting. SECTION 2. Special meetings of shareholders for any purpose or purposes may be held at such place within or without the State of New York as shall be fixed from time to time by the board of directors, or if no such place is so fixed, or whenever shareholders entitled to call a special meeting shall call the same, at Denver, Colorado. Except as otherwise prescribed by these by-laws, by statute or by the certificate of incorporation, special meetings of shareholders may be called by the board of directors or the chairman of the board or the chief executive officer, at such time as may be fixed by the person or persons calling the same and as shall be stated in the notice of said meeting, except when the New York Business Corporation Law confers upon the shareholders the right to demand the call of such meeting and fix the time thereof. SECTION 3. Written notice of each annual or special meeting of shareholders shall specify the place, date and hour thereof and, if such meeting is a special meeting, the purpose or purposes for which the meeting is called, and that the call is being issued by or at the direction of the person or persons calling the meeting. Such notice shall be given personally, by electronic transmission or by mail, postage prepaid, not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each shareholder of record entitled to vote thereat, or who, by reason of any action proposed at such meeting, would be entitled to have his stock voted or appraised if such action were taken. If such notice shall be by mail, it shall be directed to such shareholder at his post office address, as it appears in the record of shareholders of the corporation or, if he shall have filed with the secretary of the corporation a written request that notice to him be mailed to some other address, then directed to him at such other address. ARTICLE II QUORUM AND VOTING OF STOCK SECTION 1. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, present in person, or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by law or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders present in person or represented by proxy may adjourn the meeting from time to time to another time or place without notice, other than announcement at the meeting at which the adjournment is taken, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 2. If a quorum is present the affirmative vote of the holders of a majority of the votes represented at the meeting by shares of stock entitled to vote shall be the act of the shareholders, unless a greater or lesser vote is required or permitted by law, by the certificate of incorporation or by these by-laws. SECTION 3. A shareholder may vote either in person or by proxy executed in writing or by electronic means by the shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from the date thereof, unless otherwise provided in the 2 proxy. Every proxy shall be revocable at the pleasure of the person executing it or by his personal representatives or assigns except in those cases where an irrevocable proxy is permitted by law. SECTION 4. The chairman of any meeting of the shareholders shall determine the method of voting (which may be viva voce, by rising, by show of hands or by ballot) upon each matter submitted to the meeting for action unless a shareholder present and entitled to vote upon any matter shall request a ballot vote thereon, in which case such matter shall be voted upon by ballot. ARTICLE III DIRECTORS SECTION 1. The business of the corporation shall be conducted and managed by a board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised by the shareholders. The number of directors which shall constitute the whole board shall not be less than six (6) and not more than fifteen (15) as shall be established from time to time by resolution passed by a majority of the whole board of directors, provided that no decrease shall shorten the term of any incumbent director. SECTION 2. The directors shall be classified with respect to their terms of office by dividing them into three (3) classes established by action of the shareholders or of the board of directors. At each Annual Meeting of Shareholders, directors to replace those whose terms expire at such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting. Any director may resign at any time. The board of directors may, by majority vote of all directors then in office, remove a director for cause. A director may be removed without cause by the affirmative vote of the holders of two-thirds of the votes represented by all the outstanding shares entitled to vote thereon at a meeting of shareholders called for that purpose. 3 SECTION 3. Except as otherwise provided in the certificate of incorporation, vacancies occurring in the board of directors shall be filled in the following manner: (a) If the vacancy is caused by reason of the removal of a director without cause, it shall be filled by election at a special meeting of shareholders entitled to vote on the matter called for that purpose (which may be the meeting called for the purpose of removing a director), or at any annual meeting without notice; (b) If the vacancy occurring in the board of directors is caused in any other way, or if new directorships are created, all of the directors then in office, although less than a quorum, may by majority vote choose a successor or successors, or fill each newly created directorship. (c) In case the entire board shall die or resign or become incapacitated to act, any shareholder may call a special meeting in the same manner that the chief executive officer may call such meetings and directors for the unexpired term may be elected at such special meeting in the manner prescribed for their election at annual meetings. ARTICLE IV MEETINGS OF THE BOARD OF DIRECTORS SECTION 1. The first meeting of each newly elected board of directors may be held without notice immediately following the annual meeting of shareholders, at the same place at which the annual meeting was held or at such time and place as shall be stated in a duly executed waiver of notice of such meeting. SECTION 2. Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board of directors. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 3. Special meetings of the board of directors may be called by the chairman of the board, the president, the secretary or any two (2) directors and notice thereof may be oral or in writing and in the latter case may be given by telegraph. If notice is given orally, it shall be given not less than forty- eight (48) hours before such meeting and if given electonically, the 4 electronic transmission notifying each director shall be sent not less than two (2) full days before the meeting, except where a Saturday, Sunday or other holiday intervenes between the time when the notice is given and the date of the meeting in which event the time for such notice shall be increased by one day for each such day so intervening. If written notice, other than by telegraph, is given it shall be mailed to each director not less than five (5) days before the meeting. SECTION 4. Whenever there are six (6) directors or less, two (2) directors shall constitute a quorum, but whenever there are more than six (6) directors one-third (1/3) of the directors shall constitute a quorum for the transaction of business unless a greater number is required by law, by the certificate of incorporation or by these by-laws. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by law, by the certificate of incorporation or by these by-laws. If a quorum shall not be present at any meeting of directors, the directors present may adjourn the meeting from time to time to another time or place, without notice other than announcement at the meeting at which the adjournment is taken, until a quorum shall be present. SECTION 5. Subject to the provisions of the certificate of incorporation or any provisions of these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. SECTION 6. Any one or more members of the board of directors or any committee thereof may participate in any meeting of such board or committee by means of a conference telephone or similar communication equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such meeting. 5 ARTICLE V COMMITTEES SECTION 1. The board of directors, by resolution adopted by a majority of the entire board, may designate from among its members an executive committee of the board and/or other committees, each consisting of three (3) or more directors and each of which, to the extent provided in such resolution, shall have all the authority of the board, except as otherwise provided by law. Vacancies in the membership of any committee may be filled by the board at a regular or special meeting. SECTION 2. Each committee so designated by the board, by vote of a majority of its members, shall fix its own times and places of meeting, shall determine the number of its members constituting a quorum (but not less than two (2) members of the committee) for the transaction of business, and shall prescribe its own rules of procedure, no change in which shall be made save by a majority vote of its members. All committees shall keep regular minutes of their proceedings and report the same to the board when required, and their actions shall be subject to review by the board, provided that no rights of third parties shall be affected by such review. ARTICLE VI OFFICERS SECTION 1. The board of directors shall, at its meeting following the annual meeting of shareholders, choose such of the following officers and fill any additional office that it may at such time designate: Chairman of the Board Chief Executive Officer President Secretary Treasurer 6 Controller One or more other Vice Presidents and Assistant Officers as determined by the Board The chief executive officer may, but need not be, chosen from among the directors. The chairman of the board shall be chosen from among the directors. SECTION 2. The term of office of all officers shall be one year or until the next annual meeting of shareholders and until their respective successors have been elected and qualified, but any officer may be removed from office, either with or without cause, at any time by the board of directors. A vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the board of directors. SECTION 3. The chairman of the board shall be an ex- officio member or a member of all committees and shall freely consult with the board of directors and keep them fully informed concerning the business of the corporation. The chairman of the board shall preside at all meetings of the board of directors and shall perform such other duties from time to time conferred upon him by the board of directors, including without limitation, the responsibility for internal auditing. SECTION 4. The chief executive officer shall have the responsibility for the general and active management of the business of the corporation and shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, as the case may be, at all meetings of the board of directors and shall perform such other duties as may be assigned to him by the board of directors. SECTION 5. The president, any executive vice president, or senior vice president shall, when required, perform the duties and exercise the powers of the chief executive officer. SECTION 6. The chairman of the board may, but need not be, chairman of the executive committee. The chairman of the executive committee may be any director appointed by the board. He shall preside at all meetings of such committee and shall have such other powers and duties as may, from time to time, be prescribed by the executive committee of the board. SECTION 7. The secretary shall keep the minutes of all meetings of the board of directors, and the minutes of all meetings of the shareholders and all outstanding committees, in books provided for that purpose; he shall attend to the giving and serving of all required notices 7 of meetings of the shareholders and of the board of directors; he shall affix the seal of the corporation to all contracts, documents and other instruments when so ordered by the board of directors; he shall have charge of the certificate books, transfer books and share ledgers, and such other books and papers as the board of directors may direct, and he shall perform all the duties incident to the office of secretary. SECTION 8. The treasurer shall have the care and custody of the funds and other valuable effects, including the securities of the corporation, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as have heretofore been or hereafter may be designated by the board of directors. He shall disburse the funds of the corporation as ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the chairman of the board, as the case may be, and the board of directors, as required, an account of all his transactions as treasurer and of the financial condition of the corporation. SECTION 9. The controller shall be responsible for the books of account, for the preparation of financial statements, budgets and forecasts. The controller shall be responsible for the supervision of the accounting department and shall, under the supervision of the controller, be responsible for the books of account and for the preparation of such other financial data as shall be assigned to him from time to time by the controller. The controller shall also be responsible for the preparation and filing of tax returns as well as the negotiations for the settlement of disputed tax claims. SECTION 10. The assistant vice presidents, assistant secretaries, assistant treasurers, assistant controllers shall, when required, perform the duties and exercise the power of any vice president, the secretary, treasurer or controller, respectively. SECTION 11. All other officers of the corporation shall have such powers and duties as generally pertain to their respective offices, and as from time to time may be prescribed by the board of directors. SECTION 12. Unless otherwise ordered by the board of directors, the chairman of the board, the president, or, when required, any vice president shall have full power and authority on behalf of the corporation to attend and to act and to vote at any meetings of security holders of 8 corporations in which the corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such securities, and which as the owner thereof the corporation might have possessed and exercised, if present. The board of directors by resolution from time to time may confer like powers upon any other person or persons. SECTION 13. Assumption of the authority and the exercise of the power of any officer by a subordinate officer shall be deemed to be required under Sections 5, 10 and 12 of this Article VI when the superior officer shall be absent, disabled or incapacitated or when he shall request such subordinate officer to assume such authority or exercise such power. SECTION 14. Certain vice presidents of this corporation may, from time to time, have titles or designations conferred upon them by the board of directors which distinguish them from other vice presidents of this corporation, but regardless of such special title or designation each such officer shall be considered a "vice president" for all purposes, including the execution of any and all instruments and the exercise of any and all power and authority provided for elsewhere in these by-laws or conferred upon him from time to time by the shareholders or the board of directors of this corporation, notwithstanding the fact that such power and authority shall be provided for or conferred upon a "vice president". Each such officer may, therefore, execute instruments and exercise such power and authority as is conferred upon him either as a "vice president" or in his elected or designated capacity and any such action taken by such officer in either capacity shall be the valid and binding act of this corporation. ARTICLE V11 CERTIFICATES REPRESENTING SHARES SECTION 1. The certificates for shares of the corporation shall be in such form as shall be determined by the board of directors and shall be numbered consecutively and entered in the books of the corporation as they are issued. Each certificate shall exhibit the registered holder's name and the number and class of shares, and shall be signed by the chairman of the board, the president or a vice president and the treasurer or an assistant treasurer or the secretary or an 9 assistant secretary, and shall bear the seal of the corporation or a facsimile thereof. Where any such certificate is countersigned by a transfer agent or registered by a registrar (other than the corporation or an employee of the corporation), the signature of any of the officers referred to in the preceding sentence may be a facsimile signature. In case any officer who signed, or whose facsimile signature or signatures were placed on any such certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the corporation with the same effect as if he were such officer at the date of issue. SECTION 2. The corporation may issue a new share certificate or certificates in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to give the corporation a bond in such sum and with such sureties as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 3. Upon surrender to the corporation or any transfer agent of the corporation of a certificate for shares duly indorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and by funds required for transfer stamps and transfer taxes, it shall be the duty of the corporation or such transfer agent to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 4. Except as otherwise provided by law, the corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends or other distributions, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or legal claim to or interest in such share or shares on the part of any other person. SECTION 5. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting or for the purpose of determining shareholders 10 entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action affecting the interests of shareholders, the board of directors may fix, in advance, a record date. Such date shall not be more than sixty (60) nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days prior to any other action. In each such case, except as otherwise provided by law, only such persons as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to express such consent or dissent, or to receive payment of such dividend, or such allotment of rights, or otherwise to be recognized as shareholders for the related purpose, notwithstanding any registration of transfer of shares on the books of the corporation after any such record date so fixed. ARTICLE VIII GENERAL PROVISIONS SECTION 1. The seal of the corporation shall be in the form of two concentric circles and between such circles the words "FOREST" and "OIL" and the numerals "19" and "16" shall be inserted at the top, bottom left and right thereof respectively. In the center of the inner circle there shall be a derrick lamp with a keystone inscribed on its face and in the middle of the keystone the initials "F 0" shall be inscribed vertically, all in accordance with the form impressed upon the margin of this page. (FORM OF SEAL) [LOGO] SECTION 2. Whenever a notice is required to be given by any statute, the certificate of incorporation, or these by-laws, a waiver thereof in writing signed by the person or persons entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to such notice. In addition, any shareholder attending a meeting of shareholders in person or by 11 proxy without protesting prior to the conclusion of the meeting the lack of notice thereof to him, and any director attending a meeting of the board of directors without protesting prior to the meeting or at its commencement such lack of notice shall be conclusively deemed to have waived notice of such meeting. SECTION 3. All checks and drafts on the corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, and all endorsements thereof, executed on behalf of the corporation, shall be signed by such officer or officers, agent or agents or such other person or persons as may have heretofore been or hereafter may be thereunto authorized by these by-laws or by the board of directors, which may in its discretion authorize any such signatures to be facsimile. All contracts, agreements, endorsements, assignments, transfers, stock powers, or other instruments shall be signed by such officer or officers, agent or agents or such other person or persons as may have heretofore been or hereafter may be thereunto, authorized by these by-laws or from time to time by the board of directors. Such officer or officers as may have heretofore been or hereafter may be designated by the board of directors shall be authorized to sign and issue proxies to vote the shares of stock of other companies standing in the name of the corporation, or consents to action taken or to be taken by such other companies. All such proxies and consents shall be signed in the name of the corporation. SECTION 4. The fiscal year of the corporation shall begin on the first day of January and end on the thirty-first day of December in each year. ARTICLE IX INDEMNIFICATION Except to the extent expressly prohibited by the New York Business Corporation Law, the corporation shall indemnify each person made or threatened to be made a party to any action or proceeding whether civil or criminal and whether by or in the right of the corporation or otherwise, by reason of the fact that such person or such person's testator or intestate is or was either (a) a director or officer of the corporation (including a director or officer who serves or 12 served as an officer of any operating or service division of the corporation), or (b) a director or officer of the corporation who serves or served at the request of the corporation any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity (any such person described in clause (a) or (b) or any other person indemnified by the board of directors of the corporation pursuant to the authority hereinafter provided is herein referred to as an "Indemnified Person"), against judgments, fines, penalties, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred in connection with such action or proceeding or any appeal therein; provided, however, that no such indemnification shall be made if a judgment or other final adjudication adverse to such Indemnified Person establishes that either (i) such Indemnified Person's acts were committed in bad faith, or were the result of active and deliberate dishonesty, and were material to the cause of action so adjudicated, or (ii) such Indemnified Person personally gained in fact a financial profit or other advantage to which he or she was not legally entitled; and provided further that no such indemnification shall be required with respect to any settlement or other nonadjudicated disposition of any threatened or pending action or proceeding unless ordered by a court or if not so ordered shall be authorized in the specific case: (1) By the board of directors of the corporation acting by a quorum consisting of directors who are not parties to such action or proceeding upon a finding that the Indemnified Person has met the standard of conduct set forth above, or (2) If such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs: (a) By the board of directors upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the standard of conduct set forth above has been met by the Indemnified Person, or (b) By the shareholders upon a finding that the Indemnified Person has met the applicable standard of conduct set forth in such paragraph, or (3) In any other manner which may be provided by, or permitted pursuant to, the New York Business Corporation Law. The corporation shall advance or promptly reimburse upon request any Indemnified Person for all expenses, including attorneys' fees, reasonably incurred in defending 13 any action or proceeding in advance of the final disposition thereof upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if such Indemnified Person is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent the expenses so advanced or reimbursed exceed the amount to which such Indemnified Person is entitled; provided, however, that such Indemnified Person shall cooperate in good faith with any request by the corporation that common counsel be utilized by the parties to an action or proceeding who are similarly situated unless to do so would be inappropriate due to actual or potential differing interests between or among such parties. The board of directors of the corporation is authorized to provide indemnification and advancement of expenses to such other persons as the board shall determine from time to time in its sole discretion. It is not intended that this by-law shall be deemed to be the exclusive method of indemnification for an Indemnified Person. Any Indemnified Person shall be entitled to seek indemnification and advancement of expenses under any statute, rule, regulation, certificate of incorporation, by-law, insurance policy, contract or otherwise, which may be available to such Indemnified Person. Anything in these by-laws to the contrary notwithstanding, no elimination of this by-law, and no amendment of this by-law adversely affecting the right of any Indemnified Person to indemnification or advancement of expenses hereunder shall be effective until the 60th day following notice to such Indemnified Person of such action, and no elimination of or amendment to this by-law shall deprive any Indemnified Person of his or her rights hereunder arising out of alleged or actual occurrences, acts or failures to act which had their origin prior to such 60th day. The corporation shall not, except by elimination or amendment of this by-law in a manner consistent with the preceding paragraph, take any corporate action or enter into any agreement which prohibits, or otherwise limits the rights of any Indemnified Person to indemnification or advancement of expenses in accordance with the provisions of this by-law. If the corporation fails within 30 days after a written claim has been received by the corporation to make any payment in accordance with the indemnification and advancement of expenses provisions of this by-law, the Indemnified Person may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the 14 Indemnified Person shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the Indemnified Person has not met the standards of conduct which make it permissible under this by-law to indemnify the Indemnified Person for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the Indemnified Person is proper in the circumstances because he or she has met the applicable standard of conduct set forth in this by-law, nor an actual determination by the corporation (including its board of directors, legal counsel, or its stockholders), that the Indemnified Person has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnified Person has not met the applicable standard of conduct. The indemnification and right to advancement of expenses of any Indemnified Person provided by this by-law shall continue after such Indemnified Person has ceased to be a director, officer or employee of the corporation and shall inure to the benefit of such Indemnified Person's heirs, executors, administrators and legal representatives. The corporation is authorized to enter into agreements with any of its directors, officers, employees or other persons extending rights to indemnification and advancement of expenses to such person to the fullest extent permitted by applicable law, but the failure to enter into any such agreement shall not affect or limit the rights of such person pursuant to this by-law, It being expressly recognized hereby that all directors and officers of the corporation, by serving as such after adoption hereof, are acting in reliance hereon and that the corporation is estopped to contend otherwise. In case any provision in this by-law shall be determined at any time to be unenforceable in any respect, the other provisions shall not In any way be affected or Impaired thereby, and the affected provision shall be given the fullest possible enforcement In the circumstances, it being the intention of the corporation to afford Indemnification and advancement of expenses to Indemnified Persons to the fullest extent permitted by law. 15 For purposes of this by-law, the term "corporation" shall include any legal successor to the corporation, including any corporation which acquires: all or substantially all of the assets of the corporation In one or more transactions. 16 ARTICLE X AMENDMENTS SECTION 1. The board of directors shall have the power to amend, repeal or adopt by-laws at any regular or special meeting of the board. However, any by-laws adopted by the board may be amended or repealed by vote of the holders of shares entitled at the time to vote for the election of directors. 17 EX-4.12 4 a2040776zex-4_12.txt EXHIBIT 4.12 Exhibit 4.12 [U.S. CREDIT AGREEMENT] ================================================================================ CREDIT AGREEMENT dated as of October 10, 2000 among FOREST OIL CORPORATION, THE LENDERS PARTY HERETO, BANK OF AMERICA, N.A., as U.S. Syndication Agent, CITIBANK, N.A., as U.S. Documentation Agent, and THE CHASE MANHATTAN BANK, as Global Administrative Agent ---------------- CHASE SECURITIES INC., as Sole Book Manager and Lead Arranger ================================================================================ TABLE OF CONTENTS ARTICLE I Definitions.....................................................................1 1.1. Defined Terms...................................................................1 1.2. Classification of Loans and Borrowings.........................................27 1.3. Terms Generally................................................................27 1.4. Accounting Terms; GAAP.........................................................27 1.5. Designation and Conversion of Restricted and Unrestricted Subsidiaries.........28 ARTICLE II The Credits....................................................................29 2.1. Commitments....................................................................29 2.2. Loans and Borrowings...........................................................29 2.3. Requests for Borrowings........................................................29 2.4. Letters of Credit..............................................................30 2.5. Funding of Borrowings..........................................................34 2.6. Interest Elections.............................................................35 2.7. Global Borrowing Base..........................................................36 2.8. Termination and Reduction of Commitments.......................................41 2.9. Repayment of Loans; Evidence of Debt...........................................42 2.10. Prepayment of Loans............................................................42 2.11. Fees...........................................................................45 2.12. Interest.......................................................................46 2.13. Alternate Rate of Interest.....................................................47 2.14. Illegality.....................................................................47 2.15. Increased Costs................................................................48 2.16. Break Funding Payments.........................................................49 2.17. Taxes..........................................................................50 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs....................51 2.19. Mitigation Obligations; Replacement of Lenders.................................53 2.20. Currency Conversion and Currency Indemnity.....................................54 2.21. Addition of Lenders and Increase in Commitments................................55 ARTICLE III Representations and Warranties.................................................55 3.1. Organization; Powers...........................................................55 3.2. Authorization; Enforceability..................................................56 3.3. Approvals; No Conflicts........................................................56 3.4. Financial Condition; No Material Adverse Change................................56 3.5. Properties.....................................................................57 3.6. Litigation.....................................................................57 3.7. Compliance with Laws and Agreements............................................58 3.8. Investment and Holding Company Status..........................................58 3.9. Taxes..........................................................................58
i 3.10. ERISA..........................................................................58 3.11. Disclosure.....................................................................58 3.12. Subsidiaries...................................................................59 3.13. Insurance......................................................................59 3.14. Labor Matters..................................................................59 3.15. Priority; Security Matters.....................................................59 3.16. Environmental Matters..........................................................60 3.17. Solvency.......................................................................61 3.18. Use of Credit..................................................................61 3.19. Claims and Liabilities.........................................................61 ARTICLE IV Conditions.....................................................................61 4.1. Effectiveness..................................................................61 4.2. Initial Loan...................................................................62 4.3. Each Credit Event..............................................................66 ARTICLE V Affirmative Covenants..........................................................67 5.1. Financial Reporting; Ratings Change; Notices and Other Information.............67 5.2. Notice of Material Events......................................................69 5.3. Information Regarding Collateral...............................................71 5.4. Existence; Conduct of Business.................................................71 5.5. Payment of Obligations.........................................................71 5.6. Maintenance of Properties......................................................71 5.7. Insurance......................................................................71 5.8. Casualty and Condemnation......................................................72 5.9. Books and Records; Inspection and Audit Rights.................................72 5.10. Compliance with Laws...........................................................72 5.11. Use of Proceeds and Letters of Credit..........................................72 5.12. Additional Subsidiaries........................................................73 5.13. Unrestricted Subsidiaries......................................................73 5.14. Environmental Matters..........................................................73 5.15. Further Assurances.............................................................74 ARTICLE VI Financial Covenants............................................................75 6.1. Ratio of Total Debt to EBITDA..................................................75 6.2. Ratio of Senior Debt to EBITDA.................................................75 6.3. Ratio of Present Value to Total Debt...........................................76 6.4. Ratio of Present Value to Senior Debt..........................................76 ARTICLE VII Negative Covenants.............................................................76 7.1. Indebtedness; Certain Equity Securities........................................76 7.2. Liens..........................................................................78 7.3. Fundamental Changes............................................................79
ii 7.4. Investments, Loans, Advances, Guaranties and Acquisitions......................80 7.5. Asset Sales....................................................................81 7.6. Sale and Leaseback Transactions................................................82 7.7. Hedging Agreements.............................................................82 7.8. Restricted Payments; Certain Payments of Indebtedness..........................83 7.9. Transactions with Affiliates...................................................84 7.10. Restrictive Agreements.........................................................84 7.11. Subordinated Indebtedness......................................................84 7.12. Special Covenants with Respect to Producers Marketing and 3189503..............85 7.13. No Action to Affect Security Documents.........................................85 ARTICLE VIII Events of Default..............................................................85 8.1. Listing of Events of Default...................................................85 8.2. Action if Bankruptcy...........................................................87 8.3. Action if Other Event of Default...............................................88 ARTICLE IX Agents.........................................................................88 ARTICLE X Miscellaneous..................................................................90 10.1. Notices........................................................................90 10.2. Waivers; Amendments............................................................92 10.3. Expenses; Indemnity; Damage Waiver.............................................93 10.4. Successors and Assigns.........................................................95 10.5. Survival.......................................................................97 10.6. Counterparts; Effectiveness....................................................98 10.7. Severability...................................................................98 10.8. Right of Setoff................................................................98 10.9. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.....................98 10.10. WAIVER OF JURY TRIAL...........................................................99 10.11. Headings......................................................................100 10.12. Confidentiality...............................................................100 10.13. Interest Rate Limitation......................................................100 10.14. Collateral Matters; Hedging Agreements........................................102 10.15. Arranger; U.S. Documentation Agent; U.S. Syndication Agent....................102 10.16. Intercreditor Agreement; Security Documents...................................102 10.17. Status as Senior Indebtedness.................................................102 10.18. NO ORAL AGREEMENTS............................................................103
iii EXHIBITS AND SCHEDULES EXHIBITS: Exhibit A-1 Form of Legal Opinion of Vinson & Elkins L.L.P. Exhibit A-2 Form of Legal Opinion of Local Counsel Exhibit B Form of Lender Certificate Exhibit C Form of Compliance Certificate Exhibit D Form of Assignment and Acceptance Exhibit E-1 Form of Borrowing Request Exhibit E-2 Form of Interest Election Request Exhibit F Form of Guaranty Exhibit G Form of Pledge Agreement Exhibit H Form of Security Agreement Exhibit I Form of Mortgage Exhibit J Producers Marketing Hedging Policy SCHEDULES: Schedule 2.1 Commitments Schedule 3.4 Contingent Liabilities; Long-Term Commitments; Unrealized Losses Schedule 3.6 Disclosed Matters Schedule 3.9 Taxes Schedule 3.12 Subsidiaries; Restricted Subsidiaries Schedule 3.13 Insurance Schedule 3.16 Environmental Matters Schedule 7.1(a) Existing Indebtedness Schedule 7.1(a)(v)(A) Existing Guarantees of Intercompany Indebtedness Schedule 7.2 Existing Liens Schedule 7.4 Existing Investments Schedule 7.5 Anticipated Asset Sales Schedule 7.10 Existing Restrictions iv CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of October 10, 2000, is among FOREST OIL CORPORATION, a New York corporation (the "Borrower"), the LENDERS party hereto, BANK OF AMERICA, N.A., as U.S. Syndication Agent, CITIBANK, N.A., as U.S. Documentation Agent, and THE CHASE MANHATTAN BANK, as Global Administrative Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "ACQUISITION" means the acquisition by Borrower or one of its Subsidiaries of Force as a result of a merger effected pursuant to the terms and conditions of the Acquisition Documents. "ACQUISITION DOCUMENTS" means (i) the Merger Agreement, (ii) that certain Stockholders Agreement, dated as of July 10, 2000, among Borrower, Force and the other parties signatory thereto, (iii) that certain Shareholders Agreement, dated as of July 10, 2000, among Force and The Anschutz Corporation, (iv) that certain Registration Rights Agreement, dated as of July 10, 2000, between Borrower and the Force stockholders listed therein, and (v) each other agreement, document or instrument executed in connection with the foregoing. "ADJUSTED LIBO RATE" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a form supplied by the Global Administrative Agent. "AFFILIATE" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "AGENTS" means each of the Global Administrative Agent, the U.S. Syndication Agent, the U.S. Documentation Agent, and the Technical Lenders. "AGREED CURRENCY" is defined in SECTION 2.20(a). "AGREEMENT" means this Credit Agreement, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "ALLOCATED CANADIAN BORROWING BASE" means from time to time the "Allocated Canadian Borrowing Base" as determined in accordance with SECTION 2.7(d)(ii). "ALLOCATED U.S. BORROWING BASE" means from time to time the "Allocated U.S. Borrowing Base" as determined in accordance with SECTION 2.7(d)(i). "ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day, and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. If for any reason the Global Administrative Agent shall have determined (which determination shall be conclusive and binding, absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including, without limitation, the inability or failure of the Global Administrative Agent to obtain sufficient bids or publications in accordance with the terms hereof, the Alternate Base Rate shall be the Prime Rate until the circumstances giving rise to such inability no longer exist. "APPLICABLE LENDING OFFICE" means, for each Lender and for each Type of Loan, such office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify in writing to the Global Administrative Agent and Borrower as the office by which its Loans of such Type are to be made and/or issued and maintained. "APPLICABLE PERCENTAGE" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently set forth in the Register, giving effect to any assignments made in accordance with SECTION 10.4 or any increases or decreases in Commitments made in accordance with this Agreement. "APPLICABLE RATE" means, for any day and with respect to any Eurodollar Loans, any ABR Loans, any Unavailable Fees or any Commitment Fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "Eurodollar Loans", "ABR Loans" or "Commitment Fees & Unavailable Fees", as the case may be, based on the Applicable Rating Level on such date 2
==================================================================================================================== COMMITMENT FEES & APPLICABLE RATING LEVEL: RATIO OF TOTAL DEBT EURODOLLAR LOANS ABR LOANS UNAVAILABLE FEES TO EBITDA (IN BASIS POINTS) (IN BASIS POINTS) (IN BASIS POINTS) - -------------------------------------------------------------------------------------------------------------------- Level I 2.0 > x 87.5 0.0 25.0 2.0 < or = to x < 2.5 100.0 0.0 25.0 2.5 < or = to x 112.5 12.5 25.0 - -------------------------------------------------------------------------------------------------------------------- Level II 2.0 > x 112.5 12.5 37.5 2.0 < or = to x < 2.5 137.5 37.5 37.5 2.5 < or = to x 150.0 50.0 37.5 - -------------------------------------------------------------------------------------------------------------------- Level III 2.0 > x 125.0 25.0 37.5 2.0 < or = to x < 2.5 150.0 50.0 37.5 2.5 < or = to x 175.0 75.0 37.5 - --------------------------------------------------------------------------------------------------------------------
As used in this definition, "x" means, at any time, the ratio of Total Debt to EBITDA calculated pursuant to SECTION 6.1. For purposes of the foregoing, any change in the Applicable Rate will occur automatically without prior notice upon any change in the Applicable Rating Level. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. Notwithstanding anything in this definition to the contrary, at all times on or before December 31, 2000, the Applicable Rate for (i) Eurodollar Loans shall equal 150 basis points, (ii) ABR Loans shall equal 50 basis points, and (iii) Commitment Fees and Unavailable Fees shall equal 37.5 basis points. "APPLICABLE RATING LEVEL" means the level set forth below that corresponds to the lower Bank Credit Facility Rating issued from time to time by Moody's or S&P, as applicable, to Borrower:
========================================================================================= MOODY'S S&P ----------------------------------------------------------------------------------------- Level I Baa3 and higher BBB- and higher ----------------------------------------------------------------------------------------- Level II Ba1 BB+ ----------------------------------------------------------------------------------------- Level III Ba2 and lower BB and lower =========================================================================================
For purposes of the foregoing, (a) if either Moody's or S&P shall not have in effect a Bank Credit Facility Rating (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a Bank Credit Facility Rating of Level III; (b) if the Bank Credit Facility Ratings established or deemed to have been established by Moody's and S&P shall fall within different Levels, the applicable Level shall be based on the lower of the two Bank Credit Facility Ratings; and (c) if the Bank Credit Facility 3 Ratings established or deemed to have been established by Moody's and S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by Borrower to the Agents and the Lenders pursuant to SECTION 5.2(e) hereof or otherwise. Each change in the Applicable Rating Level shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change to the Applicable Rating Level. If the rating system of Moody's or S&P shall change, or if any such rating agency shall cease to be in the business of rating corporate debt obligations, Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rating Level shall be determined by reference to the rating most recently in effect prior to such change or cessation. "APPROVED COUNTRY" means the United States, Canada or any other country determined to be an "Approved Country" by the Required Lenders. "APPROVED ENGINEER" means (a) Ryder Scott Company Petroleum Engineers, Netherland, Sewell & Associates, Inc. or Collarini Engineering, Inc. or (b) such other firm of independent petroleum engineers expert in the matters required to be performed in connection with the preparation and delivery of a Independent Reserve Report and reasonably satisfactory to the Technical Lenders. "ARRANGER" means Chase Securities Inc. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by SECTION 10.4), and accepted by the Global Administrative Agent, in substantially the form of EXHIBIT D or any other form approved by the Global Administrative Agent. "AUTHORIZED OFFICER" means the Chairman, the President, any Vice President or the Treasurer of Borrower or any other officer of Borrower specified as such to the Global Administrative Agent in writing by any of the aforementioned officers of Borrower. "AVAILABILITY PERIOD" means the period from and including the Global Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "BANK CREDIT FACILITY RATING" means, on the date of determination, the ratings by S&P and Moody's of the senior credit facility of Borrower pursuant to this Agreement and the other Combined Loan Documents. "BOARD" means the Board of Governors of the Federal Reserve System of the United States of America. 4 "BORROWER" has the meaning given to such term in the PREAMBLE. "BORROWING" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "BORROWING BASE PROPERTIES" means those Mortgaged Properties and those other Oil and Gas Properties owned by Borrower or its Restricted Subsidiaries that are given value in the determination of the then current Global Borrowing Base. "BORROWING BASE REQUIRED LENDERS" means, at any time, both the Global Administrative Agent and the Combined Lenders having Combined Credit Exposures and unused Combined Commitments representing more than 75% of the sum of the total Combined Credit Exposures and unused Combined Commitments at such time. "BORROWING REQUEST" means a request by Borrower for a Borrowing in accordance with SECTION 2.3, in substantially the form of EXHIBIT E-1 or any other form approved by the Global Administrative Agent. "BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City and Toronto, Canada are authorized or required by law to remain closed; PROVIDED that, when used in connection with a Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "CANADIAN ADMINISTRATIVE AGENT" means The Chase Manhattan Bank of Canada, in its capacity as Canadian administrative agent for the lenders party to the Canadian Credit Agreement and any successor thereto. "CANADIAN BORROWERS" means Canadian Forest and each other subsidiary of Canadian Forest which becomes a "Borrower" (as defined in the Canadian Credit Agreement) under the Canadian Credit Agreement. "CANADIAN CREDIT AGREEMENT" means that certain Credit Agreement of even date herewith among the Canadian Borrowers, the Canadian Lenders, the Global Administrative Agent, the Canadian Administrative Agent, The Toronto-Dominion Bank, as Canadian documentation agent, and Bank of Montreal, as Canadian syndication agent, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "CANADIAN DOLLARS" or "C$" refers to lawful money of Canada. "CANADIAN FOREST" means Canadian Forest Oil Ltd, a corporation organized under the laws of the Province of Alberta, Canada. 5 "CANADIAN LENDERS" means the financial institutions from time to time party to the Canadian Credit Agreement and their respective successors and permitted assigns. "CANADIAN LOAN DOCUMENTS" means the Canadian Credit Agreement, any guaranties, any security documents, any assignment agreements, and the agreement with respect to fees, together with all exhibits, schedules and attachments thereto, and all other agreements, documents, certificates, financing statements and instruments from time to time executed and delivered pursuant to or in connection with any of the foregoing. "CANADIAN OBLIGATIONS" means, at any time, the Equivalent Amount of the sum of (a) the "Credit Exposures" of the Canadian Lenders under the Canadian Loan Documents PLUS (b) all accrued and unpaid interest and fees owing to the Canadian Lenders under the Canadian Loan Documents PLUS (c) all other obligations (monetary or otherwise) of Canadian Borrowers or any of their Restricted Subsidiaries to any Canadian Lender or any of the "Agents" under the Canadian Credit Agreement, whether or not contingent, arising under or in connection with any of the Canadian Loan Documents. "CANADIAN SECURITY DOCUMENTS" means the "Security Documents" (as defined under the Canadian Credit Agreement). "CAPITAL LEASE OBLIGATIONS" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CASUALTY EVENT" means any loss, casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any Property or asset of Borrower or any of its Restricted Subsidiaries having a fair market value in excess of U.S. $1,000,000 (or its equivalent in other currencies). "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, ET. SEQ., as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response and Liability Information System as provided for by 40 C.F.R. Section 300.5, as amended from time to time. "CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or any Issuing Bank (or, for purposes of SECTION 2.15(b), by any Applicable Lending Office of such Lender or any Issuing Bank or by such Lender's or any Issuing Bank's holding company, if 6 any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL" means any and all "Mortgaged Property" and "Collateral", as defined in all Security Documents. "COMBINED APPLICABLE PERCENTAGE" means, with respect to any Combined Lender, the percentage of the total Combined Commitments represented by such Combined Lender's Commitment or, with respect to Canadian Lenders, the "Commitment" of such Canadian Lender as defined in the Canadian Credit Agreement with amounts outstanding in Canadian Dollars being converted into an Equivalent Amount (calculated by the Global Administrative Agent) of U.S. Dollars solely for this purpose. If the Combined Commitments have terminated or expired, the Combined Applicable Percentages shall be determined based upon the Combined Commitments most recently in effect, after giving effect to any assignments made in accordance with the Combined Credit Agreements. "COMBINED COMMITMENTS" means, with respect to each Combined Lender, the commitment of such Combined Lender to make Loans (or in the case of Canadian Lenders, "Loans" (as defined in the Canadian Credit Agreement)), expressed as an amount representing the maximum aggregate amount of such Combined Lender's Credit Exposure (or in the case of Canadian Lenders, "Credit Exposure" (as defined in the Canadian Credit Agreement)) under the Combined Credit Agreements with amounts outstanding in Canadian Dollars being converted into an Equivalent Amount (calculated by the Global Administrative Agent) of U.S. Dollars solely for this purpose, as such commitment may be reduced, increased or terminated from time to time pursuant to the Combined Loan Documents. The initial amount of each Combined Lender's Commitment is set forth on SCHEDULE 2.1 to the applicable Combined Credit Agreement, or in a Assignment and Acceptance (as defined in this Agreement and the Canadian Credit Agreement) or pursuant to which such Combined Lender shall have assumed its Combined Commitment, as applicable. The initial aggregate amount of the Combined Lenders' Combined Commitments is U.S.$600,000,000. "COMBINED CREDIT AGREEMENTS" means this Agreement and the Canadian Credit Agreement. "COMBINED CREDIT EXPOSURES" means the Credit Exposures and the Equivalent Amount of the "Credit Exposures" (as defined in the Canadian Credit Agreement). "COMBINED LC EXPOSURE" means, at any time, the sum of the LC Exposure under this Agreement and the Equivalent Amount of the "LC Exposure" (as defined in the Canadian Credit Agreement) under the Canadian Credit Agreement. The Combined LC Exposure of any Combined Lender at any time shall be its Combined Applicable Percentage of the total Combined LC Exposure at such time. 7 "COMBINED LENDERS" means the Lenders hereunder and the Canadian Lenders. "COMBINED LOAN DOCUMENTS" means the Loan Documents and the Canadian Loan Documents. "COMBINED LOANS" means the loans made by the Combined Lenders to Borrower and Canadian Borrowers pursuant to the Combined Loan Documents. "COMBINED OBLIGATIONS" means the aggregate of the Obligations and the Canadian Obligations. "COMMITMENT" means, with respect to each Lender, the commitment of such Lender to make Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to SECTION 2.8, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to SECTION 10.4, (c) increased from time to time pursuant to SECTION 2.21, and (d) terminated pursuant to SECTIONS 8.2 or 8.3. The initial amount of each Lender's Commitment is set forth on SCHEDULE 2.1, or in the Register following any Assignment and Acceptance to which such Lender is a party or the delivery of a Lender Certificate to which such Lender is a party. The initial aggregate amount of the Commitments of the Lenders is U.S.$500,000,000. "COMMITMENT FEE" is defined in SECTION 2.11(a). "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative thereto. "CREDIT EXPOSURE" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans and its LC Exposure at such time. "DEFAULT" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "DEFICIENCY NOTIFICATION DATE" is defined in SECTION 2.7(f). "DISCLOSED MATTERS" is defined in SECTION 3.6(a). "DOLLARS" or "U.S. DOLLARS" or "U.S.$" refers to lawful money of the United States of America. "EBITDA" means, for any period, the consolidated net income of Borrower and its Restricted Subsidiaries for such period (excluding any extraordinary gains and losses from consolidated net 8 income) before deduction for interest expense, depreciation, depletion expense, amortization expense, federal, provincial, territorial and state income taxes and other non-cash charges and expenses incurred by Borrower and its Restricted Subsidiaries. "ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters (including without limitation the Environmental Protection Enhancement Act (Alberta) and the Canadian Environmental Protection Act). "ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment, or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "EQUITY INTERESTS" means shares of the capital stock, partnership interests, membership interest in a limited liability company, beneficial interests in a trust or other equity interests in Borrower or any Subsidiary or any warrants, options or other rights to acquire such interests. "EQUIVALENT AMOUNT" means as at any date the amount of Canadian Dollars into which an amount of U.S. Dollars may be converted, or the amount of U.S. Dollars into which an amount of Canadian Dollars may be converted, in either case at The Bank of Canada mid-point noon spot rate of exchange for such date in Toronto at approximately 12:00 noon, Toronto time on such date. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the rules, regulations and interpretations thereunder, in each case as in effect from time to time. "ERISA AFFILIATE" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414 (b) or 414 (c) of the Internal Revenue Code or Section 4001 of ERISA. "ERISA EVENT" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application 9 for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by Borrower or any of its ERISA Affiliates of any Withdrawal Liability; or (g) the receipt by Borrower or any ERISA Affiliate of any notice concerning the determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "EURODOLLAR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "EVENT OF DEFAULT" has the meaning assigned to such term in SECTION 8.1. "EXCLUDED TAXES" means, with respect to any Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its Applicable Lending Office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by Borrower under SECTION 2.19(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new Applicable Lending Office) or is attributable to such Foreign Lender's failure to comply with SECTION 2.17(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Applicable Lending Office (or assignment), to receive additional amounts from Borrower with respect to such withholding tax pursuant to SECTION 2.17(a). "EXISTING CREDIT FACILITIES" means (i) that certain Fourth Amended and Restated Credit Agreement, dated as of March 4, 1999, among Borrower, the Canadian Borrowers, each of the subsidiaries of Borrower that becomes a guarantor pursuant to such agreement, the banks party thereto, The Chase Manhattan Bank, as U.S. administrative agent, Christiania Bank og Kreditkasse, Hibernia National Bank, and Societe Generale, Southwest Agency, as co-agents, and The Chase Manhattan Bank of Canada, as Canadian administrative agent, as amended by Amendment No. 1 dated as of June 24, 1999, and (ii) that certain Credit Agreement, dated as of February 15, 2000, among Force, the lenders party thereto, and ING (U.S.) Capital L.L.C., as agent. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so 10 published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Global Administrative Agent from three Federal funds brokers of recognized standing selected by it. "FEE LETTER" means that certain Fee Letter dated as of July 17, 2000, by and among Borrower, the Global Administrative Agent and the Arranger, as such letter may be amended, supplemented, restated or otherwise modified from time to time in accordance with the Loan Documents. "FINANCING TRANSACTIONS" means the execution, delivery and performance by each Loan Party of the Loan Documents to which it is to be a party, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. "FORCE" means Forcenergy Inc., a Delaware corporation. "FOREIGN LENDER" means any Lender that is organized under the laws of a jurisdiction other than that in which Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "FOREIGN SUBSIDIARY" means any Subsidiary that is organized under the laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles in the United States of America. "GLOBAL ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, in its capacity as global administrative agent for the Combined Lenders and its successors. "GLOBAL BORROWING BASE" means the "Global Borrowing Base" as determined from time to time pursuant to SECTION 2.7. "GLOBAL BORROWING BASE ALLOCATION NOTICE" is defined in SECTION 2.7(d)(iii). "GLOBAL BORROWING BASE DEFICIENCY" means the amount by which (a) the Combined Credit Exposures of all Combined Lenders under this Agreement and the Canadian Credit Agreement exceeds (b) the then current Global Borrowing Base. "GLOBAL BORROWING BASE DESIGNATION NOTICE" is defined in SECTION 2.7(b). "GLOBAL EFFECTIVE DATE" means a date agreed upon by Borrower and the Global Administrative Agent as the date on which the conditions specified in SECTION 4.2 of each Combined Credit Agreement are satisfied (or waived in accordance with SECTION 10.2 of each Combined Credit Agreement). 11 "GLOBAL EFFECTIVENESS NOTICE" means a notice and certificate of Borrower properly executed by an Authorized Officer of Borrower addressed to the Combined Lenders and delivered to the Global Administrative Agent whereby Borrower certifies satisfaction or waiver of all the conditions precedent to the effectiveness under SECTION 4.2 of each Combined Credit Agreement. "GOVERNMENTAL APPROVAL" means (a) any authorization, consent, approval, license, ruling, permit, tariff, rate, certification, waiver, exemption, filing, variance, claim, order, judgment or decree of, or with, (b) any required notice to, (c) any declaration of or with, or (d) any registration by or with, any Governmental Authority. "GOVERNMENTAL AUTHORITY" means the government of the United States of America, Canada, any other nation or any political subdivision thereof, whether state, provincial, territorial or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "GOVERNMENTAL RULE" means any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement, directive, requirement of, or other governmental restriction or any similar binding form of decision of or determination by, or any binding interpretation or administration of any of the foregoing by, any Governmental Authority, whether now or hereafter in effect. "GUARANTEE" means a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person or any production or revenues generated by (or any capital or other expenditures incurred in connection with the acquisition and exploitation of, exploration for, development of or production from) any Hydrocarbons, or a guarantee of the payment of dividends or other distributions upon the Equity Interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank, surety company or other financial institution or similar entity to issue a letter of credit, surety bond or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning. "GUARANTY" means a Guaranty, dated as of the Global Effective Date or otherwise delivered pursuant to the Loan Documents, made by a Restricted Subsidiary (other than a Foreign Subsidiary) of Borrower in favor of the Global Administrative Agent, substantially in the form of EXHIBIT F, as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms of this Agreement and the other Loan Documents. The term "Guaranties" shall include each 12 and every Guaranty executed and delivered by a Restricted Subsidiary (other than a Foreign Subsidiary) hereunder. "HAZARDOUS MATERIAL" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law, and any petroleum, petroleum products or petroleum distillates and associated oil or natural gas exploration, production and development wastes that are not exempted or excluded from being defined as "hazardous substances", "hazardous materials", "hazardous wastes" and "toxic substances" under such Environmental Laws. "HEDGING AGREEMENT" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement between Borrower or its Restricted Subsidiaries and any Person. "HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities (including but not limited to obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. "HEDGING POLICY" means that certain hedging policy of Producers Marketing and its Subsidiaries which is attached hereto as EXHIBIT J, as amended from time to time in accordance with SECTION 7.12 of this Agreement. "HIGHEST LAWFUL RATE" is defined in SECTION 10.13. "HYDROCARBON INTERESTS" means all rights, titles and interests in and to oil and gas leases, oil, gas and mineral leases, other Hydrocarbon leases, mineral interests; mineral servitudes, overriding royalty interests, royalty interests, net profits interests, production payment interests, and other similar interests. "HYDROCARBONS" means, collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. "INCREASED COMMITMENT AMOUNT" is defined in SECTION 2.21. "INDEBTEDNESS"of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of Property or 13 services (excluding current accounts payable incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances, (j) all obligations of such Person with respect to any arrangement, directly or indirectly, whereby such Person or its Subsidiaries shall sell or transfer any material asset, and whereby such Person or any of its Subsidiaries shall then or immediately thereafter rent or lease as lessee such asset or any part thereof, (k) all recourse and support obligations of such Person or any of its Subsidiaries with respect to the sale or discount of any of its accounts receivable, (l) all obligations of such Person with respect to Production Payments sold by such Person or any prepayments for oil and gas production or other similar agreements, and (m) Net Liabilities of such Person under all Hedging Obligations. The Indebtedness of any Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "INDEMNIFIED TAXES" means Taxes other than Excluded Taxes. "INDEMNITEE" is defined in SECTION 10.3(b). "INDEPENDENT RESERVE REPORT" is defined in SECTION 5.1(e). "INFORMATION" is defined in SECTION 10.12. "INITIAL RESERVE REPORT" means the Independent Reserve Report delivered to the Global Administrative Agent dated as of January 1, 2000, with respect to the Oil and Gas Properties of Borrower and its Restricted Subsidiaries, a true and correct copy of which has been delivered to the Global Administrative Agent and the Lenders. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement dated as of even date herewith, by and among the Global Administrative Agent, the U.S. Documentation Agent, the U.S. Syndication Agent, the Canadian Administrative Agent, the Canadian Documentation Agent, the Canadian Syndication Agent, and the Combined Lenders, as amended, supplemented, restated or otherwise modified from time to time in accordance with the Loan Documents. "INTEREST ELECTION REQUEST" means a request by Borrower to convert or continue a Borrowing in accordance with SECTION 2.6, in substantially the form of EXHIBIT E-2 or any other form approved by the Global Administrative Agent. 14 "INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three (3) months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three (3) months' duration after the first day of such Interest Period. "INTEREST PERIOD" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day, or, with the consent of the Global Administrative Agent, such other day, in the calendar month that is one, two, three or six months (or, with the consent of each Lender, nine or twelve months) thereafter, as Borrower may elect; PROVIDED, that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period, and (c) no Interest Period may end later than the last day of the Availability Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "INTERNAL RESERVE REPORT" is defined in SECTION 5.1(e). "INVESTMENT" means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity Interests of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale), (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business), (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person, or (d) the entering into of any Hedging Agreement. "ISSUING BANK" means any Lender in its capacity as the issuer of Letters of Credit hereunder, PROVIDED that, upon written notice to the Global Administrative Agent and Borrower, any Lender (other than The Chase Manhattan Bank) may decline to act in the capacity of an Issuing Bank under this Agreement. Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. 15 "JUDGMENT CURRENCY" is defined in SECTION 2.20(b). "LC DISBURSEMENT" means a payment made by any Issuing Bank pursuant to a Letter of Credit. "LC EXPOSURE" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "LENDER AFFILIATE" means, with respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "LENDER CERTIFICATE" is defined in SECTION 2.21. "LENDERS" means the Persons listed on SCHEDULE 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance or pursuant to SECTION 2.21, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LETTER OF CREDIT" means any letter of credit issued pursuant to this Agreement. "LIBO RATE" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Global Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., New York City time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO RATE" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of U.S.$5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Global Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. 16 "LIEN" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge, collateral assignment or security interest in, on or of such asset, including, without limitation, encumbrances created by the posting of a Letter of Credit, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset, and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities; PROVIDED, HOWEVER, that, with respect to any prohibitions of Liens on Property, the following transactions shall not be deemed to create a Lien to secure Indebtedness: (i) Production Payments and (ii) liens required by statute and created in favor of any Governmental Authority to secure partial, progress, advance, or other payments intended to be used primarily in connection with air or water pollution control. "LOAN DOCUMENT" means (a) this Agreement, the Security Documents, the Fee Letter, the Intercreditor Agreement, the Guaranties, the Hedging Agreements between Borrower or any of its Restricted Subsidiaries and any Lender or any Affiliate of a Lender, any Borrowing Request, any Interest Election Request, any Assignment and Acceptance, any election notice, any agreement with respect to fees described in SECTION 2.11, and (b) each other agreement, document or instrument delivered by Borrower or any other Person in connection with this Agreement, as such may be amended from time to time. "LOAN PARTIES" means Borrower, Force (if Force is not merged into Borrower on or before the Global Effective Date) and 3189503 and, after the date of this Agreement, any other Affiliate or Restricted Subsidiary of Borrower which executes a Loan Document for so long as such Loan Document is in effect. "LOAN VALUE" means the percentage of the Global Borrowing Base attributable to a particular Borrowing Base Property as determined by the Technical Lenders in their calculation of the Global Borrowing Base and set forth in the Global Borrowing Base. "LOANS" means the loans made by the Lenders to Borrower pursuant to this Agreement. "MARGIN STOCK" means "margin stock" within the meaning of Regulation U. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, Property, operations, prospects, or condition, financial or otherwise, of Borrower and its Subsidiaries (including Force) taken as a whole, (b) the ability of any Loan Party to perform any of its respective obligations under any Combined Loan Document to which it is a party, or (c) the rights of or benefits available to the Combined Lenders under any of the Combined Loan Documents, as the case may be. "MATURITY DATE" means October 10, 2005. 17 "MERGER AGREEMENT" means that certain Agreement and Plan of Merger, dated as of July 10, 2000 by and between Borrower, Forest Acquisition I Corporation, and Force, as amended, supplemented, restated or otherwise modified from time to time. "MOODY'S" means Moody's Investors Service, Inc. "MORTGAGE" means a Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing, dated as of the Global Effective Date or otherwise delivered pursuant to the Loan Documents, in substantially the form of EXHIBIT I, executed and delivered by Borrower or any Loan Party (other than Foreign Subsidiaries), as the case may be, as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms of this Agreement and the other Loan Documents. The term "Mortgage" shall include each mortgage supplement after execution and delivery of such mortgage supplement. The term "Mortgages" shall include each and every Mortgage executed and delivered by each of Borrower and its Restricted Subsidiaries hereunder. "MORTGAGED PROPERTY" means, initially, each Oil and Gas Property on which a Lien has been granted pursuant to SECTION 4.2(G), and includes each other Oil and Gas Property with respect to which a Mortgage is granted pursuant to SECTIONS 5.12 or 5.15. "MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NET LIABILITIES" means, with respect to any Person, the net mark-to-market value determined in accordance with GAAP. "NET PROCEEDS" means, with respect to any event, (a) the cash proceeds received in respect of such event including (i) any cash received in respect of any non-cash proceeds, but only as and when received, (ii) in the case of a casualty, insurance proceeds, and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses paid by Borrower and its Subsidiaries to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), the amount of all payments required to be made by Borrower and its Subsidiaries as a result of such event to repay Indebtedness (other than Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, (iii) the amount of all taxes paid (or reasonably estimated to be payable) by Borrower and its Subsidiaries, and (iv) the amount of any reserves established by Borrower and its Subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by the chief financial officer of Borrower). "NEW YORK CITY" means New York, New York. 18 "NON-RECOURSE DEBT" means any Indebtedness of any Unrestricted Subsidiary, in each case in respect of which (i) the holder or holders thereof (a) shall have recourse only to, and shall have the right to require the obligations of such Unrestricted Subsidiary to be performed, satisfied, and paid only out of, the assets and Property of such Unrestricted Subsidiary and/or one or more of its Subsidiaries (but only to the extent that such Subsidiaries are Unrestricted Subsidiaries) and/or any other Person (other than Borrower and/or any Restricted Subsidiary), and (b) shall have no direct or indirect recourse (including by way of guaranty or indemnity) to Borrower or any Restricted Subsidiary or to any of the assets or Property of Borrower or any Restricted Subsidiary, whether for principal, interest, fees, expenses or otherwise and (ii) the terms and conditions of such Indebtedness are in form and substance reasonably acceptable to the Technical Lenders. "OBLIGATIONS" means, at any time, the sum of (a) the Credit Exposures of the Lenders under the Loan Documents PLUS (b) all accrued and unpaid interest and fees owing to the Lenders under the Loan Documents PLUS (c) all Hedging Obligations in connection with all Hedging Agreements between Borrower or any of its Restricted Subsidiaries and any Lender or any Affiliate of a Lender PLUS (d) all other obligations (monetary or otherwise) of Borrower or any Restricted Subsidiary to any Lender or any Agent, whether or not contingent, arising under or in connection with any of the Loan Documents. "OIL AND GAS PROPERTIES" means the Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority having jurisdiction) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, joint venture agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, the lands covered thereby and all oil in tanks and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, profits a prendre, hereditaments, appurtenances and Properties in anywise appertaining, belonging, affixed or incidental to the Hydrocarbon Interests, Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal Property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, water wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. 19 "ORGANIC DOCUMENTS" means, relative to any Person, its articles of organization, formation or incorporation (or comparable document), its by-laws or operating agreement and all partnership agreements, limited liability company or operating agreements and similar arrangements applicable to ownership. "OTHER CURRENCY" is defined in SECTION 2.20(a). "OTHER TAXES" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document. "PARTICIPANT" is defined in SECTION 10.4(e). "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "PENSION PLAN" means a "pension plan," as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which Borrower or any ERISA Affiliate may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "PERMITTED ENCUMBRANCES" means: (a) Liens imposed by any Governmental Rule for Taxes that are not yet due or are being contested in compliance with SECTION 5.5; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 45 days or are being contested in compliance with SECTION 5.5; (c) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (d) pledges or deposits under worker's compensation, unemployment insurance and other social security or similar legislation made in the ordinary course of business; 20 (e) judgment Liens in respect of judgments that do not constitute an Event of Default under SECTION 8.1(h); (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by any Governmental Rule or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of Borrower or any of its Restricted Subsidiaries; and (g) Liens permitted by the Canadian Credit Agreement or any of the other Combined Loan Documents; PROVIDED that the term "Permitted Encumbrances" shall not include any Lien securing (i) any Indebtedness for borrowed money or (ii) any Hedging Obligation. "PERMITTED HOLDERS" means The Anschutz Corporation and its Affiliates. "PERMITTED INVESTMENTS" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America or Canada or any province thereof (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within 90 days from the date of acquisition thereof; (b) Investments in commercial paper (i) rated A-1, P-1, R-1 low or A-1 or better by S&P, Moody's, Dominion Bond Rating Service Limited or Canada Bond Rating Service, respectively, maturing not more than 90 days from the date of acquisition thereof or (ii) rated A-2 or better (but less than A-1) or P-2 or better (but less than P-1) by S&P or Moody's, respectively, maturing not more than 30 days from the date of acquisition thereof; and (c) Investments in certificates of deposit, bankers' acceptances and time deposits maturing within 90 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or Canada or any State or Province thereof which has a combined capital and surplus and undivided profits of not less than U.S.$500,000,000. "PERSON" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. 21 "PLAN" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PLEDGE AGREEMENT" means a Pledge Agreement, dated as of the Global Effective Date or otherwise delivered pursuant to the Loan Documents, substantially in the form of EXHIBIT G, as amended, supplemented, restated or otherwise modified from time to time in accordance with the Loan Documents. The term "Pledge Agreements" shall include each and every Pledge Agreement executed and delivered pursuant to the Loan Documents. "PREFERRED EQUITY INTEREST" means any Equity Interest that, by its terms (or the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event or circumstance either (i) matures, (ii) is redeemable (whether mandatorily or otherwise) at the option of the holder thereof for any consideration other than shares of common stock or (iii) is convertible or exchangeable for Indebtedness or other Preferred Equity Interests, in each case, in whole or in part, prior to the date which is 91 days after the earlier of (a) the Maturity Date or (b) the date on which the Combined Obligations have been paid in full and the Combined Commitments have terminated and all Letters of Credit have expired or terminated. "PRESENT VALUE" means, at any time, the calculation of the present value of future cash flows based upon the then effective Reserve Report for Proven Reserves from Oil and Gas Properties located within an Approved Country utilizing a mathematical average of the customary discount rates and price decks of the Technical Lenders. "PRIME RATE" means the rate of interest per annum publicly announced from time to time by the Global Administrative Agent as its prime rate in effect at its principal office in New York City. Without notice to Borrower or any other Person, the Prime Rate shall change automatically from time to time as and in the amount by which said prime rate shall fluctuate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Global Administrative Agent may make commercial loans and other loans at rates of interest at, above or below the Prime Rate. For purposes of this Agreement, any change in the Alternate Base Rate due to a change in the Prime Rate shall be effective on the date such change in the Prime Rate is announced. "PROCEEDS" means, with respect to any event, the cash proceeds received in respect of such event including any cash received in respect of any non-cash proceeds, but only as and when received. "PRODUCERS MARKETING" means Producers Marketing Ltd., a corporation organized under the laws of the Province of Alberta, Canada. 22 "PRODUCTION PAYMENTS" means a production payment obligation (whether volumetric or dollar denominated) of Borrower or any of its Restricted Subsidiaries which are payable from a specified share of proceeds received from production from specified Oil and Gas Properties, together with all undertakings and obligations in connection therewith. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "PROVEN RESERVES" means collectively, "proved oil and gas reserves," "proved developed producing oil and gas reserves," "proved developed non-producing oil and gas reserves" (consisting of proved developed shut-in oil and gas reserves and proved developed behind pipe oil and gas reserves), and "proved undeveloped oil and gas reserves," as such terms are defined by the U.S. Securities and Exchange Commission in its standards and guidelines. "REFINANCED INDEBTEDNESS" has the meaning set forth in SECTION 7.1(a)(iii). "REFINANCING INDEBTEDNESS" has the meaning set forth in SECTION 7.1(a)(iii). "REGISTER" has the meaning set forth in SECTION 10.4(c). "REGULATION U" means any of Regulations U or X of the Board from time to time in effect and shall include any successor or other regulations or official interpretations of the Board or any successor Person relating to the extension of credit for the purpose of purchasing or carrying Margin Stock and which is applicable to member banks of the Federal Reserve System or any successor Person. "RELATED PARTIES" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "RELEASE" means a "release," as such term is defined in CERCLA. "REMEDIAL ACTION" means any action under Environmental Laws required to (a) clean up, remove, treat, dispose of, abate, or in any other way address Hazardous Materials in the environment, (b) prevent the Release or threat of a Release or minimize the further Release of Hazardous Materials, or (c) investigate and determine if a remedial response is needed and to design such a response and any post-remedial investigation, monitoring, operation, and maintenance and care. "REQUIRED LENDERS" means Combined Lenders having in the aggregate greater than 50% of the aggregate total Combined Commitments under the Combined Loan Documents, or, if the Combined Commitments have been terminated, Combined Lenders holding greater than 50% of the aggregate unpaid principal amount of the outstanding Combined Credit Exposure under the Combined Loan Documents. 23 "RESERVE REPORT" means the Initial Reserve Report and any other Independent Reserve Report or Internal Reserve Report delivered pursuant to SECTION 2.7, in form and substance reasonably satisfactory to the Technical Lenders, prepared at the sole cost and expense of Borrower by an Approved Engineer or Borrower's petroleum engineers, as the case may be, which shall evaluate the Proven Reserves and probable reserves attributable to the Oil and Gas Properties owned directly by Borrower and/or its Restricted Subsidiaries, as of the immediately preceding January 1 or July 1. Each Reserve Report shall set forth volumes, projections of the future rate of production, Hydrocarbons prices, escalation rates, discount rate assumptions, and net proceeds of production, present value of the net proceeds of production, operating expenses and capital expenditures, in each case based upon updated economic assumptions reasonably acceptable to the Technical Lenders. "RESOURCE CONSERVATION AND RECOVERY ACT" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 690, ET SEQ., as amended from time to time. "RESTRICTED PAYMENT" means any dividend or other distribution (whether in cash, securities or other Property, real, personal or mixed) with respect to any Equity Interests in Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other Property, real, personal or mixed), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interests in Borrower or any Restricted Subsidiary or any option, warrant or other right to acquire any such Equity Interests in Borrower or any Restricted Subsidiary. "RESTRICTED SUBSIDIARY" means any Subsidiary of Borrower that is not an Unrestricted Subsidiary. "S&P" means Standard & Poor's and any successor thereto that is a nationally-recognized rating agency. "SECURITY AGREEMENT" means a Security Agreement, dated as of the Global Effective Date or otherwise delivered pursuant to the Loan Documents, between the Global Administrative Agent and Borrower or a Restricted Subsidiary (other than a Foreign Subsidiary) of Borrower, substantially in the form of EXHIBIT H, as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms of this Agreement and the other Loan Documents. The term "Security Agreements" shall include each and every Security Agreement executed and delivered by Borrower or a Restricted Subsidiary. "SECURITY DOCUMENTS" means each of the Security Agreements, each of the Guaranties, each of the Mortgages, each of the Pledge Agreements, each of the Canadian Security Documents, and each other security agreement or other instrument or document executed and delivered pursuant to SECTION 5.12 or SECTION 5.15 or pursuant to the Loan Documents to secure any of the Obligations. "SENIOR DEBT" means Total Debt LESS Subordinated Indebtedness. 24 "SHARING PERCENTAGE" means, at any time: (a) for the Lenders, the percentage determined by dividing the Obligations by the Combined Obligations; and (b) for the Canadian Lenders, the percentage determined by dividing the Canadian Obligations by the Combined Obligations. "SOLVENT" means, with respect to any Person at any time, a condition under which (a) the fair saleable value of such Person's assets is, on the date of determination, greater than the total amount of such Person's liabilities (including contingent and unliquidated liabilities) at such time; and (b) such Person is able to pay all of its liabilities as such liabilities mature. For purposes of this definition (i) the amount of a Person's contingent or unliquidated liabilities at any time shall be that amount which, in light of all the facts and circumstances then existing, represents the amount which can reasonably be expected to become an actual or matured liability, (ii) the "fair saleable value" of an asset shall be the amount which may be realized within a reasonable time either through collection or sale of such asset at its regular market value, and (iii) the "regular market value" of an asset shall be the amount which a capable and diligent business person could obtain for such asset from an interested buyer who is willing to purchase such asset under ordinary selling conditions. "STATUTORY RESERVE RATE" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the applicable maximum reserve percentages (including any basic, marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Global Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency fundings and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "SUBORDINATED DEBT" means any unsecured Indebtedness incurred or assumed after the date of this Agreement other than Refinancing Indebtedness of Borrower or its Restricted Subsidiaries and any Guarantees thereof which (a) is subordinated, either (i) upon terms and conditions substantially identical to the Subordinated Indebtedness - 10-1/2% Senior Subordinated Notes or (ii) otherwise, upon terms and conditions satisfactory to the Global Administrative Agent and the Required Lenders, in right of payment to the payment in full in cash of all Obligations (other than Hedging Obligations) and (b) either (i) contains terms and conditions not more onerous to Borrower and its Restricted Subsidiaries than those contained in the Subordinated Indebtedness - 10-1/2% Senior Subordinated Notes or (ii) otherwise, has terms (including interest, amortization, covenants and events of default), not more onerous to Borrower and its Restricted Subsidiaries than those contained in the Combined Loan Documents. 25 "SUBORDINATED INDEBTEDNESS" means, collectively, (a) the Subordinated Indebtedness-8-3/4% Senior Subordinated Notes and the Subordinated Indebtedness-10-1/2% Senior Subordinated Notes and any Refinancing Indebtedness, and (b) any other Subordinated Debt of any of the Loan Parties. "SUBORDINATED INDEBTEDNESS DOCUMENTS" means the indentures or other agreements under which the Subordinated Indebtedness is issued and all other instruments, agreements and other documents evidencing or governing the Subordinated Indebtedness or providing for any Guarantee or other right in respect thereof. "SUBORDINATED INDEBTEDNESS-10-1/2% SENIOR SUBORDINATED NOTES" means the Indebtedness of Borrower evidenced by and in respect of Borrower's 10-1/2% Senior Subordinated Notes due 2006 issued pursuant to that certain Indenture dated as of February 5, 1999 between Borrower and State Street Bank and Trust Company, as trustee, and as the same shall, subject to SECTION 7.11, be modified and in effect from time to time, and any Guarantees thereof by any Restricted Subsidiaries of Borrower. "SUBORDINATED INDEBTEDNESS-8-3/4% SENIOR SUBORDINATED NOTES" means the Indebtedness of Canadian Forest evidenced by and in respect of 8-3/4% Senior Subordinated Notes of Canadian Forest due 2007 in an aggregate principal amount not to exceed U.S.$200,000,000 issued pursuant to that certain Indenture dated as of September 29, 1997 among Borrower, as guarantor, Canadian Forest, as issuer, and State Street Bank and Trust Company, as trustee, as amended by that certain Supplemental Indenture dated as of December 1, 1999, and as the same shall, subject to SECTION 7.11, be modified and in effect from time to time, and any Guarantees thereof by any Restricted Subsidiaries of Borrower. "SUBSIDIARY" means, with respect to any Person (the "PARENT") at any date any corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "SUBSIDIARY" means any subsidiary of Borrower. "TAXES" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "3189503" means 3189503 Canada Ltd., a corporation organized under the federal laws of Canada. TECHNICAL LENDERS" means the Global Administrative Agent, Bank of America, N.A. and Citibank, N.A. 26 "TOTAL DEBT" means all Indebtedness of Borrower and its Restricted Subsidiaries on a consolidated basis described under clauses (a), (b), (d), (e), (f), (g), (h), (i), (k), (l) and (m) of the definition thereof. "TRANSACTIONS" means the Acquisition and the Financing Transactions "TYPE", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "UCC SEARCHES" means central and local current financing statement searches from each state in which any Collateral or a Borrowing Base Property is located, and such other jurisdictions as the Global Administrative Agent may request, covering each Loan Party together with copies of all financing statements listed in such searches. "UNAVAILABLE FEE" is defined in SECTION 2.11(b). "UNITED STATES" or "U.S." means the United States of America, its fifty states and the District of Columbia. "UNRESTRICTED SUBSIDIARY" means any Subsidiary of Borrower that is not a Restricted Subsidiary or which Borrower has designated in writing to the Global Administrative Agent to be an Unrestricted Subsidiary pursuant to SECTION 1.5. As of the date of this Agreement, the Unrestricted Subsidiaries are designated on SCHEDULE 3.12 as such. "UNUTILIZED COMMITMENT" means, at the time of determination, the amount by which (a) the amount of the Allocated U.S. Borrowing Base as then in effect at such time, PROVIDED that if the Applicable Rating Level is Level I or Level II, then the amount of the aggregate Commitments at such time, exceeds (b) the amount of the aggregate Credit Exposures of the Lenders at such time. "UPFRONT FEE" is defined in SECTION 2.11(d). "U.S. BORROWING BASE DEFICIENCY" means the amount by which (a) the aggregate Credit Exposures of the Lenders exceeds (b) the then current Allocated U.S. Borrowing Base. "U.S. DOCUMENTATION AGENT" means Citibank, N.A., in its capacity as U.S. documentation agent for the Lenders hereunder. "U.S. SYNDICATION AGENT" means Bank of America, N.A., in its capacity as U.S. syndication agent for the Lenders hereunder. 27 "WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.2. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of this Agreement, Loans and Borrowings may be classified and referred to by Type (E.G., a "Eurodollar Loan" or "Eurodollar Borrowing"). SECTION 1.3. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, provided such successors and assigns are permitted by the Loan Documents, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement. SECTION 1.4. ACCOUNTING TERMS; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; PROVIDED that, if Borrower notifies the Global Administrative Agent that Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date of this Agreement in GAAP or in the application thereof on the operation of such provision (or if the Global Administrative Agent notifies Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. SECTION 1.5. DESIGNATION AND CONVERSION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. (a) Unless designated as an Unrestricted Subsidiary on SCHEDULE 3.12 as of the date of this Agreement or thereafter in writing to the Global Administrative Agent, any Person that becomes a Subsidiary of Borrower or any of its Restricted Subsidiaries shall be classified as a Restricted Subsidiary. 28 (b) Borrower may designate any Subsidiary (other than a Canadian Borrower or 3189503) (including a newly formed or newly acquired Subsidiary) as an Unrestricted Subsidiary if (i) after giving effect to such designation, no Default would exist as a result of a breach of SECTION 5.13 and (ii) such designation is deemed to be an Investment in an Unrestricted Subsidiary in an amount equal to the fair market value of Borrower's direct and indirect ownership interest in such Subsidiary and such Investment would be permitted to be made at the time of such designation under SECTION 7.4(H). Except as provided in this SECTION 1.5(b), no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. (c) Borrower may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if after giving effect to such designation, (i) the representations and warranties of Borrower and its Restricted Subsidiaries contained in each of the Loan Documents are true and correct on and as of such date as if made on and as of the date of such redesignation (or, if stated to have been made expressly as of an earlier date, were true and correct as of such date); (ii) no Default would exist, and (iii) Borrower complies with the requirements of SECTIONS 5.12 and 5.15. Any such designation shall be treated as a cash dividend in an amount equal to the fair market value of Borrower's direct and indirect ownership interest in such Subsidiary for purposes of the limitation on Investments under SECTION 7.4(h). (d) If, during any period, a Subsidiary is redesignated as either "Restricted" or "Unrestricted", then for purposes of the calculation of EBITDA for such period, such Subsidiary shall be deemed to have been redesignated as of the first day of the relevant period; PROVIDED, HOWEVER, that for periods of calculation ending on or before September 30, 2001, any calculation undertaken pursuant to this Section shall be made using an EBITDA calculated on a pro forma basis (inclusive of any acquisitions, including the Acquisition, and/or divestitures, if any, made during the relevant calculation period and, if any such acquisition or divestiture has a value in excess of U.S.$5,000,000, as if such acquisition or divestiture had occurred on the first day of such period). ARTICLE II THE CREDITS SECTION 2.1. COMMITMENTS. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans in U.S. Dollars to Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) the Credit Exposure of any Lender exceeding the Commitment of such Lender, or (b) the aggregate amount of the Credit Exposures of all Lenders exceeding (i) in the event the Applicable Rating Level is Level III, the lesser of (A) the aggregate amount of the Allocated U.S. Borrowing Base then in effect and (B) the aggregate amount of the Commitments of the Lenders or (ii) in the event the Applicable Rating Level is Level I or II, the aggregate amount of the Commitments of the Lenders. Within the foregoing limits and subject to the terms and conditions set forth herein, Borrower may borrow, prepay and reborrow Loans. 29 SECTION 2.2. LOANS AND BORROWINGS. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Applicable Percentages. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; PROVIDED that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to SECTIONS 2.13 and 2.14, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that any exercise of such option shall not affect the obligation of Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of U.S.$1,000,000 and not less than U.S.$2,000,000 (including any continuation or conversion of existing Loans made in connection therewith). At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of U.S.$1,000,000 and not less than U.S. $2,000,000 (including any continuation or conversion of existing Loans made in connection therewith); PROVIDED that an ABR Borrowing may be in an aggregate amount that is equal to the entire Unutilized Commitment, if less. Borrowings of more than one Type may be outstanding at the same time; PROVIDED that there shall not at any time be more than a total of ten (10) Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, Borrower shall not be entitled to request, or to elect to convert or continue, any Eurodollar Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION II.3. REQUESTS FOR BORROWINGS. To request a Borrowing, Borrower shall notify the Global Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 1:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Global Administrative Agent of a written Borrowing Request executed by an Authorized Officer of Borrower, substantially in the form of EXHIBIT E-1 or otherwise in a form approved by the Global Administrative Agent. Each such telephonic and written Borrowing Request shall specify the following information in compliance with SECTION 2.2: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; 30 (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period". If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Global Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.4. LETTERS OF CREDIT. (a) GENERAL. Subject to the terms and conditions set forth herein, Borrower may request the issuance of Letters of Credit for its own account or the account of any Restricted Subsidiary, in a form reasonably acceptable to the Global Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by Borrower to, or entered into by Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN CONDITIONS. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to an Issuing Bank and the Global Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with PARAGRAPH (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed U.S.$25,000,000 and (ii) the total Credit Exposures shall not exceed the lesser of (x) the aggregate Commitments of the Lenders or (y) if the Applicable Rating Level is Level III, the Allocated U.S. Borrowing Base then in effect. 31 (c) EXPIRATION DATE. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the Maturity Date. (d) PARTICIPATIONS. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Global Administrative Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by Borrower on the date due as provided in PARAGRAPH (e) of this Section, or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) REIMBURSEMENT. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, Borrower shall reimburse such LC Disbursement by paying to the Global Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 12:00 noon, New York City time, on (i) the Business Day that Borrower receives such notice, if such notice is received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; PROVIDED that, unless such LC Disbursement is less than U.S.$1,000,000, Borrower may, subject to the conditions to Borrowing set forth herein, request in accordance with SECTION 2.3 that such payment be financed with a Borrowing in an equivalent amount and, to the extent so financed, Borrower's obligation to make such payment shall be discharged and replaced by the resulting Borrowing. If Borrower fails to make such payment when due, the Global Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Global Administrative Agent its Applicable Percentage of the payment then due from Borrower, in the same manner as provided in SECTION 2.5 with respect to Loans made by such Lender (and SECTION 2.5 shall apply, MUTATIS MUTANDIS, to the payment obligations of the Lenders), and the Global Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Global Administrative Agent of any payment from Borrower 32 pursuant to this paragraph, the Global Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve Borrower of its obligation to reimburse such LC Disbursement. (f) OBLIGATIONS ABSOLUTE. Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein proving to be untrue or inaccurate in any respect, (iii) payment by an Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, Borrower's obligations hereunder. Neither the Agents, the Lenders or any Issuing Bank nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of such Issuing Bank; PROVIDED that the foregoing shall not be construed to excuse such Issuing Bank from liability to Borrower to the extent of any direct or actual damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by Borrower to the extent permitted by applicable law) suffered by Borrower that are caused by such Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) DISBURSEMENT PROCEDURES. An Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of 33 Credit. Such Issuing Bank shall promptly notify the Global Administrative Agent and Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; PROVIDED that any failure to give or delay in giving such notice shall not relieve Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) INTERIM INTEREST. If an Issuing Bank shall make any LC Disbursement, then, unless Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans; PROVIDED that, if Borrower fails to reimburse such LC Disbursement within two (2) Business Days after such reimbursement is due pursuant to PARAGRAPH (e) of this Section, then SECTION 2.12(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to PARAGRAPH (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) [Intentionally omitted]. (j) CASH COLLATERALIZATION. If any Event of Default shall occur and be continuing, on the Business Day that Borrower receives notice from the Global Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, Borrower shall deposit in an account with the Global Administrative Agent, in the name of the Global Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; PROVIDED that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to Borrower described in SECTION 8.1(g). Borrower also shall deposit cash collateral pursuant to this paragraph as and to the extent required by SECTION 2.10, and any such cash collateral so deposited and held by the Global Administrative Agent hereunder shall constitute part of the Global Borrowing Base for purposes of determining compliance with SECTION 2.10. Each such deposit shall be held by the Global Administrative Agent as collateral for the payment and performance of the obligations of Borrower under this Agreement. The Global Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Global Administrative Agent and at Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Global Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC 34 Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of Borrower under this Agreement. If Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to Borrower within three (3) Business Days after all Events of Default have been cured or waived. If Borrower is required to provide an amount of cash collateral hereunder pursuant to SECTION 2.10, such amount (to the extent not applied as aforesaid) shall be returned to Borrower as and to the extent that, after giving effect to such return, Borrower would remain in compliance with SECTION 2.10 and no Default shall have occurred and be continuing. SECTION 2.5. FUNDING OF BORROWINGS. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Global Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Global Administrative Agent will make such Loans available to Borrower by promptly crediting the amounts so received, in like funds, to an account of Borrower maintained with the Global Administrative Agent in New York City; PROVIDED that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in SECTION 2.4(e) shall be remitted by the Global Administrative Agent to the applicable Issuing Bank. (b) Unless the Global Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Global Administrative Agent such Lender's share of such Borrowing, the Global Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Global Administrative Agent, then the applicable Lender and Borrower severally agree to pay to the Global Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to Borrower to but excluding the date of payment to the Global Administrative Agent, at (i) in the case of such Lender, the greater of (A) the Federal Funds Effective Rate or (B) a rate determined by the Global Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of Borrower, the interest rate applicable to Loans made in such Borrowing. If such Lender pays such amount to the Global Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.6. INTEREST ELECTIONS. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request (or an ABR Borrowing if no Type is specified) and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request (or one month if no Interest Period is specified). Thereafter, Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest 35 Periods therefor, all as provided in this Section. Borrower may, subject to the requirements of SECTION 2.2(c), elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, Borrower shall notify the Global Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under SECTION 2.3 if Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Global Administrative Agent of a written Interest Election Request executed by an Authorized Officer of Borrower, substantially in the form of EXHIBIT E-2 or otherwise in a form approved by the Global Administrative Agent. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with SECTION 2.2: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Global Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. 36 (e) If Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Global Administrative Agent, at the request of the Required Lenders, so notifies Borrower, then, so long as such Event of Default is continuing, (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless the Indebtedness has been accelerated pursuant to SECTION 8.3, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.7. GLOBAL BORROWING BASE. This Section shall be applicable at any time when the Applicable Rating Level of Borrower is Level III; PROVIDED, HOWEVER, that this Section shall apply at all times prior to the delivery of the Reserve Report dated effective as of January 1, 2001, and PROVIDED FURTHER that, if at any time the Applicable Rating Level of Borrower declines to Level III, the Technical Lenders and the Borrowing Base Required Lenders shall promptly but in any event not less than five (5) Business Days thereafter initiate the procedure set forth herein to redetermine the Global Borrowing Base. (a) INITIAL GLOBAL BORROWING BASE. Subject to SECTION 2.7(g), during the period from the date hereof to the date of the first redetermination of the Global Borrowing Base pursuant to the provisions of this Section, the initial amount of the Global Borrowing Base has been determined by the Technical Lenders and acknowledged by Borrower and its Restricted Subsidiaries (including the Canadian Borrowers) and agreed to by the Combined Lenders to be U.S.$500,000,000. The Loan Value of the Borrowing Base Properties has been determined by the Technical Lenders and acknowledged by Borrower and its Restricted Subsidiaries (including the Canadian Borrowers) and agreed to by the Combined Lenders. (b) ANNUAL SCHEDULED DETERMINATIONS OF THE GLOBAL BORROWING BASE. Promptly after January 1 of each calendar year (commencing January 1, 2001), and in any event prior to May 1 of each calendar year, Borrower shall furnish to the Technical Lenders and the Combined Lenders a report in form and substance reasonably satisfactory to the Technical Lenders, prepared by an Approved Engineer, which report shall evaluate as of January 1 of such calendar year the Proven Reserves attributable to the Oil and Gas Properties which Borrower wishes to include in the Global Borrowing Base and a projection of the rate of production and net operating income with respect thereto, as of such date, together with additional data concerning pricing, hedging, operating costs and quantities of production, and other information and engineering and geological data as any Technical Lender or any Combined Lender may reasonably request. Within 30 days after receipt of such report and information, the Technical Lenders shall make an initial determination of the amount of credit to be made available to Borrower hereunder, and the associated Loan Value of the Borrowing Base Properties included therein, and upon such initial determination shall promptly notify the Global Administrative Agent who on behalf of the Technical Lenders shall promptly notify the Combined Lenders in writing of the Technical Lenders' initial determination of the Global Borrowing Base. The Technical Lenders shall make such determination in accordance with each 37 such Technical Lender's customary practices and standards for oil and gas loans and in the exercise of their respective sole discretion. If all of the Technical Lenders cannot agree on the appropriate amount for the redetermined Global Borrowing Base, and the associated Loan Value of the Borrowing Base Properties, then the amount shall be the highest amount on which all of the Technical Lenders can agree, it being understood that a Technical Lender is deemed to have agreed to any and all amounts that are lower than the amount actually determined by such Technical Lender to be the appropriate value of the Global Borrowing Base. Within 15 days following their receipt of the proposed amount for the redetermined Global Borrowing Base, the Borrowing Base Required Lenders shall approve or reject the Technical Lenders' initial determination of the Global Borrowing Base by written notice to the Global Administrative Agent; PROVIDED, HOWEVER that failure by any Combined Lender to reject in writing the Technical Lenders' determination of the Global Borrowing Base within said 15 day period shall be deemed an acceptance of such determination by such Combined Lender. If the Borrowing Base Required Lenders fail to approve any such determination of the Global Borrowing Base made by the Technical Lenders hereunder, then the Global Administrative Agent shall poll the Combined Lenders and the Global Borrowing Base, and the associated Loan Value of the Borrowing Base Properties, shall be set at the highest amount on which the Borrowing Base Required Lenders can agree, it being understood that a Combined Lender is deemed to have agreed to any and all amounts that are lower than the amount actually determined by such Combined Lender to be the appropriate value of the Global Borrowing Base. Upon approval or deemed approval by the Borrowing Base Required Lenders of the Global Borrowing Base, the Global Administrative Agent upon notice thereof shall, by written notice to Borrower, the Agents and the Combined Lenders, designate the new Global Borrowing Base, and the associated Loan Value of the Borrowing Base Properties, available to Borrower and the Canadian Borrowers (each such notice in this SECTION 2.7(b) or 2.7(c) below, herein a "GLOBAL BORROWING BASE DESIGNATION NOTICE"). Upon receipt of such Global Borrowing Base Designation Notice, Borrower shall designate the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base to the Global Administrative Agent in accordance with SECTION 2.7(d). (c) SEMI-ANNUAL SCHEDULED DETERMINATION OF THE GLOBAL BORROWING BASE. In addition, promptly after July 1 of each calendar year (commencing July 1, 2001 which will result in the first scheduled Global Borrowing Base redetermination), and in any event prior to October 1st of each calendar year, Borrower will make available for review by the Technical Lenders a report in form and substance reasonably satisfactory to the Technical Lenders, prepared by Borrower's internal petroleum engineers, which report shall evaluate as of July 1 of such calendar year the Proven Reserves attributable to the Oil and Gas Properties which Borrower wishes to include in the Global Borrowing Base and a projection of the rate of production and net operating income with respect thereto, as of such date, together with additional data concerning pricing, hedging, operating costs, and quantities of production, and other information and engineering and geological data as any Technical Lender or any Combined Lender may reasonably request. The Technical Lenders and the Borrowing Base Required Lenders shall approve and designate the new Global Borrowing Base, and the associated Loan Value of the Borrowing Base Properties, in accordance with the procedures and standards described in SECTION 2.7(b) and Borrower shall provide a Global Borrowing Base Allocation Notice to the Global Administrative Agent in accordance with SECTION 2.7(d). 38 (d) ALLOCATION OF THE GLOBAL BORROWING BASE. The Global Borrowing Base shall be comprised of the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base, and allocations between the Allocated U.S. Borrowing Base and Allocated Canadian Borrowing Base shall be made in accordance with this SECTION 2.7(d). (i) The "ALLOCATED U.S. BORROWING BASE" means, as of any date, the amount in U.S. Dollars designated or determined as such from time to time (A) by Borrower pursuant to a Global Borrowing Base Allocation Notice delivered in accordance with SECTION 2.7(d)(iii) or (iv) of this Agreement or (B) in accordance with the other provisions of this Agreement. The Allocated U.S. Borrowing Base shall represent the maximum amount of credit in the form of Loans and Letters of Credit (subject to the aggregate Commitments and subject to the other provisions thereof) that the Lenders will extend to Borrower at any one time prior to the Maturity Date. Subject to SECTION 2.7(g), on the date of this Agreement, the initial Allocated U.S. Borrowing Base shall be U.S.$450,000,000; PROVIDED, HOWEVER, that in the event that Borrower or any of its Restricted Subsidiaries incurs Subordinated Debt prior to initial Borrowing, the Global Borrowing Base and the initial Allocated U.S. Borrowing Base will be reduced by 50% of the Proceeds from the issuance of such Subordinated Debt. (ii) The "ALLOCATED CANADIAN BORROWING BASE" means, as of any date, the Equivalent Amount designated as such from time to time (a) by Borrower pursuant to a Global Borrowing Base Allocation Notice delivered in accordance with SECTION 2.7(d)(iii) or (iv) of this Agreement or (B) in accordance with the other provisions of this Agreement. The Allocated Canadian Borrowing Base shall represent the maximum amount of credit in the form of "Loans", "Letters of Credit" and "Bankers' Acceptances" in each case as defined in the Canadian Credit Agreement (subject to the aggregate "Commitments" as defined in the Canadian Credit Agreement and subject to the other provisions thereof) that the Canadian Lenders will extend to the Canadian Borrowers at any one time prior to the "Maturity Date" as defined in the Canadian Credit Agreement. On the date of this Agreement, the initial Allocated Canadian Borrowing Base shall be U.S.$50,000,000. (iii) Upon receipt of the Global Borrowing Base Designation Notice, Borrower shall specify within ten (10) days of its receipt thereof the allocation of the Global Borrowing Base between the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base by providing a written notice to the Global Administrative Agent of such allocation (each such notice herein a "GLOBAL BORROWING BASE ALLOCATION NOTICE"); PROVIDED that the sum of the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base shall at all times be equal to the Global Borrowing Base. In the event that Borrower fails to provide the Global Administrative Agent with a Global Borrowing Base Allocation Notice within the period required by this SECTION 2.7(d)(iii), the Global Borrowing Base will be allocated in same proportion as existed prior to such redetermination. Promptly upon the allocation of the Global Borrowing Base between the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base in accordance with the procedures set forth above, 39 the Global Administrative Agent shall provide a written notice to the Combined Lenders and Borrower, which written notice shall set forth the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base to be in effect. Any designation of the Allocated U.S. Borrowing Base or the Allocated Canadian Borrowing Base effected pursuant to this SECTION 2.7(d)(iii) in connection with a determination or redetermination of the Global Borrowing Base shall be effective as of the date of the Global Borrowing Base Designation Notice. (iv) Borrower shall have the right to request the Combined Lenders to increase the Allocated U.S. Borrowing Base and decrease the Allocated Canadian Borrowing Base, or to increase the Allocated Canadian Borrowing Base and decrease the Allocated U.S. Borrowing Base, by providing a written notice to the Global Administrative Agent and the Combined Lenders; PROVIDED that Borrower may change the Allocated U.S. Borrowing Base and/or the Allocated Canadian Borrowing Base only one (1) time during any fiscal quarter unless necessary to cure any deficiency as contemplated by SECTION 2.10(b). In connection with such increase or decrease, each Combined Lender shall have its share of the Allocated U.S. Borrowing Base or the Allocated Canadian Borrowing Base, as applicable, increased or decreased, as the case may be, by an amount in proportion to its Applicable Percentage (as defined herein, in the case of a Lender, and as defined in the Canadian Credit Agreement, in the case of a Canadian Lender). The revised Allocated U.S. Borrowing Base and Allocated Canadian Borrowing Base shall become effective upon the delivery by the Global Administrative Agent to Borrower, the Agents and the Combined Lenders of written notice thereof. (e) DISCRETIONARY DETERMINATION OF THE GLOBAL BORROWING BASE. Each of Borrower and the Technical Lenders, at the request of the Borrowing Base Required Lenders, shall have the right to redetermine the Global Borrowing Base in their sole discretion at any time and from time to time but not more often than one (1) time during any calendar year. If either Borrower or the Borrowing Base Required Lenders shall elect to make a discretionary redetermination of the Global Borrowing Base pursuant to the provisions of this SECTION 2.7(e), Borrower shall within 30 days of receipt of a request therefor from the Global Administrative Agent or any Technical Lender, deliver to the Global Administrative Agent and the Technical Lenders such updated engineering, production, operating and other data as the Global Administrative Agent, any Technical Lender or any other Combined Lender may reasonably request. The Technical Lenders and the Borrowing Base Required Lenders shall approve and designate the new Global Borrowing Base in accordance with the procedures and standards described in SECTION 2.7(b) and Borrower shall provide a Global Borrowing Base Allocation Notice to the Global Administrative Agent in accordance with SECTION 2.7(d)(iii); PROVIDED that in the event that Borrower fails to provide such Global Borrowing Base Allocation Notice, the Global Borrowing Base shall be allocated between the Allocated U.S. Borrowing Base and Allocated Canadian Borrowing Base in accordance with SECTION 2.7(d)(iii). (f) GENERAL PROVISIONS WITH RESPECT TO THE GLOBAL BORROWING BASE. The determination of the Global Borrowing Base shall be made by the Technical Lenders and the Borrowing Base 40 Required Lenders, taking into consideration the estimated value of the Oil and Gas Properties owned by Borrower and its Restricted Subsidiaries as reflected in the most recent Reserve Report delivered hereunder and any other relevant information obtained by or delivered to the Global Administrative Agent, the Technical Lenders or any other Combined Lender, all in accordance with the other provisions of this SECTION 2.7 in accordance with their customary practices for oil and gas loans as in effect from time to time. It is understood by the parties hereto that the Combined Lenders shall have no commitment or obligation whatsoever to increase the Global Borrowing Base to any amount in excess of U.S.$500,000,000, and nothing herein contained shall be construed to be a commitment by the Combined Lenders to so increase the Global Borrowing Base. The Global Borrowing Base may be redetermined pursuant to SECTION 2.7(b) (annual), SECTION 2.7(c) (semi-annual) and SECTION 2.7(e) (discretionary) and may be adjusted from time to time to give effect to issuances of Subordinated Debt under SECTION 2.7(g), the occurrence of Casualty Events under SECTION 2.7(h), and asset dispositions under SECTION 2.7(i). In connection with any redetermination or adjustment pursuant to any of the foregoing, if the Global Administrative Agent determines that either a Global Borrowing Base Deficiency or a U.S. Borrowing Base Deficiency exists, the Global Administrative Agent shall give written notice thereof to Borrower and the date such notice is received shall be the "DEFICIENCY NOTIFICATION Date". (g) During any period when the Applicable Rating Level is III, in the event that Borrower or any of its Restricted Subsidiaries incurs any Subordinated Debt, then each of the Global Borrowing Base and the Allocated U.S. Borrowing Base shall be reduced immediately by an amount equal to 50% of the stated principal amount of such Subordinated Debt. (h) During any period when the Applicable Rating Level is Level III, in the event that a Casualty Event has occurred related to any Borrowing Base Property, to the extent that the Net Proceeds received by Borrower or any of its Restricted Subsidiaries with respect to such Casualty Event have not been applied or budgeted to be applied to repair, restore or replace the Property affected by such Casualty Event within 30 days after the occurrence thereof, the Technical Lenders, at the request of the Borrowing Base Required Lenders, shall have the right to reduce the Global Borrowing Base in their sole discretion based on their review of such Casualty Event; PROVIDED that the Global Borrowing Base shall not be reduced by an amount greater than 100% of such Net Proceeds. Upon obtaining notice thereof from the Technical Lenders, the Global Administrative Agent shall provide notice to Borrower and the Combined Lenders and the other Agents of the reduction in the Global Borrowing Base resulting from such Casualty Event, which reduction shall be effective as of the date of such notice. Any such reduction in the Global Borrowing Base shall result in a corresponding reduction in the Allocated U.S. Borrowing Base (to the extent that the Property which is the subject of such Casualty Event is located in the United States) or in the Allocated Canadian Borrowing Base (to the extent that the Property which is the subject of such Casualty Event is located in Canada). (i) During any period when the Applicable Rating Level is Level III, in the event that Borrower sells, transfers or otherwise disposes in one or more transactions any Property pursuant to SECTION 7.5(g) if the aggregate fair market value of all such Property so sold, transferred or otherwise 41 disposed of during the period since the most recent redetermination of the Global Borrowing Base shall exceed 10% of the amount of the then current Global Borrowing Base, then the Global Borrowing Base shall be reduced by an amount equal to the value assigned to such Property in the most recently prepared Reserve Report (or if no such value was assigned, by an amount to be agreed upon by Borrower and the Technical Lenders, acting reasonably). Upon obtaining notice thereof from the Technical Lenders, the Global Administrative Agent shall provide notice to Borrower and the Combined Lenders and the other Agents of the reduction in the Global Borrowing Base resulting from such disposition, which reduction shall be effective as of the date of such notice. Any such reduction in the Global Borrowing Base shall result in a corresponding reduction in the Allocated U.S. Borrowing Base (to the extent that the Property so sold, transferred or otherwise disposed of is located in the United States) or in the Allocated Canadian Borrowing Base (to the extent that the Property so sold, transferred or otherwise disposed of is located in Canada). SECTION 2.8. TERMINATION AND REDUCTION OF COMMITMENTS. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) Borrower may at any time terminate, or from time to time reduce, the Commitments; PROVIDED that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of U.S.$1,000,000 and not less than U.S.$5,000,000 and (ii) Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with SECTION 2.10, the sum of the Credit Exposures would exceed the aggregate Commitments of the Lenders. (c) Borrower shall notify the Global Administrative Agent of any election to terminate or reduce the Commitments under PARAGRAPH (b) of this Section at least two (2) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Global Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by Borrower pursuant to this Section shall be irrevocable; PROVIDED that a notice of termination of the Commitments delivered by Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by Borrower (by notice to the Global Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Subject to the rights of Borrower under SECTION 2.21, any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their Applicable Percentage of the Commitments. SECTION 2.9. REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) Borrower hereby unconditionally promises to pay to the Global Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan and Borrowing of such Lender on the Maturity Date. 42 (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Global Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from Borrower to each Lender hereunder and (iii) the amount of any sum received by the Global Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to PARAGRAPHS (b) or (c) of this Section shall be PRIMA FACIE evidence of the existence and amounts of the obligations recorded therein; PROVIDED that the failure of any Lender or the Global Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by one or more promissory notes. In such event, Borrower shall prepare, execute and deliver to such Lender promissory notes payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns and in a form approved by the Global Administrative Agent). Thereafter, the Loans evidenced by such promissory notes and interest thereon shall at all times (including after assignment pursuant to SECTION 10.4) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if any such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.10. PREPAYMENT OF LOANS. (a) Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section. (b) If, (i) during any period when the Applicable Rating Level is Level III, either the Global Borrowing Base or the Allocated U.S. Borrowing Base is (A) redetermined under SECTION 2.7, (b) reduced as the result of an issuance of Subordinated Debt under SECTION 2.7(g), (c) reduced as the result of a Casualty Event under SECTION 2.7(h), or (d) reduced as the result of an asset disposition under SECTION 2.7(i), (e) reallocated pursuant to SECTION 2.7(d), or (f) reduced pursuant to any other provision of this Agreement, and (ii) as a result thereof, either a Global Borrowing Base Deficiency or a U.S. Borrowing Base Deficiency occurs, then Borrower shall take the following actions: (1) in the case of a Global Borrowing Base Deficiency resulting from a redetermination or reduction of the Global Borrowing Base, prepay, or cause to be prepaid, Combined Loans in an aggregate principal amount equal to such deficiency, together with 43 interest on the principal amount paid accrued to the date of such prepayment and, if after prepaying all of the Combined Loans a Global Borrowing Base Deficiency remains as a result of an LC Exposure, pay to the Global Administrative Agent an amount equal to such remaining Global Borrowing Base Deficiency to be held as cash collateral as provided in SECTION 2.4(j); PROVIDED that Borrower shall be obligated to make (or cause to be made) such prepayment and/or deposit of cash collateral within 180 days following the Deficiency Notification Date with respect to such deficiency, and PROVIDED FURTHER that within 90 days following the Deficiency Notification Date, Borrower shall have prepaid (or caused to be prepaid), or deposited cash in an amount equal to, one-half of such Global Borrowing Base Deficiency; (2) in the case of a U.S. Borrowing Base Deficiency resulting from a redetermination or reduction of the Global Borrowing Base, take the action described under clause (1) above (except that prepayments shall be made in respect of Loans made pursuant to this Agreement); (3) in the case of a either a Global Borrowing Base Deficiency or a U.S. Borrowing Base Deficiency resulting from an incurrence of Subordinated Debt pursuant to SECTION 2.7(g), utilize the proceeds of such Subordinated Debt to take the action required under clause (1) above (except that prepayments shall first be made in respect of Loans made pursuant to this Agreement); PROVIDED that if a prepayment or deposit is required under this clause (3), then Borrower shall be obligated to make (or cause to be made) such prepayment and/or deposit of cash collateral on the Business Day immediately following the incurrence of such Subordinated Debt; (4) in the case of a either a Global Borrowing Base Deficiency or a U.S. Borrowing Base Deficiency resulting from a Casualty Event pursuant to SECTION 2.7(h), utilize the Net Proceeds of such Casualty Event to take the action described under clause (1) above (except that prepayments shall first be made in respect of Loans made pursuant to this Agreement); PROVIDED that if a prepayment or deposit is required under this clause (4), then Borrower shall be obligated to make (or cause to be made) such prepayment and/or deposit of cash collateral on the Business Day immediately following the Deficiency Notification Date with respect to such deficiency; (5) in the case of a either a Global Borrowing Base Deficiency or a U.S. Borrowing Base Deficiency resulting from an asset disposition pursuant to SECTION 2.7(i), utilize the Net Proceeds of such asset disposition to take the action described under clause (1) above (except that prepayments shall first be made in respect of Loans made pursuant to this Agreement); PROVIDED that if a prepayment or deposit is required under this clause (5), then Borrower shall be obligated to make (or cause to be made) such prepayment and/or deposit of cash collateral on the Business Day immediately 44 following the receipt by Borrower or a Restricted Subsidiary of any Net Proceeds from such asset disposition; (6) in the case of a U.S. Borrowing Base Deficiency resulting from a reallocation of the Global Borrowing Base pursuant to SECTION 2.7(d), prepay Loans in an aggregate principal amount equal to such deficiency, together with interest on the principal amount paid accrued to the date of such prepayment, and if a U.S. Borrowing Base Deficiency remains after prepaying all of the Loans as a result of an LC Exposure, pay to the Global Administrative Agent an amount equal to such remaining U.S. Borrowing Base Deficiency to be held as cash collateral as provided in SECTION 2.4(j); it being understood that Borrower shall be obligated to make such prepayment and/or deposit of cash collateral on the effective date of such reallocation; and (7) notwithstanding anything in this SECTION 2.10 to the contrary, in the event that a U.S. Borrowing Base Deficiency exists at a time when no Global Borrowing Base Deficiency exists, then, to the extent that such action would cure (in whole or in part) such U.S. Borrowing Base Deficiency, Borrower may reallocate the Global Borrowing Base between the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base by providing the Global Administrative Agent with its election to do so (which election will designate the relevant reallocations) on the Business Day on which such U.S. Borrowing Base Deficiency occurs; provided, however, that no reallocation shall be permitted to the extent such reallocation would cause the "Credit Exposures" of the Canadian Lenders under the Canadian Credit Agreement to be greater than the lesser of the aggregate "Commitments" thereunder and the Allocated Canadian Borrowing Base. (c) Borrower shall notify the Global Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 1:00 p.m., New York City time, two Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid (which amount shall be in a minimum principal amount of U.S.$2,000,000 and in U.S.$1,000,000 increments in excess thereof); PROVIDED that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by SECTION 2.8, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with SECTION 2.8. Promptly following receipt of any such notice relating to a Borrowing, the Global Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in SECTION 2.2. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by SECTION 2.12 and by any other amounts then due under this Agreement (including all amounts due under SECTION 2.16). 45 SECTION 2.11. FEES. (a) Borrower agrees to pay to the Global Administrative Agent for the account of each Lender a commitment fee (the "COMMITMENT FEE"), which shall accrue at the Applicable Rate on the daily amount equal to the Applicable Percentage of such Lender of the Unutilized Commitment during the period from and including the Global Effective Date to but excluding the date on which the Commitments terminate. Accrued Commitment Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date of this Agreement; PROVIDED that any Commitment Fees accruing after the date on which the Commitments terminate shall be payable on demand. All Commitment Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) Borrower agrees to pay to the Global Administrative Agent for the account of each Lender an unavailable fee (the "UNAVAILABLE FEE"), which shall accrue at the Applicable Rate on the daily amount equal to the Applicable Percentage of such Lender of the Unutilized Commitment during the period from and including the date of this Agreement to but excluding the Global Effective Date. Accrued Unavailable Fees shall be payable in arrears on the last day of March, June, September and December of each year, commencing on the first such date to occur after the date of this Agreement. All Unavailable Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) Borrower agrees to pay (i) to the Global Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Rate as interest on Eurodollar Loans on the average daily amount of such Lender's Applicable Percentage of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the date of this Agreement to but excluding the later of the date on which the Commitments terminate and the date on which the Lenders cease to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee equal to the greater of (i) U.S.$500 and (ii) the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the date of this Agreement to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with respect to the administration, issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees shall be payable in arrears on the last day of each March, June, September and December of each year, commencing on the first such date to occur after the date of this Agreement; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). 46 (d) Borrower agrees to pay to the Global Administrative Agent, for its own account and for the account of each Lender, as applicable, fees, including, without limitation, an upfront fee (the "UPFRONT FEE"), in the amounts and at the times separately agreed upon between Borrower and the Global Administrative Agent, including, without limitation, the amounts agreed upon between Borrower and the Global Administrative Agent in the Fee Letter. (e) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Global Administrative Agent (or the Issuing Bank, in the case of fees payable to it) for distribution, in the case of Commitment Fees, Unavailable Fees and participation fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. SECTION 2.12. INTEREST. (a) Subject to SECTION 10.13, the Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate for ABR Loans. (b) Subject to SECTION 10.13, the Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate for Eurodollar Loans. (c) Notwithstanding the foregoing, but subject to SECTION 10.13, if any principal of or interest on any Loan or any fee or other amount payable by Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (d) Subject to SECTION 10.13, accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; PROVIDED that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand of the Global Administrative Agent or the Required Lenders (through the Global Administrative Agent), (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) Subject to SECTION 10.13, all interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate, shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, 47 Adjusted LIBO Rate or LIBO Rate shall be determined by the Global Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.13. ALTERNATE RATE OF INTEREST. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Global Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; (b) the Global Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; or (c) the Global Administrative Agent determines in good faith (which determination shall be conclusive) that by reason of circumstances affecting the interbank dollar market generally, deposits in U.S. Dollars in the London interbank dollar market are not being offered for the applicable Interest Period and in an amount equal to the amount of the Eurodollar Loan requested by Borrower, then the Global Administrative Agent shall give notice thereof to Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Global Administrative Agent notifies Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing for the affected Interest Period shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as a Eurodollar Loan having the shortest Interest Period which is not unavailable under clauses (a) through (c) of this Section, and if no Interest Period is available, as an ABR Borrowing. SECTION 2.14. ILLEGALITY. (a) Notwithstanding any other provision of this Agreement to the contrary, if (i) by reason of the adoption of any applicable Governmental Rule or any change in any applicable Governmental Rule or in the interpretation or administration thereof by any Governmental Authority or compliance by any Lender with any request or directive (whether or not having the force of law) of any central bank or other Governmental Authority or (ii) circumstances affecting the London interbank dollar market or the position of a Lender therein shall at any time make it unlawful or impracticable in the sole discretion of a Lender exercised in good faith for such Lender or its Applicable Lending Office to (A) honor its obligation to make Eurodollar Loans either generally or for a particular Interest Period provided for hereunder, or (B) maintain Eurodollar Loans either generally or for a particular Interest Period provided for hereunder, then such Lender shall promptly notify Borrower thereof through Global Administrative Agent and such Lender's obligation to make or maintain Eurodollar Loans having an affected Interest Period hereunder shall be suspended until such time as such Lender 48 may again make and maintain Eurodollar Loans having an affected Interest Period (in which case the provisions of SECTION 2.14(b) hereof shall be applicable). Before giving such notice pursuant to this SECTION 2.14, such Lender will designate a different available Applicable Lending Office for the affected Eurodollar Loans of such Lender or take such other action as Borrower may request if such designation or action will avoid the need to suspend such Lender's obligation to make Eurodollar Loans hereunder and will not, in the sole opinion of such Lender exercised in good faith, be disadvantageous to such Lender (PROVIDED, that such Lender shall have no obligation so to designate an Applicable Lending Office for Eurodollar Loans located in the United States of America). (b) If the obligation of any Lender to make or maintain any Eurodollar Loans shall be suspended pursuant to SECTION 2.14(a) hereof, all Loans having an affected Interest Period which would otherwise be made by such Lender as Eurodollar Loans shall be made instead as ABR Loans (and, if such Lender so requests by notice to Borrower with a copy to the Global Administrative Agent, each Eurodollar Loan having an affected Interest Period of such Lender then outstanding shall be automatically converted into an ABR Loan on the last day of the Interest Period for such Eurodollar Loans unless earlier conversion is required by applicable law) and, to the extent that Eurodollar Loans are so made as (or converted into) ABR Loans, all payments of principal which would otherwise be applied to such Eurodollar Loans shall be applied instead to such ABR Loans. SECTION 2.15. INCREASED COSTS. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing Bank; or (ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or such Issuing Bank hereunder (whether of principal, interest or otherwise), then Borrower will pay to such Lender or such Issuing Bank such additional amount or amounts as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or any Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or such Issuing Bank's capital or on the capital of such Lender's or such Issuing Bank's holding 49 company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or such Issuing Bank's policies and the policies of such Lender's or such Issuing Bank's holding company with respect to capital adequacy), then Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof. (d) Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or such Issuing Bank's right to demand such compensation; PROVIDED that Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or such Issuing Bank's intention to claim compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.16. BREAK FUNDING PAYMENTS. In the event of (a) the payment (including prepayment) of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under SECTION 2.10(b) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by Borrower pursuant to SECTION 2.19 then, in any such event, Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period 50 for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the London interbank market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to Borrower and the Global Administrative Agent and shall be conclusive absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof. SECTION 2.17. TAXES. (a) Any and all payments by or on account of any obligation of Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), the Global Administrative Agent, each Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law; PROVIDED that if a Lender is in default of its obligations under SECTION 2.17(e), then Borrower shall only be obligated to comply with clauses (ii) and (iii) of this SECTION 2.17(a) with respect to payments to be made to such Lender. (b) In addition, Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Borrower shall indemnify the Global Administrative Agent, each Lender and each Issuing Bank, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Global Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of Borrower hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority ; provided that if a Lender is in default of its obligations under SECTION 2.17(e), then Borrower shall have no obligations under this SECTION 2.17(c) with respect to any payments or liabilities described herein made or owed by such Lender. A certificate as to the amount of such payment or liability delivered to Borrower by a Lender or an Issuing Bank, or by the Global Administrative Agent on its own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrower to a Governmental Authority, if available, Borrower shall deliver to the Global 51 Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Global Administrative Agent. (e) Each Lender that is not organized under the laws of the United States of America or a state thereof agrees that such Lender will deliver to Borrower and the Global Administrative Agent two (2) duly completed copies of United States Internal Revenue Service Form W-8 BEN or W-8 ECI certifying in either case that such Lender is entitled to receive payments from the Loan Parties under the Loan Documents without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form W-8 BEN or W-8 ECI further undertakes to deliver to Borrower and the Global Administrative Agent two (2) additional copies of such form (or a successor form) on or before such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Borrower or the Global Administrative Agent, in each case, certifying that such Lender is entitled to receive payments from Borrower under the Loan Documents without deduction or withholding of any United States federal income taxes, unless (i) an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and (ii) such Lender advises Borrower and the Global Administrative Agent that it is not capable of receiving such payments without any deduction or withholding of United States federal income tax. (f) If Borrower at any time pays an amount under SECTION 2.17(a), (b) or (c) to any Lender, the Global Administrative Agent or any Issuing Bank, and such payee receives a refund of or credit for any part of any Indemnified Taxes or Other Taxes which such payee determines in its sole judgment is made with respect to such amount paid by Borrower, such Lender, the Global Administrative Agent or any Issuing Bank, as the case may be, shall pay to such Borrower the amount of such refund or credit promptly, and in any event within 60 days, following the receipt of such refund or credit by such payee. SECTION 2.18. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS. (a) Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under SECTION 2.15, 2.16 or 2.17, or otherwise) prior to the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 12:00 noon, New York City time), on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Global Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Global Administrative Agent c/o The Chase Manhattan Bank, Loan and Agency Services, One Chase Manhattan Plaza, 8th floor, New York, NY 10081, Attention: Michael 52 Cerniglia, Telephone: 212-552-7906, Fax: 212-552-5777, with a copy to The Chase Manhattan Bank, Global Oil & Gas, 600 Travis Street, 20th floor, Houston, Texas 77002, Attention: Peter Licalzi, Telephone: 713-216-8869, Fax: 713-216-4117, except payments to be made directly to an Issuing Bank as expressly provided herein and payments pursuant to SECTIONS 2.15, 2.16, 2.17(c) and 10.3 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein. The Global Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. Except as set forth in clause (a) of the definition of "Interest Period", if any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Loan Document shall be made in U.S. Dollars. (b) If at any time insufficient funds are received by and available to the Global Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; PROVIDED that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of Borrower in the amount of such participation. 53 (d) Unless the Global Administrative Agent shall have received notice from Borrower prior to the date on which any payment is due to the Global Administrative Agent for the account of the Lenders or an Issuing Bank hereunder that Borrower will not make such payment, the Global Administrative Agent may assume that Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or an Issuing Bank, as the case may be, the amount due. In such event, if Borrower has not in fact made such payment, then each of the Lenders or each of the Issuing Banks, as the case may be, severally agrees to repay to the Global Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Global Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Global Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to SECTION 2.4(d) or (e), 2.5(b), 2.18(d) or 10.3(c) then the Global Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Global Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.19. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS. (a) If any Lender requests compensation under SECTION 2.15, or if Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 2.17, then such Lender shall use reasonable efforts to designate a different Applicable Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to SECTION 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If (i) any Lender asserts that events have occurred suspending its obligation to make or maintain Eurodollar Loans under Section 2.14 when substantially all other Lenders have not also done so, (ii) any Lender requests compensation under SECTION 2.15, (iii) Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 2.17, or (iv) any Lender defaults in its obligation to fund Loans hereunder, then Borrower may, at its sole expense and effort, upon notice to such Lender and the Global Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in SECTION 10.4), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED that (1) Borrower shall have received the prior written consent of the Global Administrative Agent, which consent shall not unreasonably 54 be withheld or delayed, (2) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or Borrower (in the case of all other amounts), (3) the assignee and assignor shall have entered into an Assignment and Acceptance, and (4) in the case of any such assignment resulting from a claim for compensation under SECTION 2.15 or payments required to be made pursuant to SECTION 2.17, such assignment will result in a reduction in such compensation or payments. SECTION 2.20. CURRENCY CONVERSION AND CURRENCY INDEMNITY. (a) PAYMENTS IN AGREED CURRENCY. Borrower shall make payment relative to any Obligation in the currency (the "AGREED CURRENCY") in which the Obligation was effected. If any payment is received on account of any Obligation in any currency (the "OTHER CURRENCY") other than the Agreed Currency (whether voluntarily or pursuant to an order or judgment or the enforcement thereof or the realization of any Collateral or the liquidation of Borrower or otherwise howsoever), such payment shall constitute a discharge of the liability of Borrower hereunder and under the other Loan Documents in respect of such obligation only to the extent of the amount of the Agreed Currency which the relevant Lender or Agent, as the case may be, is able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange. (b) CONVERSION OF AGREED CURRENCY INTO JUDGMENT CURRENCY. If, for the purpose of obtaining or enforcing judgment in any court in any jurisdiction, it becomes necessary to convert into a particular currency (the "JUDGMENT CURRENCY") any amount due in the Agreed Currency then the conversion shall be made on the basis of the rate of exchange prevailing on the next Business Day following the date such judgment is given and in any event Borrower shall be obligated to pay the Agents and the Lenders any deficiency in accordance with SECTION 2.20(c). For the foregoing purposes "rate of exchange" means the rate at which the relevant Lender or Agent, as applicable, in accordance with its normal banking procedures is able on the relevant date to purchase the Agreed Currency with the Judgment Currency after deducting any premium and costs of exchange. (c) CIRCUMSTANCES GIVING RISE TO INDEMNITY. To the fullest extent permitted by applicable law, if (i) any Lender or any Agent receives any payment or payments on account of the liability of Borrower hereunder pursuant to any judgment or order in any Other Currency, and (ii) the amount of the Agreed Currency which the relevant Lender or Agent, as applicable, is able to purchase on the Business Day next following such receipt with the proceeds of such payment or payments in accordance with its normal procedures and after deducting any premiums and costs of exchange is less than the amount of the Agreed Currency due in respect of such liability immediately prior to such judgment or order, then Borrower on demand shall, and Borrower hereby agrees to, indemnify the Lenders and the Agents from and against any loss, cost or expense arising out of or in connection with such deficiency. 55 (d) INDEMNITY SEPARATE OBLIGATION. To the fullest extent permitted by applicable law, the agreement of indemnity provided for in SECTION 2.20(c) shall constitute an obligation separate and independent from all other obligations contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Lenders or Agents or any of them from time to time, and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order. SECTION 2.21. ADDITION OF LENDERS AND INCREASE IN COMMITMENTS. It is agreed by the parties hereto that one or more financial institutions acceptable to Borrower and the Global Administrative Agent may become a Lender under this Agreement, with the consent of the Required Lenders, by executing and delivering to Borrower and the Global Administrative Agent a certificate substantially in the form of EXHIBIT B hereto (a "LENDER CERTIFICATE"). Upon receipt and agreement by Borrower, the Global Administrative Agent and the Required Lenders of any such Lender Certificate, (a) the aggregate amount of the Commitments of the Lenders (including any Person that becomes a Lender by delivery of such a Lender Certificate) automatically without further action by Borrower, the Global Administrative Agent or any Lender shall be increased by the amount indicated in such Lender Certificate (but not in excess of U.S.$100,000,000 in the aggregate for all such increases pursuant to this Section and the Equivalent Amount of increases pursuant to Section 2.21 of the Canadian Credit Agreement) on the effective date set forth in such Lender Certificate (such increased amount herein the "INCREASED COMMITMENT AMOUNT"), (b) the Register shall be amended to add such Commitment of such additional Lender or to reflect the increase in the Commitment of an existing Lender and the Applicable Percentages of the Lenders shall be adjusted accordingly to reflect the additional Lender or in the increase in the Commitment of an existing Lender, (c) any such additional Lender shall be deemed to be a party in all respect to this Agreement and the other Loan Documents, and (d) upon the effective date set forth in such Lender Certificate, any such Lender party to the Lender Certificate shall purchase a pro rata portion of the outstanding Credit Exposures of each of the current Lenders such that the Lenders (including any additional Lender, if applicable) shall have the appropriate portion of the aggregate outstanding Credit Exposures (based in each case of such Lender's Applicable Percentage, as revised pursuant to this Section). ARTICLE III REPRESENTATIONS AND WARRANTIES In order to induce the Global Administrative Agent, the other Agents, any Issuing Bank and the Lenders to enter into this Agreement and to make Loans hereunder, Borrower represents and warrants to the Global Administrative Agent, the other Agents, any Issuing Bank and the Lenders as set forth in this Article. SECTION 3.1. ORGANIZATION; POWERS. Each of Borrower and its Restricted Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected 56 to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.2. AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by Borrower of this Agreement and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Loan Party of each Loan Document executed or to be executed by it, are within Borrower's and each such Loan Party's corporate, limited liability company and/or partnership powers, and have been duly authorized by all necessary corporate, limited liability company and/or partnership action, and if required, stockholder, member and/or partner action. This Agreement and each other Loan Document executed or to be executed by it has been duly executed and delivered by Borrower and constitutes, and each other Loan Document executed or to be executed by any Loan Party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of Borrower or such Loan Party (as the case may be), enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.3. APPROVALS; NO CONFLICTS. The execution, delivery and performance by Borrower of this Agreement and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Loan Party of each Loan Document executed or to be executed by such Loan Party, (a) do not require any Governmental Approval or third party approvals, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents, (b) will not violate any applicable Governmental Rule or the Organic Documents of Borrower or any such Loan Party or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon Borrower or any such Loan Party or its assets, or give rise to a right thereunder to require any payment to be made by Borrower or any such Loan Party, and (d) will not result in the creation or imposition of any Lien on any asset of Borrower or any such Loan Party except Liens created under the Loan Documents. SECTION 3.4. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE. (a) Borrower has heretofore furnished to the Lenders and the Global Administrative Agent copies of its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 1999, audited by KPMG Peat Marwick, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended June 30, 2000, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP consistently applied, subject to year-end audit adjustments in the case of the statements referred to in CLAUSE (ii) above. 57 (b) Borrower has heretofore furnished to the Lenders and the Global Administrative Agent copies of the consolidated balance sheet and statements of income, stockholders equity and cash flows of Force (i) as of and for the fiscal year ended December 31, 1999, audited by Price Waterhouse Cooper, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended June 30, 2000, certified by its chief financial officer. Such financial statements have been prepared in accordance with GAAP consistently applied, and present fairly, in all material respects, the financial position and results of operations and cash flows of Force and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments in the case of the statements referred to in CLAUSE (ii) above. (c) Borrower has heretofore furnished to the Lenders and the Global Administrative Agent copies of its pro forma consolidated balance sheet as of June 30, 2000, prepared giving effect to the Transactions as if the Transactions had occurred on such date. Such pro forma consolidated balance sheet (i) has been prepared in good faith in accordance with GAAP, (ii) is based on assumptions believed to be reasonable, and (iii) presents fairly, in all material respects, the pro forma financial position of Borrower and its consolidated Subsidiaries as of June 30, 2000. (d) Except as set forth in SCHEDULE 3.4 or reflected in the financial statements and information referred to in SUBSECTIONS 3.4(a) and 3.4(b) after giving effect to the Transactions, neither Borrower nor any of its Restricted Subsidiaries has any contingent liabilities, unusual long-term commitments or unrealized losses. (e) Since June 30, 2000, there has been no material adverse change in the consolidated financial condition, operations, business or prospects taken as a whole of Borrower and its consolidated Restricted Subsidiaries from that set forth in said pro forma financial statements as at said date. SECTION 3.5. PROPERTIES. (a) Each of Borrower and its Restricted Subsidiaries owns its Properties free and clear of all Liens (other than Liens permitted by SECTION 7.2). (b) After giving full effect to all Liens permitted under SECTION 7.2, Borrower and its Restricted Subsidiaries own the net interests in Hydrocarbons produced from the Oil and Gas Properties as reflected in the most recent Reserve Report, and neither Borrower nor any of its Restricted Subsidiaries is obligated to bear costs or expenses in respect of the Oil and Gas Properties in excess of its working interest percentage as reflected in the most recent Reserve Report. SECTION 3.6. LITIGATION. (a) Except for such actions, suits or proceedings set forth in SCHEDULE 3.6 hereto and any other actions, suits or proceedings from time to time disclosed in writing by Borrower or its Restricted Subsidiaries to the Global Administrative Agent after the date of this Agreement 58 (collectively, the "DISCLOSED MATTERS"), there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of Borrower, threatened against or affecting Borrower or any of its Restricted Subsidiaries or any of their respective Properties, businesses, assets or revenues, (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that question the validity or enforceability of any of the Loan Documents or seek to enjoin or prevent the Transactions. (b) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 3.7. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of Borrower and its Restricted Subsidiaries is in compliance with all Governmental Rules applicable to such Person or its Property and all indentures, agreements and other instruments binding upon it or its Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.8. INVESTMENT AND HOLDING COMPANY STATUS. Neither Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, or (b) a "holding company", or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. SECTION 3.9. TAXES. Except as set forth in SCHEDULE 3.9, each of Borrower, its Restricted Subsidiaries and each of its Subsidiaries which is a member of Borrower's consolidated U.S. federal income tax group has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (in each case determined based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) as of the date of the most recent financial statements reflecting such amounts, does not exceed the fair market value of the assets of such Plan (as of the date of determination of such benefit obligation amount) by an amount which, if it constituted a direct liability of Borrower, could reasonably be expected to have a Material Adverse Effect. 59 SECTION 3.11. DISCLOSURE. Borrower has disclosed to the Lenders and the Global Administrative Agent all agreements, court orders, judgments, instruments and corporate or other restrictions to which Borrower or any of its Subsidiaries is subject, and all other matters known to any of them relating to any of the foregoing, which agreements, court orders, judgments, instruments, restrictions and other matters individually or in aggregate could reasonably be expected to result in a Material Adverse Effect. None of the documents, reports, financial statements, certificates or other information furnished by or on behalf of Borrower or any of its Subsidiaries to the Global Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED that, with respect to projected financial information, Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.12. SUBSIDIARIES. SCHEDULE 3.12 sets forth the name, the identity or corporate structure, the ownership interest, the chief executive office, principal places of business, and, if applicable, the Federal Taxpayer Identification Number, of each direct or indirect Subsidiary of Borrower as of the Global Effective Date. SCHEDULE 3.12 also sets forth the name of each Restricted Subsidiary and Unrestricted Subsidiary of Borrower as of the Global Effective Date. As of the Global Effective Date, Borrower does not have any Subsidiaries other than the Subsidiaries identified in SCHEDULE 3.12. SECTION 3.13. INSURANCE. SCHEDULE 3.13 sets forth a description of all insurance maintained by or on behalf of Borrower and its Restricted Subsidiaries as of the date of this Agreement. As of the date of this Agreement, all premiums in respect of such insurance then due have been paid. SECTION 3.14. LABOR MATTERS. As of the Global Effective Date, there are no strikes, lockouts or slowdowns against Borrower or any of its Restricted Subsidiaries pending or, to the knowledge of Borrower, threatened. The hours worked by and payments made to employees of Borrower and its Restricted Subsidiaries have not been in material violation of the Fair Labor Standards Act or any other applicable Federal, state, provincial, local, territorial or foreign law dealing with such matters. All payments due from Borrower or any of its Restricted Subsidiaries, or for which any claim may be made against Borrower or any of its Restricted Subsidiaries, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of Borrower or any such Restricted Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which Borrower or any of its Restricted Subsidiaries is bound. SECTION 3.15. PRIORITY; SECURITY MATTERS. The Combined Obligations are and shall be at all times secured by Liens in all Collateral located in the United States or Canada to the extent 60 perfection has or will occur by the filing of a UCC financing statement in the states of Louisiana, Texas, Colorado, Alaska, Wyoming and Utah, filing a mortgage in real property records of the parish or county in which such real property or fixtures is located (or adjacent in the case of properties located on the Outer Continental Shelf), filing of an instrument to create a floating charge under the laws of the Province of Alberta, Saskatchewan and British Columbia, or by possession, and, except for Liens permitted by SECTION 7.2, all such Liens shall be first priority Liens. SECTION 3.16. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.16 or, after the date of this Agreement, otherwise disclosed in writing by Borrower to the Global Administrative Agent: (a) All facilities and Property owned or leased by Borrower or any of its Restricted Subsidiaries have been, and continue to be, owned or leased by Borrower or any of its Restricted Subsidiaries in compliance with all Environmental Laws except where the failure to comply could not reasonably be expected to have a Material Adverse Effect; (b) There are no pending or, to the knowledge of Borrower, threatened (i) claims, complaints, notices or requests for information received by Borrower or any of its Restricted Subsidiaries with respect to any alleged violation of any Environmental Law, or (ii) complaints or notices to Borrower or any of its Restricted Subsidiaries regarding instances which could give rise to an Environmental Liability for Borrower or any of its Restricted Subsidiaries, which in either case could reasonably be expected to have a Material Adverse Effect; (c) There have been no Releases of Hazardous Materials at, on or under any Property now or previously owned or leased by Borrower or any of its Restricted Subsidiaries which could give rise to an Environmental Liability which could reasonably be expected to have a Material Adverse Effect; (d) Borrower and its Restricted Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals, licenses and other authorizations required by Environmental Laws except where the failure to comply could not reasonably be expected to have a Material Adverse Effect; (e) No Property now or previously owned or leased by Borrower or any of its Restricted Subsidiaries is listed or proposed for listing (with respect to owned Property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any analogous state or any Canadian federal or provincial list of sites requiring investigation or clean-up which listing could result in the imposition of an Environmental Liability on either Borrower or any of its Restricted Subsidiaries which could reasonably be expected to have a Material Adverse Effect; (f) There are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any Property now or previously owned or leased by Borrower or any of its Restricted Subsidiaries which have been operated in non-compliance with applicable 61 Environmental Laws which could give rise to an Environmental Liability which could reasonably be expected to have a Material Adverse Effect; (g) Neither Borrower nor any Restricted Subsidiary of Borrower has directly transported or directly arranged for the transportation of any Hazardous Material to any site which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any analogous state, provincial or territorial list or which is the subject of federal, state, provincial, territorial or local enforcement actions or other investigations which could give rise to an Environmental Liability which could reasonably be expected to have a Material Adverse Effect; and (h) There are no polychlorinated biphenyls or friable asbestos present at any Property now or previously owned or leased by Borrower or any of its Restricted Subsidiaries which ownership or use of could result in the imposition of an Environmental Liability which could reasonably be expected to have a Material Adverse Effect. SECTION 3.17. SOLVENCY. Immediately after the consummation of the Transactions to occur on the Global Effective Date and immediately following the making of each Loan made on the Global Effective Date and after giving effect to the application of the proceeds of such Loans, (a) each Loan Party will not have unreasonably small capital with which to conduct the business in which such Loan Party is engaged as such business is now conducted and is proposed to be conducted following the Global Effective Date; and (b) Borrower, each Loan Party and Borrower and its Restricted Subsidiaries, on a consolidated basis, will be Solvent. SECTION 3.18. USE OF CREDIT. Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. SECTION 3.19. CLAIMS AND LIABILITIES. Neither Borrower nor any of its Restricted Subsidiaries has accrued any liabilities under gas purchase contracts for gas not taken, but for which it is liable to pay if not made up and which, if not paid, could reasonably be expected to have a Material Adverse Effect. No claims exist against Borrower or any of its Restricted Subsidiaries for gas imbalances which claims if adversely determined could reasonably be expected to have a Material Adverse Effect. No purchaser of product supplied by Borrower or any of its Restricted Subsidiaries has any claim against Borrower or any of its Restricted Subsidiaries for product paid for, but for which delivery was not taken as and when paid for, which claim if adversely determined could reasonably be expected to have a Material Adverse Effect. ARTICLE IV CONDITIONS SECTION 4.1. EFFECTIVENESS. This Agreement shall become effective on the date on which each of the following conditions is satisfied (or waived in accordance with SECTION 10.2): 62 (a) CERTAIN LOAN DOCUMENTS. The Global Administrative Agent (or its counsel) shall have received rom each party thereto either a counterpart of each of the following documents duly executed on behalf of such party or written evidence satisfactory to the Global Administrative Agent (which may include telecopy transmission of a signed signature page of such document) that each such party has duly executed for delivery to the Global Administrative Agent a counterpart of each of the following documents which documents must be acceptable to the Global Administrative Agent in its sole and absolute discretion: this Agreement, the Canadian Credit Agreement and the Intercreditor Agreement. (b) FEES AND EXPENSES. The Global Administrative Agent, the Canadian Administrative Agent, the Arranger and the Lenders shall have received all fees, including the Upfront Fee, and other amounts due and payable pursuant to this Agreement or any other Loan Document on or prior to the date hereof, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder or under any other Combined Loan Document. SECTION 4.2. INITIAL LOAN. The obligations of the Lenders to make Loans or for any Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with SECTION 10.2): (a) CERTAIN LOAN DOCUMENTS. The Global Administrative Agent (or its counsel) shall have received from each party thereto either a counterpart of each of the following documents duly executed on behalf of such party or written evidence satisfactory to the Global Administrative Agent (which may include telecopy transmission of a signed signature page of such document) that each such party has duly executed for delivery to the Global Administrative Agent a counterpart of each of the following documents: a Guaranty from Force (if Force is not merged into Borrower on or before the Global Effective Date), the Fee Letter, the Pledge Agreements required by SECTION 4.2(e), the Security Agreements required by SECTION 4.2(f), the Mortgages executed by each of Borrower and Force as required by SECTION 4.2(g), and all related financing statements and other filings. (b) CANADIAN LOAN DOCUMENTS. The Global Administrative Agent shall have received copies of the executed Canadian Loan Documents (other than the Canadian Credit Agreement). (c) OPINIONS OF COUNSEL. The Global Administrative Agent shall have received opinions, dated the Global Effective Date, addressed to the Global Administrative Agent, the other Agents and all Lenders, from (i) Vinson & Elkins L.L.P., counsel to Borrower, in substantially the form attached hereto as EXHIBIT A-1, and (ii) local counsel in the States of Texas, Louisiana, Colorado, Utah, Wyoming and Alaska, substantially in the forms attached as EXHIBIT A-2. (d) ORGANIZATIONAL DOCUMENTS. The Global Administrative Agent shall have received a certificate of an Authorized Officer of each Loan Party dated as of the Global Effective Date, certifying: 63 (i) that attached to each such certificate are (A) a true and complete copy of the Organic Documents of such Loan Party, as the case may be, as in effect on the date of such certificate, (B) a true and complete copy of a certificate from the Governmental Authority of the state of such entity's organization certifying that such entity is duly organized and validly existing in such state, and (C) a true and complete copy of a certificate from the appropriate Governmental Authority of each state (without duplication) certifying that such entity is duly qualified and in good standing to transact business in such state as a foreign corporation, if the failure to be so qualified or in good standing could reasonably be expected to have a Material Adverse Effect; (ii) that attached to such certificate is a true and complete copy of resolutions duly adopted by the board of directors or management committee of such Loan Party, as applicable, authorizing the execution, delivery and performance of such of the Loan Documents to which such Loan Party is or is intended to be a party; (iii) that attached thereto is a copy of the certificate of incorporation or formation, as the case may be, of such Loan Party, and a certificate as to the good standing of and payment of franchise taxes by Borrower or each such Loan Party, if applicable, dated as of a recent date; and that such certificate of incorporation or certificate of formation, as the case may be, has not been amended since the date of such certified copy; and (iv) as to the incumbency and specimen signature of each officer of such Loan Party executing such of the Loan Documents to which such Loan Party is or is intended to be a party. (e) PLEDGE AGREEMENTS. The Global Administrative Agent shall have received counterparts of each Pledge Agreement, dated as of the Global Effective Date, duly executed and delivered by Borrower and 3189503, together with the following: (i) stock certificates representing all the outstanding shares of capital stock of each Restricted Subsidiary owned by or on behalf of Borrower and 3189503 as of the Global Effective Date after giving effect to the Financing Transactions (except that stock certificates representing shares of common stock of a Restricted Subsidiary which is a Foreign Subsidiary may be limited to 65% of the outstanding shares of common stock of such Foreign Subsidiary), and stock powers and instruments of transfer, endorsed in blank, with respect to such stock certificates, or, if any securities pledged pursuant to the Pledge Agreements are uncertificated securities, confirmation and evidence satisfactory to the Global Administrative Agent that the security interest in such uncertificated securities has been transferred to and perfected by the Global Administrative Agent in accordance with the Uniform Commercial Code, as in effect in the State of New York; (ii) all documents and instruments, including Uniform Commercial Code Financing Statements (Form UCC-1), required by law or reasonably requested by the Global 64 Administrative Agent to be filed, registered or recorded to create or perfect the Liens intended to be created under each Pledge Agreement. (f) SECURITY AGREEMENTs. The Global Administrative Agent shall have received counterparts of each Security Agreement, dated as of the Global Effective Date, duly executed and delivered by Borrower and Force (if Force is not merged into Borrower on or before the Global Effective Date), together with the following: (i) executed Uniform Commercial Code Financing Statements (Form UCC-1) and such evidence of filing or arrangements for filing as may be acceptable to the Global Administrative Agent, naming Borrower or Force as the debtor and the Global Administrative Agent as the secured party, or other similar instruments or documents, filed or to be under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Global Administrative Agent, desirable to perfect the security interest of the Global Administrative Agent pursuant to such Security Agreement; and (ii) executed copies of proper Uniform Commercial Code Form UCC-3 termination statements, if any, necessary to release all Liens and other rights of any Person in any Collateral described in the Security Agreement previously granted by any Person, and together with such other Uniform Commercial Code Form UCC-3 termination statements as the Global Administrative Agent may reasonably request. (g) MORTGAGEs. The Global Administrative Agent shall have received counterparts of duly executed Mortgages encumbering various Oil and Gas Properties which, along with the Oil and Gas Properties encumbered by the other Security Documents, constitute at least 80% of the Loan Value of the Borrowing Base Properties, duly executed by Borrower and Force and any other record owner of such Mortgaged Property. (h) UCC SEARCHES. The Global Administrative Agent shall have received (i) the UCC Searches, all dated reasonably close to the Global Effective Date, in the discretion of the Global Administrative Agent and in form and substance satisfactory to the Global Administrative Agent, and (ii) evidence reasonably satisfactory to the Global Administrative Agent that the Liens indicated by the financing statements (or similar documents) in such UCC Searches are permitted by SECTION 7.2 or have been released. (i) PRIORITY; SECURITY INTEREST. The Collateral and Borrowing Base Properties shall be free and clear of all Liens, except Liens permitted by SECTION 7.2. All filings, notices, recordings and other action necessary to perfect the Liens in the Collateral shall have been made, given or accomplished or arrangements for the completion thereof satisfactory to the Global Administrative Agent and its counsel shall have been made and all filing fees and other expenses related to such actions either have been paid in full or arrangements have been made for their payment in full which are satisfactory to the Global Administrative Agent. 65 (j) APPROVALS AND CONSENTS. The Global Administrative Agent shall have received copies of all Governmental Approvals and third party consents and approvals necessary or, advisable in connection with the Acquisition, and all applicable waiting periods and appeal periods shall have expired, in each case without the imposition of any burdensome conditions. There shall be no actual government or judicial action restraining, preventing or imposing burdensome conditions on the Transactions. (k) INSURANCE. The Global Administrative Agent and the Lenders shall have received certificates, dated within fifteen (15) days of the Global Effective Date, from Borrower's insurers certifying (i) compliance with all of the insurance required by SECTION 5.7 and by the Security Documents and (ii) that such insurance is in full force and effect. (l) PRO FORMA BALANCE SHEET AND INCOME STATEMENT. The Global Administrative Agent shall have received the pro forma consolidated balance sheet and income statement of Borrower and its Subsidiaries described in SECTION 3.4(c), and such pro forma consolidated balance sheet shall be consistent in all material respects with the forecasts and other information previously provided to the Lenders. (m) INITIAL RESERVE REPORT. The Global Administrative Agent and the Lenders shall have received and shall be satisfied with the contents, results and scope of the Initial Reserve Report. (n) HEDGING AGREEMENTS. The Global Administrative Agent shall have received a list of any Hedging Agreements currently in existence with respect to Borrower or any of its Restricted Subsidiaries. (o) FLOATING CHARGE. The Global Administrative Agent shall have received satisfactory evidence that substantially all of the Properties (including all Oil and Gas Properties) of Borrower and the Restricted Subsidiaries (including Canadian Borrowers) located in Canada are subject to a floating charge in favor of the Canadian Administrative Agent for the benefit of the Canadian Lenders. (p) EXISTING FACILITIES. The Global Administrative Agent shall have received a certificate, signed by an Authorized Officer of Borrower, stating that Borrower or its Subsidiaries have repaid in full and terminated the Existing Credit Facilities contemporaneously with the initial Combined Loans under the Combined Credit Agreements. The Global Administrative Agent shall have received evidence satisfactory to it that all Liens associated with the Existing Credit Facilities have been released or terminated contemporaneously with the making of such payments and that arrangements satisfactory to the Global Administrative Agent has been made for recording and filing of such releases. (q) ACQUISITION DOCUMENTS; CONSUMMATION OF ACQUISITION. The Global Administrative Agent shall have received copies of the Acquisition Documents in form and substance satisfactory to the Global Administrative Agent, which Acquisition Documents shall be certified by a Financial 66 Officer of Borrower as complete and correct. The Acquisition shall have been, or substantially simultaneously with the initial funding of Loans on the Global Effective Date shall be, consummated as contemplated by and pursuant to the Acquisition Documents and applicable law (without any amendment to or waiver of any material terms or conditions of the Acquisition Documents not approved by the Required Lenders), and evidence therefor has been provided to the Global Administrative Agent in form and substance satisfactory to the Global Administrative Agent. (r) FINANCIAL STATEMENTS. The Global Administrative Agent shall have received (i) the financial statements described in SECTION 3.4 hereof and (ii) copies of all financial statements (including pro forma financial statements), reports, notices and proxy statements sent by Borrower or Force to its respective stockholders during the period after June 30, 2000 and all SEC filings relating to the Acquisition. (s) ENVIRONMENTAL WARRANTIES. Borrower has adopted and implemented procedures and guidelines as Borrower has determined are reasonably appropriate to continuously assure compliance with applicable Environmental Laws and to identify and evaluate events or conditions which would result in any Environmental Liability. On the basis of these procedures and guidelines, the Global Administrative Agent shall have received a certificate, signed by an Authorized Officer of Borrower, stating that after such review Borrower has reasonably concluded that no Environmental Liabilities exist or violations of Environmental Laws have occurred, which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (t) GLOBAL EFFECTIVENESS NOTICE. The Global Administrative Agent shall have received the Global Effectiveness Notice. (u) NO MATERIAL ADVERSE EFFECT; LITIGATION. The Global Administrative Agent shall have received a certificate, signed by an Authorized Officer of Borrower, stating that (i) no event or condition has occurred since June 30, 2000, which could reasonably be expected to have a Material Adverse Effect and (ii) no litigation, arbitration, governmental proceeding, claim for Taxes, dispute or administrative or other proceeding shall be pending or, to the knowledge of Borrower, threatened against Borrower or Force or any of their respective Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document. (v) OTHER DOCUMENTS. The Global Administrative Agent shall have received such other legal opinions, instruments and documents as any of the Agents or their counsel may have reasonably requested. (w) SATISFACTORY LEGAL FORM. All documents executed or submitted pursuant hereto by and on behalf of Borrower or any other Loan Party shall be in form and substance reasonably satisfactory to the Global Administrative Agent and its counsel. The Global Administrative Agent and its counsel shall have received all information, approvals, documents or instruments as the Global Administrative Agent or its counsel may reasonably request. 67 The Global Administrative Agent shall notify Borrower, the other Agents and the Lenders of the Global Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Banks to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to SECTION 10.2) at or prior to 3:00 p.m., New York City time, on December 31, 2000 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.3. EACH CREDIT EVENT. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Banks to issue, amend, renew or extend any Letter of Credit, is subject to receipt of the request therefor in accordance herewith and to the satisfaction of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, the representations and warranties of each Loan Party set forth in the Loan Documents to which it is a party shall be true and correct on and as of such date after giving effect to such funding and to the intended use thereof in all material respects as if made on and as of such date (or, if stated to have been made expressly as of an earlier date, were true and correct in all material respects as of such date). (b) NO DEFAULTS. At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing and Borrower shall be in compliance with the financial covenants set forth in ARTICLE VI. (c) NO MATERIAL ADVERSE EFFECT. At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, no event or events shall have occurred which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. (d) BORROWING REQUEST. The Global Administrative Agent shall have received a Borrowing Request for any Borrowing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. 68 ARTICLE V AFFIRMATIVE COVENANTS Borrower agrees with the Global Administrative Agent, the other Agents, any Issuing Bank and each Lender that, until the Commitments have expired or been terminated and Obligations shall have been paid and performed in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, Borrower will perform the obligations set forth in this Article. SECTION 5.1. FINANCIAL REPORTING; RATINGS CHANGE; NOTICES AND OTHER INFORMATION. Borrower will furnish, or will cause to be furnished, to each Lender, each Canadian Lender, the Global Administrative Agent and the Canadian Administrative Agent the following financial statements, reports, notices and information: (a) Within 100 days after the end of each fiscal year of Borrower, a copy of its audited annual report for such fiscal year, including therein a consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by KPMG Peat Marwick or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of Borrower and its consolidated Restricted Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) Within 60 days after the end of each of the first three fiscal quarters of each fiscal year of Borrower commencing with the fiscal quarter ending June 30, 2000, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by an Authorized Officer as presenting fairly in all material respects the financial condition and results of operations of Borrower and its consolidated Restricted Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) Concurrently with any delivery of financial statements under CLAUSE (a) or (b) above, a compliance certificate, in substantially the form of EXHIBIT C or any other form approved by the Global Administrative Agent, executed by an Authorized Officer of Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with ARTICLE VI, and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements 69 referred to in SECTION 3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) Promptly after the sending or filing thereof, copies of all material public filings, reports and communications from Borrower, and all reports, proxy statements and registration statements which Borrower or any of its Subsidiaries files with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or any national securities exchange; (e) At any time when the Applicable Rating Level of Borrower is Level II or Level III, by May 1st of each year, a Reserve Report prepared by Borrower and audited by an Approved Engineer (the "INDEPENDENT RESERVE REPORT"), and by October 1st of each year, a Reserve Report prepared by Borrower, utilizing a mathematical average of the customary discount rates and price decks of the Technical Lenders and in form and substance acceptable to the Global Administrative Agent (the "INTERNAL RESERVE REPORT"); (f) At any time when the Applicable Rating Level of Borrower is Level II, concurrently with the delivery of any Reserve Report, a completed certificate calculating and certifying the Present Value of the Properties of Borrower and its Restricted Subsidiaries as of the effective date of such Reserve Report, executed on behalf of Borrower by an Authorized Officer, PROVIDED, that such Present Value calculation shall not be considered effective for the purposes of this Agreement if the Technical Lenders determine, acting reasonably, that either (i) the calculations used to determine such Present Value as so certified and calculated by Borrower were not based on the mathematical average of the customary discount rates and price decks of the Technical Lenders or (ii) the calculations used to determine such Present Value are incorrect or mistaken, it being understood that in the event that the Technical Lenders believe that the circumstances described in either clause (i) or clause (ii) above has occurred, the Global Administrative Agent shall promptly notify Borrower, and Borrower and Technical Lenders will cooperate to determine the appropriate amount for such Present Value; (g) Within ten (10) days after the end of each calendar quarter, a certificate specifying any sales, transfer, assignments or other dispositions of Property of Borrower or any of its Restricted Subsidiaries governed by SUBSECTIONS (d), (e), (f) or (g) of SECTION 7.5 occurring during such calendar month, executed on behalf of Borrower by an Authorized Officer; (h) Within ten (10) days after the end of each calendar quarter, a report summarizing in reasonable detail all hedging activities of Producers Marketing occurring during such calendar quarter, delivered by or on behalf of Borrower and certified by an Authorized Officer thereof, which report shall set forth all relevant gains, losses, prices and volumes of production sold and/or purchased, all contracts and contract parties and terms thereof, marketing base, exposure limits, any margin postings and other information reasonably requested by the Global Administrative Agent; and 70 (i) Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Borrower or any Restricted Subsidiary, including, without limitation, any requested Internal Reserve Report, or compliance with the terms of this Agreement, as the Global Administrative Agent or any Lender may reasonably request. SECTION 5.2. NOTICE OF MATERIAL EVENTS. (a) Promptly, and in any event within three (3) Business Days of Borrower or any of its Restricted Subsidiaries becoming aware of the following events, Borrower will furnish to the Global Administrative Agent and each Lender written notice of the following: (i) the occurrence of any Default; (ii) an announcement by Moody's or S&P of a change in (A) the senior, unsecured, long-term indebtedness for borrowed money of Borrower that is not Guaranteed by any other Person or subject to any other credit enhancement, (B) the Bank Credit Facility Rating, or (C) any other rating of Borrower or any of its Subsidiaries; (iii) the incurrence, or any proposed incurrence, of Subordinated Indebtedness by Borrower or any of its Restricted Subsidiaries; and (iv) any sales, transfer, assignments or other dispositions of Property of Borrower or any of its Restricted Subsidiaries governed by SUBSECTIONS (d), (e), (f) (but only if such transaction involves the sale of assets for a value in excess of U.S.$5,000,000) or (g) of SECTION 7.5; (b) Promptly, and in any event within thirty (30) days of Borrower or any of its Restricted Subsidiaries becoming aware of the following events, Borrower will furnish to the Global Administrative Agent and each Lender written notice of the following: (i) (A) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting Borrower or any of its Restricted Subsidiaries thereof or (B) the occurrence of any adverse development with respect to any action, suit or proceeding previously disclosed to the Global Administrative Agent or the Lenders pursuant to this Agreement, in each case if such action, suit, proceeding or development could reasonably be expected to result in a Material Adverse Effect; (ii) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of Borrower and its Restricted Subsidiaries in an aggregate amount which could reasonably be expected to have a Material Adverse Effect; 71 (iii) any change in the schedule of payment or delivery of any Production Payment to which Borrower or such Restricted Subsidiary is a party; (iv) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened or other environmental claims against Borrower or any of their Restricted Subsidiaries or any of its Properties pursuant to any applicable Environmental Laws which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; (v) any default under one or more Hedging Agreements within a one month period which results in an obligation of Borrower or any of its Restricted Subsidiaries to make one or more payments in an aggregate amount in excess of U.S.$5,000,000; and (vi) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. (c) Each notice delivered under this Section shall be accompanied by a statement of an Authorized Officer of Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.3. INFORMATION REGARDING COLLATERAL. Borrower will furnish to the Global Administrative Agent promptly, and in any event within thirty (30) days upon becoming aware of the following changes, written notice of any change (i) in any Subsidiary's corporate name or in any trade name used to identify such Subsidiary in the conduct of its business or in the ownership of its Properties, (ii) in the location of any Subsidiary's chief executive office or its principal place of business, (iii) in any Subsidiary's identity or corporate structure, (iv) in any Loan Party's Federal Taxpayer Identification Number, and (v) in the location of the Collateral located in Canada to any jurisdiction in which any registration of, or in respect of, the Debenture may not be effective to protect the Lien created thereunder, including, without limitation, information regarding the time of such relocation, the items being relocated and the intended new locality of such items. SECTION 5.4. EXISTENCE; CONDUCT OF BUSINESS. Borrower will, and will cause each of its Restricted Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (i) its legal existence and (ii) the rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business, except where the failure to so preserve, renew or keep in full force and effect such rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks or trade names could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.5. PAYMENT OF OBLIGATIONS. Borrower will, and will cause each of its Restricted Subsidiaries to, pay its obligations, including liabilities for Taxes, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) Borrower or such Restricted Subsidiary has set aside 72 on its books adequate reserves with respect thereto in accordance with GAAP, (c) such contest effectively suspends collection of the contested obligation and the enforcement of any Lien securing such obligation, and (d) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.6. MAINTENANCE OF PROPERTIES. Borrower will, and will cause each of its Restricted Subsidiaries to, keep, preserve, protect and maintain all Property material to the conduct of its business in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business, and the respective businesses of its Restricted Subsidiaries, carried on in connection therewith may be properly conducted at all times in accordance with standard industry practices unless the (i) Borrower or the respective Restricted Subsidiary determines in good faith that the continued maintenance of any of its Properties is no longer economically desirable or (ii) the failure to so keep, preserve, protect and maintain such Property or the failure to make such repairs, renewals or replacements could not reasonably be expected to result in a Material Adverse Effect. In particular, Borrower will, and will cause each of its Restricted Subsidiaries to, operate or cause to be operated its Oil and Gas Properties as a reasonable and prudent operator. SECTION 5.7. INSURANCE. Borrower will, and will cause each of its Restricted Subsidiaries to, maintain, with financially sound and reputable insurance companies (a) insurance in such amounts and against such risks as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations and (b) all insurance required to be maintained pursuant to the Security Documents. The Global Administrative Agent, on behalf of the Lenders, will be named as sole loss payee and additional insured, as appropriate, with respect to such insurance. Borrower will furnish to the Lenders, upon request of the Global Administrative Agent, information in reasonable detail as to the insurance so maintained. SECTION 5.8. CASUALTY AND CONDEMNATION. Borrower (a) will furnish to the Global Administrative Agent and the Lenders written notice promptly, and in any event within three (3) Business Days of the occurrence, of any Casualty Event to any Collateral or the commencement of any action or proceeding for the taking of any material portion of the Collateral or any part thereof or interest therein under power of eminent domain or by condemnation or similar proceeding and (b) will ensure that the Net Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are collected and applied in accordance with the applicable provisions of the Combined Loan Documents. SECTION 5.9. BOOKS AND RECORDS; INSPECTION AND AUDIT RIGHTS. Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Borrower will, and will cause each of its Restricted Subsidiaries to, permit any representatives or agents designated by the Global Administrative Agent or any Lender (including any consultants, accountants, lawyers and appraisers), upon reasonable prior notice and at the reasonable cost and 73 expense of Borrower, to visit and inspect its Property, including, without limitation, the Oil and Gas Properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.10. COMPLIANCE WITH LAWS. Borrower will, and will cause each of its Subsidiaries to, comply with all Governmental Rules applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.11. USE OF PROCEEDS AND LETTERS OF CREDIT. Borrower will, and will cause each Subsidiary to, use the proceeds of the Loans (a) to finance the Acquisition and pay for the costs and expenses to be incurred by Borrower or its relevant Subsidiary in connection with the Acquisition, (b) to refinance existing Indebtedness of Borrower and its Subsidiaries (including Force and its Subsidiaries), (c) to reimburse each Issuing Bank for LC Disbursements in accordance with SECTION 2.4(e), or (d) for Borrower's and its Subsidiaries' (including Force's and its Subsidiaries') general corporate purposes, including any non-hostile acquisitions. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the regulations of the Board, including Regulation U. Letters of Credit will be issued only to support normal and customary oil and gas operations undertaken by Borrower or any of its Subsidiaries in the ordinary course of its business. SECTION 5.12. ADDITIONAL SUBSIDIARIES. If any additional Subsidiary of Borrower is formed or acquired after the Global Effective Date, Borrower will notify the Global Administrative Agent and the Lenders thereof and whether such Subsidiary is an Unrestricted Subsidiary or a Restricted Subsidiary. If any Restricted Subsidiary as of the date of the date of its formation, its acquisition or at any time thereafter has a total asset value in excess of U.S.$25,000,000 (or its equivalent in other currencies) and has incurred Indebtedness or Guaranteed Indebtedness in excess of U.S.$5,000,000 (or its equivalent in other currencies) in favor of any Person other than a Loan Party, then Borrower will cause such Subsidiary (unless such Subsidiary is a Foreign Subsidiary) to (a) execute a Guaranty within 30 days after such Subsidiary is formed or acquired or it is determined to have the requisite total asset value and Indebtedness owed to third parties and (b) if the Applicable Rating Level is Level III, execute a Mortgage and a Security Agreement (to the extent necessary to comply with SECTION 5.15) and promptly take such actions to create and perfect Liens on such Subsidiary's assets to secure the Obligations as the Global Administrative Agent shall reasonably request and pledge or cause to be pledged all Equity Interests in such Restricted Subsidiary pursuant to a Pledge Agreement within 30 days after such Subsidiary is formed or acquired (except that, if such Subsidiary is a Foreign Subsidiary, shares of common stock of such Subsidiary to be pledged pursuant to such Pledge Agreement may be limited to 65% of the outstanding shares of common stock of such Subsidiary). 74 SECTION 5.13. UNRESTRICTED SUBSIDIARIES. Borrower: (a) will cause the management, business and affairs of each of Borrower and its Restricted Subsidiaries to be conducted in such a manner (including, without limitation, by keeping separate books of account, furnishing separate financial statements of Unrestricted Subsidiaries to creditors and potential creditors thereof and by not permitting Properties of Borrower and its respective Subsidiaries to be commingled) so that each Unrestricted Subsidiary that is a corporation will be treated as a corporate entity separate and distinct from Borrower and the Restricted Subsidiaries; (b) except as permitted by SECTION 7.1(c), will not, and will not permit any of the Restricted Subsidiaries to, incur, assume, Guarantee or be or become liable for any Indebtedness of any of the Unrestricted Subsidiaries; and (c) will not permit any Unrestricted Subsidiary to hold any Equity Interest in, or any Indebtedness of, any Restricted Subsidiary. SECTION 5.14. ENVIRONMENTAL MATTERS. (a) Borrower will, and will cause each of its Restricted Subsidiaries to, comply in all material respects with all Environmental Laws now or hereafter applicable to Borrower or its Restricted Subsidiaries, and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations and maintain such authorizations in full force and effect, except to the extent failure to have any such permit, license or authorization could not reasonably be expected to have a Material Adverse Effect. (b) Borrower will, and will cause each of its Restricted Subsidiaries to, promptly furnish to the Global Administrative Agent all requests for information, notices of claim, demand letters, and other notifications, received by Borrower or its Restricted Subsidiaries, to the effect that, in connection with its ownership or use of its Properties or the conduct of its business, it may be potentially responsible with respect to any investigation or clean-up of Hazardous Material at any location, except to the extent any such investigation or clean-up could not reasonably be expected to have a Material Adverse Effect. SECTION 5.15. FURTHER ASSURANCES. (a) Borrower will, and will cause each Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents), which may be required under any applicable law, or which the Global Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created or 75 intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. Borrower also agrees to provide to the Global Administrative Agent, from time to time upon reasonable request of the Global Administrative Agent, information which is in the possession of Borrower or its Restricted Subsidiaries or otherwise reasonably obtainable by any of them, reasonably satisfactory to the Global Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents. The Security Documents shall remain in effect at all times unless otherwise released pursuant to the terms of this Agreement. (b) Borrower hereby authorizes the Global Administrative Agent and the Lenders to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Borrower or any other Loan Party where permitted by law. A carbon, photographic or other reproduction of the Security Documents or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. The Global Administrative Agent will promptly send Borrower any financing or continuation statements it files without the signature of Borrower or any other Loan Party and the Global Administrative Agent will promptly send Borrower the filing or recordation information with respect thereto. (c) If at any time when the Applicable Rating Level of Borrower is Level III, (i) the Global Administrative Agent shall determine that, as of the date of any Global Borrowing Base redetermination, the Security Documents encumber Oil and Gas Properties of Borrower and its Restricted Subsidiaries constituting less than 80% of the Loan Value of the Borrowing Base Properties set forth in the then current Global Borrowing Base, then the Global Administrative Agent may notify Borrower in writing of such failure and, within 30 days from and after receipt of such written notice by Borrower, or (ii) Borrower determines that the Global Administrative Agent shall have received currently effective, duly executed Loan Documents encumbering Oil and Gas Properties of Borrower and its Restricted Subsidiaries constituting less than 80% of the Loan Value of the Borrowing Base Properties set forth in the then current Global Borrowing Base, then Borrower shall, or shall cause its Restricted Subsidiaries to, execute and deliver to the Global Administrative Agent supplemental or additional Security Documents, in form and substance reasonably satisfactory to the Global Administrative Agent and its counsel, covering additional Oil and Gas Properties of Borrower and its Restricted Subsidiaries not then encumbered by any Combined Loan Documents such that the Global Administrative Agent shall have received currently effective duly executed Security Documents encumbering Oil and Gas Properties of Borrower and its Restricted Subsidiaries constituting 80% or more of the Loan Value of the Borrowing Base Properties set forth in the then current Global Borrowing Base. 76 ARTICLE VI FINANCIAL COVENANTS Borrower agrees with the Global Administrative Agent, the other Agents, any Issuing Bank, and each Lender that, until the Commitments have expired or been terminated and Obligations shall have been paid and performed in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, Borrower will perform the obligations set forth in this Article. SECTION 6.1. RATIO OF TOTAL DEBT TO EBITDA. Borrower will not permit its ratio of Total Debt outstanding to EBITDA (calculated for the last four consecutive fiscal quarter period then most recently ended for which financial statements are available) (i) at any time when the Applicable Rating Level of Borrower is Level III, to be greater than 4.00 to 1.00, and (ii) at any time when the Applicable Rating Level of Borrower is Level I or Level II, to be greater than 3.75 to 1.00; PROVIDED, HOWEVER, that for periods of calculation ending on or before June 30, 2001, any calculation undertaken pursuant to this Section shall be made using an EBITDA calculated on a pro forma basis (inclusive of any acquisitions, including the Acquisition, and/or divestitures, if any, made during the relevant calculation period and, if any such acquisition or divestiture has a value in excess of U.S.$5,000,000, as if such acquisition or divestiture had occurred on the first day of such period). SECTION 6.2. RATIO OF SENIOR DEBT TO EBITDA. Borrower will not permit its ratio of Senior Debt outstanding to EBITDA (calculated for the last four consecutive fiscal quarter period then most recently ended for which financial statements are available) (i) at any time when the Applicable Rating Level of Borrower is Level III, to be greater than 3.00 to 1.00, and (ii) at any time when the Applicable Rating Level of Borrower is Level I or Level II, to be greater than 2.50 to 1.00 at any time; PROVIDED, HOWEVER, that for periods of calculation ending on or before June 30, 2001, any calculation undertaken pursuant to this Section shall be made using an EBITDA calculated on a pro forma basis (inclusive of any acquisitions, including the Acquisition, and/or divestitures, if any, made during the relevant calculation period and, if any such acquisition or divestiture has a value in excess of U.S.$5,000,000, as if such acquisition or divestiture had occurred on the first day of such period). SECTION 6.3. RATIO OF PRESENT VALUE TO TOTAL DEBT. If both (a) the Reserve Report evaluating the Oil and Gas Properties of Borrower and its Restricted Subsidiaries as of January 1, 2001 has been delivered and (b) the Applicable Rating Level of Borrower is Level II, then Borrower will not permit its ratio of Present Value to Total Debt outstanding to be less than 1.25 to 1.00. SECTION 6.4. RATIO OF PRESENT VALUE TO SENIOR DEBT. If both (a) the Reserve Report evaluating the Oil and Gas Properties of Borrower and its Restricted Subsidiaries as of January 1, 2001 has been delivered and (b) the Applicable Rating Level of Borrower is Level II, then Borrower will not permit its ratio of Present Value to Senior Debt outstanding to be less than 2.25 to 1.00. 77 ARTICLE VII NEGATIVE COVENANTS Borrower agrees with the Global Administrative Agent, the other Agents, any Issuing Bank, and each Lender that, until the Commitments have expired or been terminated and Obligations shall have been paid and performed in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, Borrower will perform the obligations set forth in this Article. SECTION 7.1. INDEBTEDNESS; CERTAIN EQUITY SECURITIES. (a) Borrower will not, and will not permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except: (i) Indebtedness created under the Combined Loan Documents; (ii) Subordinated Debt with an aggregate principal amount outstanding not to exceed the sum of U.S.$200,000,000 LESS any increase in the principal amount of Subordinated Indebtedness-10-1/2% Senior Subordinated Notes not otherwise permitted under SECTION 7.1(a)(iii) in excess of the principal amount for such notes set forth on SCHEDULE 7.1(a); (iii) Indebtedness existing on the date hereof and set forth in SCHEDULE 7.1(a), and any Indebtedness ("REFINANCING INDEBTEDNESS") issued in exchange for or the proceeds of which are used to repay, refund, refinance or discharge or otherwise retire any Indebtedness set forth on SCHEDULE 7.1(a) ("REFINANCED INDEBTEDNESS"), PROVIDED that such Refinancing Indebtedness (i) shall not exceed the principal amount (other than through the capitalization of premiums, fees, expenses and interest on the Refinanced Indebtedness) of the Refinanced Indebtedness as of the date of this Agreement, (ii) is subordinated upon terms and conditions substantially identical to the Refinanced Indebtedness, and (iii) shall not contain terms and conditions materially more onerous to Borrower and its Restricted Subsidiaries than those contained in the Refinanced Indebtedness; (iv) Indebtedness of Borrower to any Restricted Subsidiary and of any Restricted Subsidiary to Borrower or any other Restricted Subsidiary that is subordinated to the Combined Obligations (other than Hedging Obligations) in form and substance reasonably satisfactory to the Global Administrative Agent; PROVIDED that the Indebtedness of Producers Marketing to Borrower and/or any other Restricted Subsidiary shall not be greater than U.S.$75,000,000 at any time; (v) (A) Guarantees by Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of Borrower or any other Subsidiary, in each case existing as of the date hereof and set forth in SCHEDULE 7.1(a)(v)(a); and (b) other Guarantees by 78 Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of Borrower or any other Subsidiary; PROVIDED that with respect to clause (B), the Guarantees by Borrower or any other Loan Party of Indebtedness of any Unrestricted Subsidiary shall not exceed at any time U.S.$5,000,000 in the aggregate and shall be subject to SECTION 7.4; PROVIDED that the Guarantee(s) by Borrower and/or any of its Subsidiaries (other than Producers Marketing) of the payment or performance obligations of Producers Marketing permitted under CLAUSES (A) and (B) of this SECTION 7.1(a)(v) shall not cause Borrower and/or its Subsidiaries to be contingently liable in an aggregate amount greater than U.S.$75,000,000 at any time; (vi) Indebtedness of any Person that becomes a Restricted Subsidiary after the Global Effective Date; PROVIDED that (A) such Indebtedness exists at the time such Person becomes a Restricted Subsidiary and is not created in contemplation of or in connection with such Person becoming a Restricted Subsidiary and (B) the aggregate principal amount of Indebtedness permitted by this CLAUSE (vi) and CLAUSE (xii) shall not exceed U.S.$50,000,000 at any time outstanding; (vii) Hedging Obligations incurred pursuant to the Hedging Agreements required or permitted pursuant to SECTION 7.7; (viii) Indebtedness of Borrower and its Restricted Subsidiaries secured by Liens permitted by SECTION 7.2(e) up to but not exceeding U.S.$25,000,000 at any one time outstanding; (ix) Capital Lease Obligations of Borrower and its Restricted Subsidiaries secured by Liens permitted by SECTION 7.2(i) hereof up to but not exceeding U.S.$10,000,000 at any one time outstanding; (x) Indebtedness of Producers Marketing associated with accounts payable overdraft facilities not to exceed U.S.$75,000,000 at any time; (xi) performance Guarantees of the obligations of Producers Marketing issued by Borrower or Canadian Forest guaranteeing the delivery of gas volumes under gas sales contracts entered into in the ordinary course of business by Producers Marketing, provided that the aggregate volumes of gas for which delivery has been guaranteed does not exceed 1.5bcf per day; and (xii) other unsecured Indebtedness of Borrower and its Restricted Subsidiaries in an aggregate principal amount not exceeding U.S.$10,000,000 at any time outstanding. (b) Borrower will not, and will not permit any Restricted Subsidiary to, issue any Preferred Equity Interest. 79 (c) Borrower will not permit any of the Unrestricted Subsidiaries to create, incur or suffer to exist any Indebtedness except: (i) Non-Recourse Debt in an aggregate principal amount not to exceed U.S.$100,000,000 at any time outstanding, and (ii) letter of credit or bank guarantee reimbursement obligations of such Unrestricted Subsidiary in an amount not to exceed U.S.$5,000,000 in the aggregate at any one time outstanding, provided that stated principal amount of all such reimbursement obligations so Guaranteed shall be considered Investments and be subject to the aggregate limitation on Investments in Unrestricted Subsidiaries imposed under SECTION 7.4(h). SECTION 7.2. LIENS. Borrower will not, and will not permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on any Property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Liens created under the Combined Loan Documents; (b) Permitted Encumbrances; (c) any Lien on any Property or asset of Borrower or any Restricted Subsidiary existing on the Global Effective Date and set forth in SCHEDULE 7.2; PROVIDED that (i) such Lien shall not apply to any other Property or asset of Borrower or any Restricted Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the Global Effective Date; (d) any Lien existing on any Property or asset prior to the acquisition thereof by Borrower or any Restricted Subsidiary or existing on any Property or asset of any Person that becomes a Restricted Subsidiary after the Global Effective Date prior to the time such Person becomes a Restricted Subsidiary; PROVIDED that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Restricted Subsidiary, as the case may be, (ii) such Lien shall not apply to any other Property or assets of Borrower or any Restricted Subsidiary, and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Restricted Subsidiary, as the case may be; (e) any Liens on assets acquired, constructed or improved by Borrower or any Restricted Subsidiary; PROVIDED that (i) such Liens secure Indebtedness permitted by CLAUSE (vi) or (viii) of SECTION 7.1(a), (ii) such Liens and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 80% of the cost of acquiring, constructing or improving such fixed or capital assets, and (iv) such Liens shall not apply to any other Property of Borrower or any of its Restricted Subsidiaries; 80 (f) any Liens for farm-in, farm-out, joint operating, area of mutual interest agreements or similar agreements entered into by Borrower and its Restricted Subsidiaries in the ordinary course of business and which Borrower or such Restricted Subsidiary determines in good faith to be necessary for or advantageous to the economic development of their Properties; (g) additional Liens upon real and/or personal Property created after the date hereof, PROVIDED that the aggregate Indebtedness secured thereby and incurred on and after the date hereof shall not exceed U.S.$10,000,000 in the aggregate at any one time outstanding; (h) any Liens created pursuant to any Hedging Agreement (i) with any Lender or any Affiliate of such Lender, or (ii) with any other Person, PROVIDED that the aggregate value of the obligation secured by all such Liens permitted by this clause (ii) shall not exceed U.S.$25,000,000 in the aggregate at any one time outstanding and no such Liens shall extend to any Hydrocarbon Interests; (i) Liens to secure Capital Lease Obligations permitted under SECTION 7.1(a)(ix); provided that such Liens attach only to Property subject of such Capital Lease Obligation; (j) [Intentionally omitted]; (k) Liens securing obligations of a Subsidiary of Canadian Forest to a Canadian Borrower and obligations of a Canadian Borrower to another Canadian Borrower; and (l) any extension, renewal or replacement of the foregoing, PROVIDED that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property (other than a substitution of like Property). SECTION 7.3. FUNDAMENTAL CHANGES. (a) Borrower will not, and will not permit any Restricted Subsidiary to, merge into or consolidate or amalgamate with any other Person, or permit any other Person to merge into or consolidate or amalgamate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Restricted Subsidiary may merge into Borrower in a transaction in which Borrower is the surviving corporation, (ii) any Restricted Subsidiary may merge into any Restricted Subsidiary (other than Producers Marketing) in a transaction in which the surviving entity is a Restricted Subsidiary (other than Producers Marketing) and (if any party to such merger is a Loan Party) is a Loan Party, (iii) any Restricted Subsidiary (other than a Loan Party) may liquidate or dissolve if Borrower determines in good faith that such liquidation or dissolution is in the best interests of Borrower and is not materially disadvantageous to the Lenders, and (iv) Borrower or any Restricted Subsidiary may merge or consolidate with any other Person if in the case of a merger or consolidation of Borrower, Borrower is the surviving corporation, and, in any other case, the surviving corporation is a wholly-owned Restricted Subsidiary and such Restricted Subsidiary (x) has complied with the 81 requirements of SECTION 5.12 and (y) shall have assumed and ratified all obligations of any Restricted Subsidiary involved in such merger pursuant to documentation in form and substance satisfactory to the Global Administrative Agent. (b) Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. SECTION VII.4. INVESTMENTS, LOANS, ADVANCES, GUARANTIES AND ACQUISITIONS. Borrower will not, and will not permit any Restricted Subsidiary to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a Restricted Subsidiary prior to such merger) any Equity Interests in or evidences of Indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any Indebtedness of, or make or permit to exist any Investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) Investments existing on the date of this Agreement and set forth on SCHEDULE 7.4; (c) Investments by Borrower and its Restricted Subsidiaries in Equity Interests in Restricted Subsidiaries; PROVIDED that (i) the aggregate amount of Investments by Restricted Subsidiaries in and Guarantees by Restricted Subsidiaries of Indebtedness of, Foreign Subsidiaries (other than Foreign Subsidiaries constituting Canadian Borrowers and 3189503) and other Restricted Subsidiaries relating to Oil and Gas Properties not located within the geographic boundaries of the United States of America (including all Investments existing on the Global Effective Date) shall not exceed U.S.$100,000,000 at any time outstanding, and (ii) any Foreign Subsidiary or any other Restricted Subsidiary owning Oil and Gas Properties not located within the geographic boundaries of the United States of America may make Investments in any of its wholly-owned direct or indirect Restricted Subsidiaries to the extent of the net income of such Foreign Subsidiary or the net income attributable to such Oil and Gas Properties; (d) one or more substantially contemporaneous Investments in Equity Interests of any Person owning Oil and Gas Properties which, after giving effect to such Investments, will be a Restricted Subsidiary or will be merged into or with a Restricted Subsidiary; provided that (i) as a result of such Investment, such Person becomes a wholly-owned Restricted Subsidiary and has complied with the requirements of SECTION 5.12, and (ii) no Default would result from such Person becoming a Restricted Subsidiary; (e) Guarantees constituting Indebtedness permitted by SECTION 7.1; PROVIDED that (i) a Restricted Subsidiary shall not Guarantee any Subordinated Indebtedness unless (A) such Restricted Subsidiary also has Guaranteed the Obligations pursuant to a Guaranty, and (B) such Guarantee of 82 the Subordinated Indebtedness is subordinated to such Guarantee of the Obligations on terms no less favorable to the Lenders than the subordination provisions of the Subordinated Indebtedness-10-1/2% Senior Subordinated Notes, and (ii) the aggregate principal amount of Indebtedness of Foreign Subsidiaries that is Guaranteed by any Restricted Subsidiary shall be subject to the limitation set forth in CLAUSE (c) above; (f) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; (g) Hedging Agreements permitted by SECTION 7.7; (h) (i) Investments in Unrestricted Subsidiaries existing as of the date hereof and set forth in SCHEDULE 7.4, and (ii) other Investments in Unrestricted Subsidiaries (including Investments in the form of Guarantees of letter of credit or bank guarantee reimbursement obligations of an Unrestricted Subsidiary in an amount not to exceed U.S.$5,000,000 at any one time outstanding) up to but not exceeding U.S.$60,000,000 (or the equivalent in other currencies) in the aggregate PLUS the net cash proceeds of any issuance of Equity Interests which is applied simultaneously or substantially simultaneously for an Investment, including, without limitation, Investments in Unrestricted Subsidiaries; PROVIDED that any cash dividends received by Borrower or any Restricted Subsidiary from an Unrestricted Subsidiary, up to the amount of the Investments in such Unrestricted Subsidiary, shall reduce PRO TANTO the aggregate amount of the Investments in such Unrestricted Subsidiary for purposes of calculating compliance with such U.S.$60,000,000 limitation; (i) Investments in Oil and Gas Properties; and (j) additional Investments in an aggregate principal amount not to exceed U.S.$25,000,000 at any one time outstanding. SECTION 7.5. ASSET SALES. Borrower will not, and will not permit any Restricted Subsidiary to, sell, transfer, lease or otherwise dispose of any Property or asset, including any Equity Interest owned by it, nor will Borrower permit any of it Restricted Subsidiaries to issue any additional Equity Interest in such Restricted Subsidiary, except: (a) sales or other dispositions of inventory, used or surplus equipment and Permitted Investments in the ordinary course of business, PROVIDED that the aggregate value of such Property so sold, transferred or disposed of during any twelve (12) month period does not exceed U.S.$25,000,000; (b) sales, transfers and dispositions of Property to Borrower or a Restricted Subsidiary (including the transfer of Oil and Gas Properties into newly created limited partnerships or limited liability companies, all of the Equity Interests of which are, direct or indirectly, owned by Borrower 83 and/or its other Restricted Subsidiaries) or the issuance of any Equity Interest in Borrower or any Restricted Subsidiary to Borrower or any Restricted Subsidiary; (c) any Hydrocarbons produced or sold in the ordinary course of business; (d) the sale, transfer or other disposition in one or more transactions of the Properties listed on SCHEDULE 7.5; (e) the sale, transfer or other disposition of Equity Interests in Unrestricted Subsidiaries; (f) the sale, transfer or other disposition in one or more transactions of Property (other than Equity Interests in Restricted Subsidiaries) not constituting Borrowing Base Properties, PROVIDED that the aggregate value of such Property so sold, transferred or disposed of during any twelve (12) month period does not exceed (A) if the Applicable Rating Level is Level I or Level II, U.S.$50,000,000 or (B) if the Applicable Rating Level is Level III, U.S.$25,000,000; and (g) the sale, transfer or other disposition in one or more transactions of Property constituting either Equity Interests in Restricted Subsidiaries or Properties which are Borrowing Base Properties, PROVIDED that if the aggregate fair market value of such Property so sold, transferred or disposed of during the period since the most recent redetermination of the Global Borrowing Base shall exceed 10% of the amount of the then current Borrowing Base, then the Borrowing Base shall be reduced by an amount equal to value assigned such asset in the most recently prepared Reserve Reports (or if such no such value was assigned, by an amount to be agreed upon by Borrower and the Technical Lenders). SECTION 7.6. SALE AND LEASEBACK TRANSACTIONS. Except to the extent permitted by SECTION 7.1 and SECTION 7.2, Borrower will not, and will not permit any Loan Party to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any Property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such Property or other Property that it intends to use for substantially the same purpose or purposes as the Property sold or transferred. SECTION 7.7. HEDGING AGREEMENTS. (a) Except as otherwise permitted by SECTION 7.12, at no time shall Borrower, its Restricted Subsidiaries and Producers Marketing have (i) Hedging Agreements relating to crude oil in place with respect to more than 75% of crude oil Hydrocarbon production from the "proved developed producing oil and gas reserves" (as defined in the standards and guidelines of the U.S. Securities and Exchange Commission) or (i) Hedging Agreements relating to natural gas in place with respect to more than 75% of natural gas Hydrocarbon production from the "proved developed producing oil and gas reserves" (as defined in the standards and guidelines of the U.S. Securities and Exchange Commission), in either case which are attributable to the Hydrocarbon Interests of Borrower and its Restricted Subsidiaries as set forth in the most recently delivered Reserve Report. 84 (b) Except as otherwise permitted by SECTION 7.12, Borrower will not, and will not permit any Loan Party to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which Borrower or any Restricted Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 7.8. RESTRICTED PAYMENTS; CERTAIN PAYMENTS OF INDEBTEDNESS. (a) Borrower will not, and will not permit any Restricted Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that (i) any Restricted Subsidiary may pay dividends to Borrower or any Restricted Subsidiary, and (ii) Borrower may make Restricted Payments provided that (A) such Restricted Payments are in shares of common stock or other Equity Interests of Borrower and (B) if such Restricted Payments are in cash or of Property not constituting Equity Interests, then the aggregate amount of all such dividends shall not exceed (in cash or fair market value of Property) an amount equal to the sum of (1) U.S.$30,000,000, PLUS (2) 50% of the net income of Borrower and its Restricted Subsidiaries on a consolidated basis for the period commencing October 1, 2000 to and including the last day of the most recently ended fiscal quarter for which financial statements have been delivered under Section 5.1 taken as a single accounting period (provided that in no event shall the amount under this clause (2) be less than U.S.$0.00), PLUS (3) 50% of the net cash proceeds (which for purposes of this clause (3) will mean net of any proceeds used to repay, repurchase or redeem Subordinated Indebtedness under SECTION 7.8(b)(iv)) received by Borrower from any sale of Equity Interests after the Global Effective Date, LESS (4) an amount equal to the amount of Subordinated Indebtedness repaid, redeemed or purchased under SECTION 7.8(b)(iii). For the purpose of this SECTION 7.8(a), consolidated net income of Borrower and its Restricted Subsidiaries on a consolidated basis shall exclude the following non-cash items (provided that the same shall be included when they become cash items): (x) any impairment of Properties for accounting purposes under a ceiling test adjustment, (y) any extraordinary item or (z) any gain attributable to a change in accounting method which, at the time of recognition in the financial statements of Borrower and its Restricted Subsidiaries is not a cash item. To the extent future cash payments are made or received with respect to a change in accounting method and such payment is not otherwise included in the computation of consolidated net income for such period, consolidated net income shall be reduced or increased by the amount of such cash payment or receipt. (b) Borrower will not, and will not permit any Restricted Subsidiary to, pay, prepay, purchase, retire, redeem, defease or acquire any Subordinated Indebtedness; PROVIDED that Borrower may (i) make regularly scheduled payments of principal and interest on the Subordinated Indebtedness as and when due, (ii) offer to purchase and purchase or prepay any Subordinated Indebtedness to the extent required to comply with the terms of the Subordinated Indebtedness Document, (iii) repay, redeem or purchase any Subordinated Indebtedness to the extent the Borrower could make a Restricted Payment under SECTION 7.8(a) and (iv) purchase any Subordinated Indebtedness with the proceeds of any sale of Equity Interests or Refinancing Indebtedness. 85 SECTION 7.9. TRANSACTIONS WITH AFFILIATES. Borrower will not, and will not permit any Restricted Subsidiary to, sell, lease or otherwise transfer any Property or assets to, or purchase, lease or otherwise acquire any Property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions in the ordinary course of business and that are at prices and on terms and conditions not less favorable to Borrower or such Restricted Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among Borrower and the Restricted Subsidiaries not involving any other Affiliate, (c) any Restricted Payment permitted by SECTION 7.8, and (d) any Investment permitted by SECTION 7.4. SECTION 7.10. RESTRICTIVE AGREEMENTS. Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits or restricts (a) the ability of Borrower or any Restricted Subsidiary to create, incur or permit to exist any Lien in favor of the Global Administrative Agent and/or the Canadian Administrative Agent for the benefit of the Combined Lenders upon any of its Property, or (b) the ability of any Restricted Subsidiary to make Restricted Payments to Borrower or any other Restricted Subsidiary or to Guarantee Indebtedness of Borrower or any other Restricted Subsidiary; PROVIDED that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Combined Loan Document or Subordinated Indebtedness Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date of this Agreement identified on SCHEDULE 7.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary pending such sale, PROVIDED such restrictions and conditions apply only to the Restricted Subsidiary that is to be sold and such sale is permitted hereunder, (iv) CLAUSE (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness or other obligations permitted by this Agreement if such restrictions or conditions apply only to the Property or assets securing such Indebtedness or other obligation, and (v) CLAUSE (a) of the foregoing shall not apply to customary provisions in leases or other agreements restricting the assignment thereof. SECTION 7.11. SUBORDINATED INDEBTEDNESS. Borrower will not amend or modify the terms of subordination contained in any of the Subordinated Indebtedness Documents or otherwise shorten the maturity or average life, or increase the interest payable on, any of the Subordinated Indebtedness. SECTION 7.12. SPECIAL COVENANTS WITH RESPECT TO PRODUCERS MARKETING AND 3189503. (a) Borrower will not permit Producers Marketing to amend in any material respect the written policy with respect to its gas marketing activities previously delivered to the Lenders without the consent of the Global Administrative Agent and the Required Lenders. (b) Except for hedged positions that are closed out with contracts with Canadian Forest regarding the physical delivery of Hydrocarbons, Borrower will not permit the Net Liabilities for all 86 Hedging Agreements entered into by Producers Marketing to be less than a negative U.S.$100,000 at any time. (c) Borrower shall cause Producers Marketing to at all times comply with the terms and provisions of the Hedging Policy and shall not permit Producers Marketing to amend or otherwise modify the Hedging Policy in a manner that would be adverse to the interests of the Combined Agents or the Combined Lenders without the consent of the Required Lenders. (d) Borrower will not permit 3189503 to undertake any actions or Investments except that 3189503 shall be permitted (i) to act as a holding company for the ownership interests in Canadian Forest, (ii) to hold intercompany notes from Canadian Forest, and (iii) take other actions and hold other investments incidental to acting as a holding company for the ownership interests in Canadian Forest. SECTION 7.13. NO ACTION TO AFFECT SECURITY DOCUMENTS. Except for transactions expressly permitted hereby, Borrower shall not, and shall not permit any of its Subsidiaries to, do anything to adversely affect the priority of the Security Documents given or to be given in respect of the obligations of Borrower hereunder. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. LISTING OF EVENTS OF DEFAULT. Each of the following events or occurrences described in this SECTION 8.1 shall constitute an "EVENT OF DEFAULT": (a) NON-PAYMENT OF OBLIGATIONS. Any Loan Party shall default in the payment or prepayment when due of any principal of any Loan or of any reimbursement obligation with respect to any Letter of Credit; or Borrower shall default in the payment when due of any interest, fee or of any other obligation hereunder or under any other Loan Document and such default continues for a period of three (3) Business Days. (b) BREACH OF WARRANTY. Any representation or warranty of any Loan Party made or deemed to be made hereunder or in any other Loan Document or any other writing or certificate furnished by or on behalf of any Loan Party to the Global Administrative Agent, any other Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document is or shall be false or misleading when made in any material respect. (c) NON-PERFORMANCE OF COVENANTS AND OBLIGATIONS. Any Loan Party shall default in the due performance and observance of any of its obligations under SECTIONS 5.2, 5.11, or 5.15, or under ARTICLE VI or VII. (d) NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. Any Loan Party shall default in the due performance and observance of any other agreement contained herein or in any other Loan 87 Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to Borrower by the Global Administrative Agent or the Required Lenders. (e) DEFAULT ON OTHER INDEBTEDNESS. Any Loan Party shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating U.S.$15,000,000 or more, or in the payment when due of U.S.$5,000,000 or more in the aggregate under one or more Hedging Agreements; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity. (f) PENSION PLANS. Any of the following events shall occur with respect to any Pension Plan: (i) the institution of any steps by Borrower, any ERISA Affiliate or any other Person to terminate a Pension Plan if, as a result of such termination, Borrower or any ERISA Affiliate could reasonably expect to incur a liability or obligation to such Pension Plan, which could reasonably be expected to have a Material Adverse Effect; or (ii) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA to the extent such action could reasonably be expected to have a Material Adverse Effect. (g) BANKRUPTCY AND INSOLVENCY. Any Loan Party shall (i) generally fail to pay, or admit in writing its inability or unwillingness to generally pay, debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, receiver and manager, sequestrator or other custodian for any Loan Party, or any substantial part of the property of any thereof, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, receiver and manager, sequestrator or other custodian for any Loan Party, or for a substantial part of the property of any thereof, and such trustee, receiver, receiver and manager, sequestrator or other custodian shall not be discharged within 60 days, provided that each Loan Party hereby expressly authorizes the Global Administrative Agent to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend the rights of the Combined Lenders under the Loan Documents; (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law (including the Bankruptcy and Insolvency Act (Canada)), or any dissolution, winding up or liquidation proceeding, in respect of any Loan Party, and, if any such case or proceeding is not commenced by such Loan Party, such case or proceeding shall be consented to or acquiesced in by such Loan Party or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that each Loan Party hereby expressly authorizes the Global Administrative Agent to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend the rights of the Combined Lenders under the Loan Documents; or (v) take any corporate or partnership action authorizing, or in furtherance of, any of the foregoing. 88 (h) JUDGMENTS. One or more judgments or orders for the payment of money in excess of U.S.$5,000,000 in the aggregate (exclusive of amounts fully covered by valid and collectible insurance in respect thereof subject to customary deductibles or fully covered by an indemnity with respect thereto reasonably acceptable to the Required Lenders) shall be rendered against any Loan Party and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) such judgment shall have become final and non-appealable and shall have remained outstanding for a period of 60 consecutive days. (i) CHANGE IN CONTROL. Any Person or group of Persons (within the meaning of Section 13 or 14 of the Securities Exchange Act, as amended) other than the Permitted Holders shall acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act, as amended) of 33-1/3% or more of the outstanding shares of common stock of Borrower. (j) FAILURE OF LIENS. The Liens created by the Security Documents shall at any time not constitute a valid and perfected Lien on the collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Global Administrative Agent or, except for expiration in accordance with its terms, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Loan Party. (k) EVENT OF DEFAULT UNDER CANADIAN LOAN DOCUMENTS. Any "Event of Default" as defined in the Canadian Loan Documents shall occur; PROVIDED that the occurrence of a "Default" as defined in the Canadian Loan Documents shall constitute a Default under this Agreement; PROVIDED FURTHER that if such "Default" or "Event of Default" is cured or waived under the Canadian Loan Documents, as applicable, then such "Default" or `Event of Default" shall no longer constitute a Default or an Event of Default, respectively, under this Agreement. SECTION 8.2. ACTION IF BANKRUPTCY. If any Event of Default described in SECTION 8.1(G) with respect to Borrower shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other obligations hereunder shall automatically be and become immediately due and payable, without demand, protest or presentment or notice of any kind, all of which are hereby expressly waived by Borrower and its Subsidiaries. Without limiting the foregoing, the Agents and the Lenders shall be entitled to exercise any and all other remedies available to them under the Loan Documents and applicable law. SECTION 8.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default (other than any Event of Default described in SECTION 8.1(g)) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Required Lenders, may, by notice to Borrower declare (a) the Commitments (if not theretofore terminated) to be terminated and/or (b) all of the outstanding principal amount of the Loans and all other obligations hereunder to be due and payable, whereupon the Commitments shall terminate and the full unpaid amount of such Loans and other obligations 89 shall be and become immediately due and payable, without demand, protest or presentment or notice of any kind, all of which are hereby waived by Borrower and its Subsidiaries. Without limiting the foregoing, the Agents and the Lenders shall be entitled to exercise any and all other remedies available to them under the Loan Documents and applicable law. ARTICLE IX AGENTS Each of the Lenders, the Issuing Banks and the other Agents hereby irrevocably appoints The Chase Manhattan Bank as the Global Administrative Agent, Bank of America, N.A. as U.S. Syndication Agent, Citibank, N.A. as U.S. Documentation Agent, and The Chase Manhattan Bank, Bank of America, N.A. and Citibank, N.A. as Technical Lenders, and authorizes each such Agent to take such actions on its behalf and to exercise such powers as are delegated to such Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Any bank serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder. The Agents shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Agents shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) each Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that such Agent is required to exercise following its receipt of written instructions from the Required Lenders (or such other number or percentage of the Combined Lenders as shall be necessary under the circumstances as provided in SECTION 10.2), and (c) except as expressly set forth in the Loan Documents, the Agents shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as such Agent or any of its Related Parties in any capacity. Each Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Combined Lenders as shall be necessary under the circumstances as provided in SECTION 10.2) or in the absence of its own gross negligence or wilful misconduct; PROVIDED, HOWEVER, THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT EACH OF THE AGENTS BE INDEMNIFIED IN THE CASE OF ITS OWN NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL. Each Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to such Agent by Borrower or a Lender, and such Agent shall not be responsible for or have 90 any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in ARTICLE IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to such Agent. The Global Administrative Agent and the other Agents shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Global Administrative Agent and the other Agents also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Global Administrative Agent and the other Agents may consult with legal counsel (who may be counsel for Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Any Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by such Agent. Any Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of such Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as an Agent. Subject to the appointment and acceptance of a successor Global Administrative Agent as provided in this paragraph, the Global Administrative Agent may resign at any time by notifying the Combined Lenders and Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Global Administrative Agent gives notice of its resignation, then the retiring Global Administrative Agent may, on behalf of the Combined Lenders and the Issuing Banks, appoint a successor Global Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Global Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Global Administrative Agent, and the retiring Global Administrative Agent shall be discharged from its duties and obligations hereunder (other than its obligations under SECTION 10.12). The fees payable by Borrower to a successor Global Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrower and such successor. After the Global Administrative Agent's resignation hereunder, the provisions of this Article and SECTION 10.3 shall continue in effect for the benefit of 91 such retiring Global Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Global Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the Intercreditor Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. Each of the Lenders, for itself and on behalf of any of its Affiliates, and the Issuing Banks hereby irrevocably appoints the Global Administrative Agent to act as its agent under the Intercreditor Agreement and authorizes the Global Administrative Agent to execute the Intercreditor Agent on its behalf and to take such actions on its behalf and to exercise such powers as are delegated to the Global Administrative Agent by the terms hereof and thereof, together with such actions and powers as are reasonably incidental thereto. ARTICLE X MISCELLANEOUS SECTION 10.1. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) IF TO BORROWER, TO: Forest Oil Corporation 1600 Broadway Suite 2200 Denver, Colorado 80202 Attention: Donald H. Stevens, Vice President and Treasurer Telephone: 303-812-1400 Facsimile: 303-812-1510 92 (b) IF TO THE GLOBAL ADMINISTRATIVE AGENT, TO: ----------------------------------------- The Chase Manhattan Bank Loan and Agency Services One Chase Manhattan Plaza, 8th floor New York, NY 10081 Attention: Michael Cerniglia Telephone: 212-552-7906 Facsimile: 212-552-5777 with a copy to: The Chase Manhattan Bank Global Oil & Gas Group 600 Travis, 20th Floor Houston, Texas 77002 Attention: Peter Licalzi Telephone: 713-216-8869 Facsimile: 713-216-4117 and, with respect to non-Borrowing related matters, with a copy to: The Chase Manhattan Bank Global Oil & Gas Group 600 Travis, 20th Floor Houston, Texas 77002 Attention: Robert Mertensotto Telephone: 713-216-4147 Facsimile: 713-216-8870 (c) if to the Syndication Agent: Bank of America, N.A. 333 Clay Street, Suite 4550 Houston, TX 77002 Attention: Tracey S. Barclay Telephone: (713) 651-4891 Facsimile: (713) 651-4807 (d) if to the Documentation Agent: Citibank, N.A. 399 Park Avenue, 4th Floor, Zone 4 93 New York, NY 10043 Attention: Greg Morzano Telephone: (212) 559-1536 Facsimile: (212) 832-9857 (e) if to any other Lender, to it at its address (or telecopy number) provided to the Global Administrative Agent and Borrower or as set forth in its Administrative Questionnaire; and (f) if to any Canadian Lender, to it at its address (or telecopy number) provided to the Canadian Administrative Agent and Canadian Borrower or as set forth in its "Administrative Questionnaire" as defined in the Canadian Credit Agreement. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 10.2. WAIVERS; AMENDMENTS. (a) No failure or delay by the Global Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Global Administrative Agent, the Issuing Banks and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by PARAGRAPH (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Global Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any of the Combined Loan Documents nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Borrower and the Required Lenders or by Borrower and the Global Administrative Agent with the consent of the Required Lenders, or, in the case of any other Combined Loan Document, pursuant to an agreement or agreements in writing entered into by the relevant Loan Parties thereto and the Required Lenders or by the relevant Loan Parties thereto and the Global Administrative Agent with the consent of the Required Lenders; PROVIDED that the same waiver, amendment or modification is requested by Borrower in connection with each of the Combined Credit Agreements; and PROVIDED FURTHER that 94 no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change SECTION 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this SECTION 10.2, SECTION 2.7, 2.10 or the definition of "Required Lenders" or "Borrowing Base Required Lenders" or any other provision of any Combined Loan Document specifying the number or percentage of Lenders, Canadian Lenders or Combined Lenders required to determine or redetermine the Global Borrowing Base, the Allocated U.S. Borrowing Base or the Allocated Canadian Borrowing Base or required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Combined Lender, (vi) release any Loan Party from its Guaranty (except as expressly provided in such Guaranty), or limit its liability in respect of such Guaranty, without the written consent of each Combined Lender, or (vii) except as expressly provided herein, in the Intercreditor Agreement or in the Security Documents (as defined herein and in the Canadian Credit Agreement), release all or any part of the Collateral from the Liens of the Security Documents (as defined herein and in the Canadian Credit Agreement), without the written consent of each Combined Lender; PROVIDED FURTHER that no such agreement shall amend, waive, modify or otherwise affect the rights or duties of any Agent (as defined herein and in the Canadian Credit Agreement) or any Issuing Bank (as defined herein and in the Canadian Credit Agreement) without the prior written consent of such Agent (as defined herein and in the Canadian Credit Agreement) or any Issuing Bank (as defined herein and in the Canadian Credit Agreement), as the case may be; PROVIDED FURTHER that the Global Administrative Agent shall have the right to execute and deliver any release of Lien (or other similar instrument) without the consent of any Lender to the extent such release is required to permit Borrower or a Restricted Subsidiary to consummate a transaction permitted by this Agreement or the other Combined Loan Documents. SECTION 10.3. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) Borrower shall pay (i) all legal, printing, recording, syndication, travel, advertising and other reasonable out-of-pocket expenses incurred by the Agents, the Arranger and their Affiliates, including the reasonable fees, charges and disbursements of counsel for the Agents and the Arranger, in connection with the syndication of the credit facilities provided for herein, the preparation, execution, delivery and administration of this Agreement, the Loan Documents and each other document or instrument relevant to this Agreement or the Loan Documents and any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by an Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) the filing, recording, refiling or rerecording of the Mortgages, the Security Agreements, the Pledge Agreements and the 95 other Security Documents and/or any Uniform Commercial Code financing statements relating thereto and all amendments, supplements and modifications to, and all releases and terminations of, any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or of the Mortgages, the Security Agreements, the Pledge Agreements and the other Security Documents, and (iv) all out-of-pocket expenses incurred by the Agents, any Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Agents, any Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) Borrower shall indemnify the Agents, each Issuing Bank, the Arranger and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "INDEMNITEE") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable out-of-pocket fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any Mortgaged Property or any other property currently or formerly owned or operated by Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity and release shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee (IT BEING UNDERSTOOD THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT EACH OF THE INDEMNITEES BE INDEMNIFIED IN THE CASE OF ITS OWN NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL). (c) To the extent that Borrower fails to pay any amount required to be paid by Borrower to the Global Administrative Agent or an Issuing Bank under PARAGRAPH (a) or (b) of this Section, each Lender severally agrees to pay to the Global Administrative Agent or such Issuing Bank, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; PROVIDED that the 96 unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Global Administrative Agent or such Issuing Bank in its capacity as such. (d) To the extent permitted by applicable law, Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable not later than thirty (30) days after written demand therefor. SECTION 10.4. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Global Administrative Agent, each Issuing Bank and each Combined Lender (and any attempted assignment or transfer by Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Global Administrative Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); PROVIDED that (i) except in the case of an assignment to a Lender or a Lender Affiliate, each of Borrower and the Global Administrative Agent (and, in the case of an assignment of all or a portion of a Commitment or any Lender's obligations in respect of its LC Exposure, the Issuing Banks) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or a Lender Affiliate or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Global Administrative Agent) shall be in increments of U.S.$1,000,000 and not less than U.S.$5,000,000 unless each of Borrower and the Global Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender's rights and obligations in respect of its Commitments or Loans in conformity with the Intercreditor 97 Agreement, (iv) the parties to each assignment shall execute and deliver to the Global Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of U.S.$3,500, (v) the assignee, if it shall not be a Lender, shall deliver to the Global Administrative Agent an Administrative Questionnaire, and (vi) after giving effect to any assignment hereunder, the assigning Lender shall have a Commitment of at least U.S.$5,000,000 unless each of Borrower and the Global Administrative Agent otherwise consents; and PROVIDED FURTHER that any consent of Borrower otherwise required under this paragraph shall not be required if an Event of Default under SECTION 8.1 has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and to the other Loan Documents and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of SECTIONS 2.15, 2.16, 2.17, 2.18, 2.20 and 10.3 and be subject to the terms of SECTION 10.12). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Global Administrative Agent, acting for this purpose as an agent of Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, and Borrower, the Global Administrative Agent, the Issuing Banks and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement and the other Loan Documents, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrower, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by PARAGRAPH (b) of this Section, the Global Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register and will provide prompt written notice to Borrower of the effectiveness of such assignment. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. 98 (e) Any Lender may, without the consent of Borrower, the Global Administrative Agent or any Issuing Bank, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); PROVIDED that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) Borrower, the Global Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; PROVIDED that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the second proviso to SECTION 10.2(b) that affects such Participant. Subject to paragraph (f) of this Section, Borrower agrees that each Participant shall be entitled to the benefits of SECTIONS 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of SECTION 10.8 and 10.12 as though it were a Lender, provided such Participant agrees to be subject to SECTION 2.18(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under SECTION 2.15, 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of SECTION 2.17 unless Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of Borrower, to comply with SECTION 2.17(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a Lien in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or, in the case of a Lender organized in a jurisdiction outside of the United States, a comparable Person, and this Section shall not apply to any such pledge or assignment of a security interest; PROVIDED that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.5. SURVIVAL. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Agent, any Issuing Bank, the Arranger or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue 99 in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of SECTIONS 2.15, 2.16, 2.17, 2.18, 2.20, 10.3 and 10.12 and ARTICLE IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 10.6. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in SECTION 4.1, this Agreement shall become effective when it shall have been executed by the Global Administrative Agent and when the Global Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 10.7. SEVERABILITY. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.8. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each of the Agents, the Issuing Banks, the Lenders and their Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of Borrower or any of its Restricted Subsidiaries against any and all the obligations of Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured; PROVIDED, HOWEVER, that any such set-off and application shall be subject to the provisions of SECTION 2.18. As security for such obligations, Borrower hereby grants to the Agents, each Issuing Bank and each Lender a continuing security interest in any and all balances, credits, deposits, accounts or moneys of Borrower and its Restricted Subsidiaries then or thereafter maintained with any of the Agents, such Issuing Bank and such Lenders. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 100 SECTION 10.9. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT THE AGENTS OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. (c) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. (d) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. NOTHING 101 IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 10.11. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 10.12. CONFIDENTIALITY. Each of the Agents, the Issuing Banks, and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any Hedging Agreement, (g) with the consent of Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section by any Person or (ii) becomes available to any Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than Borrower or any of its Affiliates. For the purposes of this Section, "INFORMATION" means all information received from Borrower or its Affiliate relating to Borrower and its Subsidiaries or their business, other than any such information that is available to any Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by Borrower or any of its Affiliates; PROVIDED that, in the case of information received from Borrower after the date of this Agreement, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information 102 as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 10.13. INTEREST RATE LIMITATION. It is the intention of the parties hereto to conform strictly to applicable interest, usury and criminal laws and, anything herein to the contrary notwithstanding, the obligations of Borrower and the Guarantors to a Lender, any Issuing Bank or any Agent under this Agreement or any Loan Document shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to such Lender, such Issuing Bank or Agent limiting rates of interest which may be charged or collected by such Lender, such Issuing Bank or Agent. Accordingly, if the transactions contemplated hereby or thereby would be illegal, unenforceable, usurious or criminal under laws applicable to a Lender, any Issuing Bank or any Agent (including the laws of any jurisdiction whose laws may be mandatorily applicable to such Lender or Agent notwithstanding anything to the contrary in this Agreement or any other Loan Document then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document, it is agreed as follows: (i) the provisions of this Section shall govern and control; (ii) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received under this Agreement or any Loan Document or otherwise in connection with this Agreement or any Loan Document by such Lender, such Issuing Bank or such Agent shall under no circumstances exceed the maximum amount of interest allowed by applicable law (such maximum lawful interest rate, if any, with respect to each Lender, each Issuing Bank and the Agents herein called the "HIGHEST LAWFUL RATE"), and any excess shall be cancelled automatically and if theretofore paid shall be credited to Borrower by such Lender, such Issuing Bank or such Agent (or, if such consideration shall have been paid in full, such excess refunded to Borrower); (iii) all sums paid, or agreed to be paid, to such Lender, such Issuing Bank or such Agent for the use, forbearance and detention of the indebtedness of Borrower to such Lender, such Issuing Bank or such Agent hereunder or under any Loan Document shall, to the extent permitted by laws applicable to such Lender, such Issuing Bank or such Agent, as the case may be, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; (iv) if at any time the interest provided pursuant to this Section or any other clause of this Agreement or any other Loan Document, together with any other fees or compensation payable pursuant to this Agreement or any other Loan Document and deemed interest under laws applicable to such Lender, such Issuing Bank or such Agent, exceeds that 103 amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees or compensation to accrue to such Lender, such Issuing Bank or such Agent pursuant to this Agreement or such other Loan Document shall be limited, notwithstanding anything to the contrary in this Agreement or any other Loan Document, to that amount which would have accrued at the Highest Lawful Rate, but any subsequent reductions, as applicable, shall not reduce the interest to accrue to such Lender, such Issuing Bank or such Agent pursuant to this Agreement or such other Loan Document below the Highest Lawful Rate until the total amount of interest accrued pursuant to this Agreement or such other Loan Document, as the case may be, and such fees or compensation deemed to be interest equals the amount of interest which would have accrued to such Lender or Agent if a varying rate PER ANNUM equal to the interest provided pursuant to any other relevant Section hereof (other than this Section) or thereof, as applicable, had at all times been in effect, PLUS the amount of fees which would have been received but for the effect of this Section; and (v) with the intent that the rate of interest herein shall at all times be lawful, and if the receipt of any funds owing hereunder or under any other agreement related hereto (including any of the other Loan Documents) by such Lender, such Issuing Bank or such Agent would cause such Lender to charge Borrower a criminal rate of interest, the Lenders, the Issuing Banks and the Agents agree that they will not require the payment or receipt thereof or a portion thereof which would cause a criminal rate of interest to be charged by such Lender, such Issuing Bank or such Agent, as applicable, and if received such affected Lender, such Issuing Bank or Agent will return such funds to Borrower so that the rate of interest paid by Borrower shall not exceed a criminal rate of interest from the date this Agreement was entered into. SECTION 10.14. COLLATERAL MATTERS; HEDGING AGREEMENTS. The benefit of the Security Documents and of the provisions of this Agreement relating to the Collateral shall also extend to and be available to those Lenders or their Affiliates which are counterparties to the Hedging Agreements on a pro rata basis in respect of any obligations of Borrower or any of its Restricted Subsidiaries which arise under any Hedging Agreement that is in effect at such time as such Person (or its Affiliate) is a Lender, but only while such Person or its Affiliate is a Lender. SECTION 10.15. ARRANGER; U.S. DOCUMENTATION AGENT; U.S. SYNDICATION AGENT. None of the Persons identified on the facing page or the signature pages of this Agreement as the "Sole Book Manager and Lead Arranger" or "U.S. Documentation Agent" or the "U.S. Syndication Agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement or any other Loan Document other than, except in the case of the Arranger, those applicable to all Lenders as such. Without limiting the foregoing, none of the Arranger, the U.S. Documentation Agent or the U.S. Syndication Agent shall have or be deemed to have any fiduciary relationship with any Lender or Borrower or any of its Subsidiaries. Borrower and each Lender acknowledges that it has not relied, and will not rely, on any of the Arranger, the U.S. Documentation Agent or U.S. Syndication Agent in deciding to enter into this Agreement or in taking or not taking any action hereunder or under the Loan Documents. 104 SECTION 10.16. INTERCREDITOR AGREEMENT; SECURITY DOCUMENTS. For so long as the Intercreditor Agreement shall be in effect, the terms and conditions of this Agreement and the other Loan Documents are subject to the terms of the Intercreditor Agreement. In the event of any inconsistency between this Agreement or any other Loan Document and the terms of the Intercreditor Agreement, the Intercreditor Agreement shall control. In the event of any inconsistency between this Agreement and the terms of any other Loan Document, this Agreement shall control. SECTION 10.17. STATUS AS SENIOR INDEBTEDNESS. The Loans are "Designated Senior Indebtedness" under the Subordinated Indebtedness Documents governing the Subordinated Indebtedness-8-3/4 Senior Subordinated Notes and Subordinated Indebtedness - 10-1/2 Senior Subordinated Notes. SECTION 10.18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. [SIGNATURES BEGIN ON FOLLOWING PAGE] 105 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FOREST OIL CORPORATION By: /s/ DONALD H. STEVENS ----------------------------------------------- Name: Donald H. Stevens Title: Vice President and Treasurer [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-1 THE CHASE MANHATTAN BANK, as Global Administrative Agent and as a Lender By: /s/ ROBERT C. MERTENSOTTO ----------------------------------------------- Name: Robert C. Mertensotto Title: Managing Director [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-2 BANK OF AMERICA, N.A., as U.S. Syndication Agent and as a Lender By: /s/ TRACEY S. BARCLAY ----------------------------------------------- Name: Tracey S. Barclay Title: Principal [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-3 CITIBANK, N.A., as U.S. Documentation Agent and as a Lender By: /s/ GREGORY S. MORZANO ----------------------------------------------- Name: Gregory S. Morzano Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-4 BANK OF MONTREAL, as a Lender By: /s/ MELISSA BAUMAN ----------------------------------------------- Name: Melissa Bauman Title: Director [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-5 TORONTO DOMINION (TEXAS), INC., as a Lender By: /s/ AZAR S. AZARPOUR ----------------------------------------------- Name: Azar S. Azarpour Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-6 ABN AMRO BANK N.V., as a Lender By: /s/ RODNEY D. KUBICEK ----------------------------------------------- Name: Rodney D. Kubicek Title: Vice President By: /s/ JAMIE A. CONN ----------------------------------------------- Name: Jamie A. Conn Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-7 BANK OF SCOTLAND, as a Lender By: /s/ JOSEPH FRATUS ----------------------------------------------- Name: Joseph Fratus Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-8 BANK ONE, NA (Main Office Chicago), as a Lender By: /s/ CARL E. SKOOG ----------------------------------------------- Name: Carl E. Skoog Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-9 CHRISTIANIA BANK OG KREDITKASSE, ASA NEW YORK BRANCH, as a Lender By: /s/ PETER M. DODGE ----------------------------------------------- Name: Peter M. Dodge Title: Senior Vice President By: /s/ CARL PETTER SVENDSEN ----------------------------------------------- Name: Carl Petter Svendsen Title: Senior Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-10 FORTIS CAPITAL CORP., as a Lender By: /s/ DARRELL W. HOLLEY ----------------------------------------------- Name: Darrell W. Holley Title: Managing Director By: /s/ CHRISTOPHER S. PARADA ----------------------------------------------- Name: Christopher S. Prada Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-11 U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ CAROLINE M. McCLURG ----------------------------------------------- Name: Caroline M. McClurg Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-12 BNP PARIBAS, as a Lender By: /s/ BARICH D. SCHCREST ----------------------------------------------- Name: Barich D. Schcrest Title: Managing Director By: /s/ A. DAVID DODD ----------------------------------------------- Name: A. David Dodd Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-13 CREDIT AGRICOLE INDOSUEZ, as a Lender By: /s/ PATRICK COCQUEREL ----------------------------------------------- Name: Patrick Cocquerel Title: FVP, Managing Director By: /s/ DOUGLAS A. WHIDDON ----------------------------------------------- Name: Douglas A. Whiddon Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-14 CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ JAMES P. MORAN ----------------------------------------------- Name: James P. Moran Title: Director By: /s/ WILLIAM S. LUTKINS ----------------------------------------------- Name: William S. Lutkins Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-15 GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By: /s/ JANE S. REICHLE ----------------------------------------------- Name: Jane S. Reichle Title: Manager - Operations [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-16 THE FUJI BANK, LIMITED, as Lender By: /s/ MASATOSHI ABE ----------------------------------------------- Name: Masatoshi Abe Title: Vice President and Manager [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-17 THE BANK OF NEW YORK, as a Lender By: /s/ PETER W. KELLER ----------------------------------------------- Name: Peter W. Keller Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-18 HIBERNIA NATIONAL BANK, as a Lender By: /s/ SPENCER GAGNET ----------------------------------------------- Name: Spencer Gagnet Title: Senior Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-19 THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH, as a Lender By: /s/ MICHAEL N. OAKES ----------------------------------------------- Name: Michael N. Oakes Title: Senior Vice President, Houston Office [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-20 THE SANWA BANK, LIMITED, as a Lender By: /s/ RYOICHI KONISHI ----------------------------------------------- Name: Ryoichi Konishi Title: Assistant Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-21 SOCIETE GENERALE, SOUTHWEST AGENCY, as a Lender By: /s/ PAUL E. CORNELL ----------------------------------------------- Name: Paul E. Cornell Title: Managing Director [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-22 ING (U.S.) CAPITAL LLC, as a Lender By: /s/ FRANK FERRARA ----------------------------------------------- Name: Frank Ferrara Title: Vice President [SIGNATURE PAGE TO U.S. CREDIT AGREEMENT] S-23 Exhibit A-1 - Page 1 EX-4.13 5 a2040776zex-4_13.txt EXHIBIT 4.13 Exhibit 4.13 MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING FROM FOREST OIL CORPORATION, a New York corporation that is the successor-in-interest to FORCENERGY INC, a Delaware corporation, by virtue of the merger of FORCENERGY INC into FOREST OIL CORPORATION effective as of December 7, 2000 (Taxpayer Identification No. 25-0484900) TO ROBERT C. MERTENSOTTO, Trustee AND GREGORY P. WILLIAMS, Trustee (Utah) AND THE CHASE MANHATTAN BANK, as Global Administrative Agent (Taxpayer Identification No. 13-2633613) Dated as of December 7, 2000 - -------------------------------------------------------------------------------- A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS AND SECURES PAYMENT OF FUTURE ADVANCES. THE MAXIMUM PRINCIPAL AMOUNT SECURED BY THIS MORTGAGE IS SET FORTH IN ARTICLE I HEREOF. THIS MORTGAGE ALSO SECURES OTHER AMOUNTS PROVIDED HEREIN AND AT LAW. THIS INSTRUMENT SECURES AN OBLIGATION THAT MAY INCREASE OR DECREASE FROM TIME TO TIME. THE OIL AND GAS INTERESTS INCLUDED IN THE MORTGAGED PROPERTY WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO. THE MORTGAGED PROPERTY COVERED BY THIS INSTRUMENT INCLUDES AS-EXTRACTED COLLATERAL (INCLUDING BOTH (A) OIL, GAS, AND OTHER MINERALS AND (B) ACCOUNTS ARISING OUT OF THE SALE THEREOF AT THE WELLHEADS OF THE WELLS LOCATED NOW OR HEREAFTER ON THE REAL PROPERTY DESCRIBED IN EXHIBIT A HERETO. THIS INSTRUMENT ALSO COVERS GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THIS INSTRUMENT IS TO BE FILED OF RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OF THE COUNTIES, RECORDING DISTRICTS AND/OR PARISHES REFERENCED IN EXHIBIT A HERETO AND SUCH FILING SHALL SERVE, AMONG OTHER PURPOSES, AS A FIXTURE FILING. THE MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH INTEREST IS DESCRIBED IN EXHIBIT A HERETO. ALASKA RECORDING INSTRUCTION: THIS INSTRUMENT IS TO BE RECORDED IN ALASKA IN THE RECORDING DISTRICTS NAMED IN EXHIBIT A. IN ADDITION, BOTH THE NAME "FOREST OIL CORPORATION" AND THE NAME "FORCENERGY INC" SHOULD BE INDEXED IN THE GRANTOR INDEX OF EACH SUCH RECORDING DISTRICT. A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. A POWER OF SALE MAY ALLOW THE GLOBAL ADMINISTRATIVE AGENT (AS HEREINAFTER DEFINED) OR THE TRUSTEES (AS HEREINAFTER DEFINED) TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR (AS HEREINAFTER DEFINED) UNDER THIS MORTGAGE. UTAH NOTE: THIS TRANSACTION IS NOT A TAXABLE EVENT UNDER UTAH LAW AND THEREFORE NO SALES TAX DISCLOSURE IS BEING MADE UNDER U.C.A. SECTION 70A-9-402(6). ALASKA NOTE: MORTGAGOR IS PERSONALLY OBLIGATED AND FULLY LIABLE FOR THE AMOUNTS DUE UNDER THE LOAN DOCUMENTS. THE GLOBAL ADMINISTRATIVE AGENT HAS THE RIGHT TO SUE ON EACH LOAN DOCUMENT AND TO OBTAIN A PERSONAL JUDGMENT AGAINST MORTGAGOR FOR THE AMOUNT DUE UNDER EACH LOAN DOCUMENT EITHER BEFORE OR AFTER A JUDICIAL FORECLOSURE UNDER ALASKA STATUTES 09.45.170 - 09.45.220 OF THIS INSTRUMENT GIVEN BY MORTGAGOR TO SECURE PAYMENT OF THE AMOUNTS DUE UNDER THE LOAN DOCUMENTS. ii THIS INSTRUMENT WAS PREPARED BY AND WHEN RECORDED AND/OR FILED IS TO BE RETURNED TO: Francis R. Bradley, Esq. Mayer, Brown & Platt 700 Louisiana, Suite 3600 Houston, Texas 77002 iii MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING STATE OF TEXAS COUNTY OF HARRIS BE IT KNOWN, that on this 17th day of November, 2000, BEFORE ME, the undersigned notary public, duly commissioned and qualified, and in the presence of the undersigned competent witnesses, PERSONALLY CAME AND APPEARED: FOREST OIL CORPORATION, a New York corporation, that is the successor-in-interest to FORCENERGY INC, a Delaware corporation, by virtue of the merger of FORCENERGY INC into FOREST OIL CORPORATION effective as of December 7, 2000 (FOREST OIL CORPORATION, as successor-in-interest to FORCENERGY INC, herein the "MORTGAGOR"), whose tax identification number is 25-0484900 and whose mailing address is 1600 Broadway, Suite 2200, Denver, Colorado 80202, represented herein by its undersigned duly authorized Vice President and Treasurer pursuant to resolutions of the Board of Directors of Mortgagor, a certified copy of which is annexed hereto, which, being duly sworn, did declare that it does hereby execute this MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE") dated as of December 7, 2000 for the convenience of the parties, but executed on the date set forth above, in favor of ROBERT C. MERTENSOTTO of Houston, Texas and GREGORY P. WILLIAMS, Trustee (Utah) of Salt Lake City, Utah, as Trustees (herein collectively called the "TRUSTEES"), and THE CHASE MANHATTAN BANK, having offices at One Chase Manhattan Plaza, 8th Floor, New York, New York 10081 (herein called the "GLOBAL ADMINISTRATIVE AGENT"), for itself and as Global Administrative Agent for each of the Lender Parties (hereinafter defined). WITNESSETH: 1. Pursuant to that certain Credit Agreement, dated as of October 10, 2000 (herein, as the same may be amended, modified or supplemented from time to time, called the "CREDIT AGREEMENT"), among the Mortgagor, the various financial institutions (individually a "LENDER" and collectively the "LENDERS") as are, or may from time to time become, parties thereto, the various financial institutions as are, or may from time to time become, Agents under the Credit Agreement and the Global Administrative Agent, the Lenders have extended Commitments to make Loans to, and the Issuing Banks have agreed to issue Letters of Credit for the benefit of, the Mortgagor in a maximum aggregate principal amount of up to $700,000,000 which Commitments and agreements are currently scheduled to mature on October 10, 2005. 2. The Borrower and its Restricted Subsidiaries have entered into or may enter into certain Hedging Agreements with one or more Lender Parties pursuant to the terms of the Credit Agreement. 3. It is a condition precedent to the making of the initial Loans and the issuance of the initial Letter of Credit under the Credit Agreement and to such Lenders' or such Affiliates' obligations under the Hedging Agreements referred to above that the Mortgagor is required to execute and deliver this Mortgage. 4. The Mortgagor has duly authorized the execution, delivery and performance of this Mortgage. 5. Capitalized terms not otherwise defined herein shall have the meanings attributed them in the Credit Agreement. For all purposes of this instrument, unless the context otherwise requires: A. "HYDROCARBONS" means, collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. B. "LANDS DESCRIBED IN EXHIBIT A" shall include any lands which are either described in EXHIBIT A or the description of which is incorporated in EXHIBIT A by reference to another instrument or document, and shall also include any lands now or hereafter unitized or pooled with lands which are either described in EXHIBIT A or the description of which is incorporated in EXHIBIT A by reference. C. "LENDER PARTIES" shall mean, as the context may require, any Agent, any Issuing Bank, any Lender, or any Affiliate of a then current Lender that is a party to a Hedging Agreement and each of its respective successors, transferees and assigns. D. "MORTGAGED PROPERTY" shall mean the properties, rights and interests hereinafter described and defined as the Mortgaged Property. E. "OIL AND GAS LEASES" shall include oil, gas and mineral leases, subleases and assignments thereof, operating rights, and shall also include subleases and assignments of operating rights. F. "OPERATING EQUIPMENT" shall mean all surface or subsurface machinery, goods, equipment, fixtures, inventory, facilities, supplies or other property of whatsoever 2 kind or nature (excluding drilling rigs, trucks, automotive equipment or other property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on or under any of the lands described in EXHIBIT A which are useful for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons (together with all accessions, additions and attachments to any thereof), including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units and engines, christmas trees, platforms, derricks, separators, compressors, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), steam generation and injection equipment and systems, power plants, poles, lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping facilities. G. "PRODUCTION SALE CONTRACTS" shall mean contracts now in effect, or hereafter entered into by the Mortgagor, or entered into by the Mortgagor's predecessors in interest, for the sale, purchase, exchange, gathering, transportation, treating or processing of Hydrocarbons produced from the lands described or referred to in EXHIBIT A attached hereto and made a part hereof. H. "SECURED OBLIGATIONS" shall have the respective meanings set forth in SECTION 1.2 hereof. I. "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect from time to time in the States of New York, Texas, Louisiana (as the Louisiana Commercial Laws), Wyoming, Utah , and Alaska and the terms "ACCOUNTS", "ACCOUNT DEBTOR", "CHATTEL PAPER", "CONTRACT RIGHTS", "DEPOSIT ACCOUNTS", "DOCUMENTS", "GENERAL INTANGIBLES", "GOODS", "EQUIPMENT", "FIXTURES", "INVENTORY", "INSTRUMENTS", and "PROCEEDS" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. NOW, THEREFORE, the Mortgagor, for and in consideration of the premises and of the debts and trusts hereinafter mentioned, does hereby (a) GRANT, BARGAIN, SELL, WARRANT, MORTGAGE, ASSIGN, PLEDGE AND HYPOTHECATE, TRANSFER AND CONVEY unto the Trustees, in trust, with a POWER OF SALE, for the use and benefit of the Global Administrative Agent, for itself and as agent for the Lender Parties, all the Mortgagor's right, title, and interest, whether now owned or hereafter acquired, in and to all of the hereinafter described properties, rights, and interests that are located in (or cover properties located in) the States of Alaska, Texas, or Utah or which are located within (or cover properties located within) the offshore area over which the United States of America asserts jurisdiction and to which the laws of any such state are applicable with respect to this Mortgage and/or the liens or security interests created hereby (the "DEED OF TRUST MORTGAGED PROPERTY"), and (b) GRANT, BARGAIN, SELL, WARRANT, MORTGAGE, ASSIGN, COLLATERALLY ASSIGN, PLEDGE AND HYPOTHECATE, TRANSFER AND CONVEY unto 3 the Global Administrative Agent, with a POWER OF SALE, for itself and as agent for the Lender Parties, all the Mortgagor's right, title, and interest, whether now owned or hereinafter acquired, including all interests now or hereafter acquired by the Mortgagor by merger from Forecenergy, Inc. in and to all of the hereinafter described properties, rights, and interests that are located in (or cover properties located in) the States of Louisiana and Wyoming or which are located within (or cover properties located within) the offshore area over which the United States of America asserts jurisdiction and to which the laws of any such state are applicable with respect to this Mortgage and/or the liens or security interests created hereby) which were not granted to the Trustee in clause (a) above (the "OTHER MORTGAGED PROPERTY"); and, insofar as such properties, rights and interests consist of Equipment, General Intangibles, Accounts, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other personal property of a kind or character defined in or subject to the applicable provisions of the Uniform Commercial Code (as in effect from time to time in the appropriate jurisdiction with respect to each of said properties, rights and interests), the Mortgagor hereby grants to the Global Administrative Agent, for itself and as agent for the Lender Parties, a security interest therein to the full extent of the Mortgagor's legal and beneficial interest therein, now owned or hereafter acquired, namely: (a) the lands described in EXHIBIT A, and the oil and gas leases, the fee, mineral, overriding royalty, royalty and other interests which are described or referred to in EXHIBIT A, (b) the presently existing and hereafter arising unitization, unit operating, communitization and pooling agreements and the properties covered and the units created thereby (including, without limitation, all units formed under orders, regulations, rules, approvals, decisions or other official acts of any federal, state or other governmental agency having jurisdiction) which are specifically described in EXHIBIT A or which relate to any of the properties and interests specifically described in EXHIBIT A, (c) the Hydrocarbons which are in, under, upon, produced or to be produced from or which are attributed or allocated to the lands described in EXHIBIT A, (d) the Production Sale Contracts, (e) the Operating Equipment, (f) without duplication of any other provision of this granting clause, Equipment, Fixtures and other Goods necessary or used in connection with, and Inventory, Accounts, General Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents, Instruments and Proceeds arising from, or relating to, the properties and other interests described in EXHIBIT A, and (g) any and all liens and security interests in Hydrocarbons securing the payment of proceeds from the sale of Hydrocarbons, including but not limited to those liens and security interests provided for in Section 9.319 of the Texas Business and Commerce Code, 4 in Section 34.1-9-319, Wyoming Statutes Annotated, 1999 Edition, or similar statutes of other jurisdictions or any successor statutes; together with any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and, to the extent permitted by the terms of any instrument creating the same, all accounts, contracts, contract rights, options, nominee agreements, unitization or pooling agreements, operating agreements and unit operating agreements, processing agreements, farm-in agreements, farmout agreements, joint venture agreements, partnership agreements (including mining partnerships), exploration agreements, bottom hole agreements, dry hole agreements, support agreements, acreage contribution agreements, surface use and surface damage agreements, net profits agreements, production payment agreements, Hedging Agreements (as defined in the Credit Agreement), insurance policies, title materials and information, files, records, writings, data bases, information, systems, logs, well cores, fluid samples, production data and reports, well testing data and reports, maps, seismic and geophysical, geological and chemical data and information, interpretative and analytical reports of any kind or nature (including, without limitation, reserve studies and reserve evaluations), computer hardware and software and all documentation therefor or relating thereto (including, without limitation, all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, trademarks, service marks and business names and the goodwill of the business relating thereto, copyrights, copyright registrations, unpatented inventions, patent applications and patents, rights-of- way, franchises, bonds, easements, servitudes, surface leases, permits, licenses, tenements, hereditaments, appurtenances, concessions, occupancy agreements, privileges, development rights, condemnation awards, claims against third parties, general intangibles, rents, royalties, issues, profits, products and proceeds, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid ITEMS (a) through (g), inclusive, in this granting clause mentioned, and all other things of value and incident thereto (including, without limitation, any and all liens, lien rights, security interests and other properties, rights and interests) which the Mortgagor might at any time have or be entitled to, all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien and security interest of this instrument by means of supplements hereto, being hereinafter called the "MORTGAGED PROPERTY". Subject, however, to (i) the restrictions, exceptions, reservations, conditions, limitations, interests and other matters, if any, set forth or referred to in the specific descriptions of such properties and interests in EXHIBIT A (including all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in EXHIBIT A and which are taken into consideration in computing any percentage, decimal or fractional interest as set forth in EXHIBIT A), (ii) the assignment of production contained in ARTICLE III hereof, but only insofar and so long as said assignment of production is not inoperative under the provisions of SECTION 3.5 hereof, and (iii) the condition that none of the Trustees, the Global Administrative Agent and the other Lender Parties shall be liable in any respect for the performance of any covenant or obligation 5 (including without limitation measures required to comply with Environmental Laws) of the Mortgagor in respect of the Mortgaged Property. TO HAVE AND TO HOLD (a) the Deed of Trust Mortgaged Property unto the Trustees for the benefit of the Global Administrative Agent, for itself and as agent for the Lender Parties, and (b) the Other Mortgaged Property unto the Global Administrative Agent, for itself and as agent for the Lender Parties, forever to secure the payment of the Secured Obligations and to secure the performance of the obligations of the Mortgagor herein contained. The Mortgaged Property is to remain so specially mortgaged, affected and hypothecated unto and in favor of the Global Administrative Agent to secure payment of the Secured Obligations (including the performance of the obligations of the Mortgagor herein contained) until full and final payment or discharge of the Secured Obligations, and the Mortgagor is herein and hereby bound and obligated not to sell or alienate the Mortgaged Property to the prejudice of this act. The Mortgagor, in consideration of the premises and to induce the Lenders to make the Loans to, and the Issuing Banks to issue the Letters of Credit for the benefit of, the Borrower, and to induce certain Lender Parties to extend financial accommodations to the Borrower pursuant to the Hedging Agreements, hereby covenants and agrees with both the Trustees, the Global Administrative Agent and the other Lender Parties as follows: ARTICLE I. SECURED OBLIGATIONS SECURED 1.1 ITEMS OF SECURED OBLIGATIONS SECURED. The following items of indebtedness are secured hereby: A. All Obligations (including all future advances to be made under the Credit Agreement by the Lenders and including all obligations to reimburse the Issuing Banks for LC Disbursements), and all other obligations and liabilities of the Borrower and the other Loan Parties under the Credit Agreement and the other Loan Documents; B. Any sums advanced or expenses or costs incurred by the Trustees, the Global Administrative Agent or the Lender Parties (or any receiver appointed hereunder) which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; C. Any and all other indebtedness of the Mortgagor to any Lender or any Affiliate of such Lender now or hereafter owing whether direct or indirect, primary or secondary, fixed or absolute or contingent, joint or several, regardless of how evidenced or arising including, without limitation, all Hedging Obligations arising under Hedging Agreements; and 6 D. Any extensions, refinancings, modifications or renewals of all such indebtedness described in SUBPARAGRAPHS (A) through (C) above, whether or not the Mortgagor executes any extension agreement or renewal instrument. 1.2 SECURED OBLIGATIONS DEFINED. All the above obligations are hereinafter collectively referred to as the "SECURED OBLIGATIONS". 1.3 LIMIT ON PRINCIPAL AMOUNT OF SECURED OBLIGATIONS SECURED. Notwithstanding any provision of this instrument to the contrary, the maximum principal amount of the Secured Obligations secured hereby (including without limitation as a mortgage and as a collateral assignment) shall not exceed $1,000,000,000 (including without limitation any expenses, advances or costs incurred by Lender Parties). The maturity of the Secured Obligations at the time of execution of this Mortgage is no later than October 10, 2005. 1.4 NO PARAPH. The parties hereto acknowledge that no evidence of Secured Obligations has been paraphed for identification with this Mortgage. ARTICLE II. PARTICULAR COVENANTS AND WARRANTIES OF THE MORTGAGOR 2.1 CERTAIN REPRESENTATIONS AND WARRANTIES. The Mortgagor represents and warrants to the Trustees, the Global Administrative Agent and the other Lender Parties that (a) the oil and gas leases described in EXHIBIT A hereto are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain except where the failure hereunder could not reasonably be expected to have a Material Adverse Effect, (b) all producing wells located on the lands described in EXHIBIT A have been drilled, operated and produced in conformity with all applicable Governmental Rules except where the failure hereunder could not reasonably be expected to have a Material Adverse Effect, and are subject to no penalties on account of past production which could reasonably be expected to have a Material Adverse Effect, and such wells are in fact bottomed under and are producing from, and the well bores are wholly within, the lands described in EXHIBIT A except where the failure hereunder could not reasonably be expected to have a Material Adverse Effect, (c) the Mortgaged Property is free from all encumbrances or liens whatsoever, except as may be specifically set forth in EXHIBIT A or as permitted by Section 7.2 of the Credit Agreement, and (d) the cover page to this instrument lists the correct legal name of the Mortgagor and the Mortgagor is not now known by any trade name. The Mortgagor will warrant and forever defend the Mortgaged Property unto the Trustees or the Global Administrative Agent, as applicable, against every person whomsoever lawfully claiming the same or any part thereof (subject, however, to the permitted Liens set forth above), and the Mortgagor will maintain and preserve the Lien hereby created so long as any of the Secured Obligations remains unpaid. 7 2.2 OPERATION OF THE MORTGAGED PROPERTY. So long as the Secured Obligations or any part thereof remains unpaid, and whether or not the Mortgagor is the operator of the Mortgaged Property, the Mortgagor shall, at the Mortgagor's own expense: A. Cause to be paid, promptly as and when due and payable, all rentals and royalties (including shut-in royalties) payable in respect of the Mortgaged Property, and all expenses incurred in or arising from the operation or development of the Mortgaged Property except for those amounts being contested by the Mortgagor in good faith in such manner as not to jeopardize the rights of the Trustees, the Global Administrative Agent and the other Lender Parties in and to the Mortgaged Property; and B. Notwithstanding anything in this Section to the contrary, as to any Mortgaged Property which is a working interest operated by a Person other than Mortgagor, Mortgagor agrees to take all such action and to exercise all rights as are commercially feasible and reasonably available to Mortgagor (including, but not limited to, all rights of Mortgagor under any operating agreement) to cause the operator of such property to comply with the covenants and agreements contained herein. 2.3 RECORDING, ETC. The Mortgagor will promptly, and at the Mortgagor's expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be reasonably necessary to preserve, protect and renew the Lien hereof as a first lien on and prior perfected security interest, subject to Liens permitted by Section 7.2 of the Credit Agreement, in real or personal property, as the case may be, and the rights and remedies of the Trustees, the Global Administrative Agent and the other Lender Parties, and otherwise will do and observe all things or matters reasonably necessary or expedient to be done or observed by reason of any law or regulation of any State or of the United States of America or of any other Governmental Authority, for the purpose of effectively creating, maintaining and preserving the Lien on and in the Mortgaged Property. ARTICLE III. ASSIGNMENT OF PRODUCTION 3.1 ASSIGNMENT. As further security for the payment of the Secured Obligations, the Mortgagor hereby transfers, assigns, warrants and conveys to the Global Administrative Agent, for itself and as agent for its Lender Parties, effective as of December 7, 2000, at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced from and which accrue to the Mortgaged Property (the "PRODUCTION"), and all Proceeds therefrom. During the continuance of an Event of Default, Mortgagor authorizes and empowers the Global Administrative Agent to demand, collect, receive and receipt for all Production and Proceeds. MORTGAGOR IRREVOCABLY APPOINTS THE GLOBAL ADMINISTRATIVE AGENT AS THE AGENT AND ATTORNEY-IN-FACT OF MORTGAGOR, FOR THE PURPOSE OF EXECUTING ANY TRANSFER ORDERS, PAYMENT ORDERS, DIVISION ORDERS, RECEIPTS, RELEASES OR OTHER INSTRUMENTS 8 (COLLECTIVELY, "RECEIPTS") THAT THE GLOBAL ADMINISTRATIVE AGENT DEEMS REASONABLY NECESSARY IN ORDER FOR THE GLOBAL ADMINISTRATIVE AGENT TO DEMAND, COLLECT, RECEIVE AND RECEIPT FOR PRODUCTION AND PROCEEDS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT. In addition, Mortgagor agrees that, upon the Global Administrative Agent's request, Mortgagor shall promptly execute and deliver to the Global Administrative Agent such Receipts as the Global Administrative Agent may deem reasonably necessary in connection with the payment and delivery directly to the Global Administrative Agent of all Production and Proceeds and to effectuate the purposes of this paragraph. All parties producing, purchasing or receiving any Production or having Production or Proceeds in their possession for which they or others are accountable to the Global Administrative Agent by virtue of the provisions of this Article are authorized and directed to treat and regard the Global Administrative Agent as the assignee and transferee of the Mortgagor and entitled in the Mortgagor's place and stead to receive Production and Proceeds; and said parties and each of them shall be fully protected in so treating and regarding the Global Administrative Agent and shall be under no obligation to see to the application by the Global Administrative Agent of any Production or Proceeds received by it. Notwithstanding the foregoing, the Global Administrative Agent, for itself and as agent for the Lender Parties, has agreed not to exercise its right to directly receive delivery of Production and payment of Proceeds immediately. Rather, each party producing, purchasing or receiving Production may continue to make such deliveries or payments to Mortgagor until such time as such party has received notice from the Global Administrative Agent that an Event of Default has occurred and is continuing and that such party is directed to make delivery or payment directly to the Global Administrative Agent. 3.2 APPLICATION OF PROCEEDS. All payments received by the Global Administrative Agent pursuant to SECTION 3.1 hereof shall be applied in the manner set forth in the Intercreditor Agreement. 3.3 NO LIABILITY OF THE GLOBAL ADMINISTRATIVE AGENT IN COLLECTING. The Global Administrative Agent is hereby absolved from all liability for failure to enforce collection of any proceeds so assigned (and no such failure shall be deemed to be a waiver of any right of the Global Administrative Agent under this Article) and from all other responsibility in connection therewith, except the responsibility to account to the Mortgagor for funds actually received. 3.4 ASSIGNMENT NOT A RESTRICTION ON THE GLOBAL ADMINISTRATIVE AGENT'S RIGHTS. Nothing herein contained shall detract from or limit the absolute obligation of the Mortgagor to make payment of the Secured Obligations regardless of whether the proceeds assigned by this Article would be sufficient to pay the same, and the rights under this Article shall be in addition to all other security now or hereafter existing to secure the payment of the Secured Obligations. 3.5 STATUS OF ASSIGNMENT. Notwithstanding the other provisions of this Article and in addition to the other rights hereunder, the Trustees, the Global Administrative Agent or any receiver or keeper appointed in judicial proceedings for the enforcement of this instrument shall have the right to receive all of the Production and Proceeds after the Secured Obligations have been declared due and payable and to apply all of said proceeds as provided in SECTION 3.2 hereof. Upon any sale 9 of the Mortgaged Property or any part thereof pursuant to ARTICLE V, the Hydrocarbons thereafter produced from the property so sold, and the proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article. 3.6 INDEMNITY. Mortgagor shall indemnify the Trustees, the Global Administrative Agent and the other Lender Parties, and each Related Party of any of the foregoing Persons (each such Person being called an "INDEMNITEE") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of, (i) the assertion, either before or after the payment in full of the Secured Obligations, that any Indemnitee received Production or Proceeds claimed by third persons, or (ii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee (IT BEING UNDERSTOOD THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT EACH OF THE AGENTS BE INDEMNIFIED IN THE CASE OF ITS OWN NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL). All amounts due under this Section shall be payable not later than thirty (30) days after written demand therefor. The obligations of the Mortgagor as herein set forth in this Section shall survive the release, termination, foreclosure or assignment of this instrument or any sale hereunder. 3.7 RIGHTS UNDER STATUTES. The Mortgagor hereby appoints the Global Administrative Agent as its attorney-in-fact to pursue any and all lien rights of the Mortgagor to liens and security interests in the Mortgaged Property securing payment of Production and Proceeds attributable to the Mortgaged Property, including, but not limited to, those liens and security interests provided for by Section 9.319 of the Texas Business and Commerce Code, in Section 34.1-9-319, Wyoming Statutes Annotated, 1999 Edition Section, and other similar statutes of other jurisdictions or any successor statutes. The Mortgagor further hereby assigns to the Global Administrative Agent any and all such liens, security interests, financing statements, or similar interests of the Mortgagor attributable to its interests in the Mortgaged Property and Production and Proceeds therefrom arising under or created by said statutory provision, judicial decision, or otherwise. 10 ARTICLE IV. EVENTS OF DEFAULT 4.1 EVENTS OF DEFAULT HEREUNDER. The occurrence of an Event of Default under the terms and provisions of the Credit Agreement and the continuance of such Event of Default for the applicable period of grace, if any, shall be an "Event of Default" hereunder. ARTICLE V. ENFORCEMENT OF THE SECURITY 5.1 POWER OF SALE AND FORECLOSURE OF REAL PROPERTY CONSTITUTING A PART OF THE MORTGAGED PROPERTY. A. During the continuation of an Event of Default, the Trustees shall have the right and power to sell, to the extent permitted by law, at one or more sales, as an entirety or in parcels, as they may elect, the real property constituting a part of the Deed of Trust Mortgaged Property, at such place or places and otherwise in such manner and upon such notice as may be required by law, or, in the absence of any such requirement, as the Trustees may deem appropriate, and to make conveyance to the purchaser or purchasers, without any covenant or warranty, express or implied. The Trustees may postpone the sale of all or any portion of such real property by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. The right of sale hereunder shall not be exhausted by one or any sale, and the Trustees may make other and successive sales until all of the trust estate be legally sold. (1) With respect to that portion, if any, of the Deed of Trust Mortgaged Property situated in the State of Texas (or within the offshore area over which the United States of America asserts jurisdiction and to which the laws of Texas are applicable with respect to this Mortgage and/or the liens or security interests created hereby), the Trustees are hereby authorized and empowered to sell such Mortgaged Property at public sale to the highest bidder for cash in the area at the county courthouse of the county in Texas in which the Texas portion of the Mortgaged Property or any part thereof is situated, as herein described, designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the door of the county courthouse of said county, at a time between the hours of 10:00 A.M. and 4:00 P.M. which is no later than three (3) hours after the time stated in the notice described immediately below as the earliest time at which such sale would occur on the first Tuesday of any month, after advertising the earliest time at which said sale would occur, the place, and terms of said sale, and the portion of the Mortgaged Property to be sold, by (a) posting (or by having some person or persons acting for the Trustees post) for at least twenty-one (21) days preceding the date of the sale, written or printed notice of the proposed sale at the courthouse door of said county in which the sale is to be made; and if such portion of the Mortgaged Property lies in more 11 than one county, one such notice of sale shall be posted at the courthouse door of each county in which such part of the Mortgaged Property is situated and such part of the Mortgaged Property may be sold in the area at the county courthouse of any one of such counties designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the courthouse door of such county, and the notice so posted shall designate in which county such property shall be sold, and (b) filing in the office of the county clerk of each county in which any part of the Texas portion of the Mortgaged Property which is to be sold at such sale is situated a copy of the notice posted in accordance with the preceding CLAUSE (a). In addition to such posting and filing of notice, the Global Administrative Agent shall, at least twenty-one (21) days preceding the date of sale, serve or cause to be served written notice of the proposed sale by certified mail on the Mortgagor and on each other debtor, if any, obligated to pay the Secured Obligations according to the records of the Global Administrative Agent or other holder of the Secured Obligations. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper properly addressed to the Mortgagor and such other debtors at their most recent address or addresses as shown by the records of the Global Administrative Agent or other holder of the Secured Obligations in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such a service was completed shall be PRIMA FACIE evidence of the fact of service. The Mortgagor agrees that no notice of any sale of Mortgaged Property situated in the State of Texas (or within the offshore area over which the United States of America asserts jurisdiction and to which the laws of Texas are applicable with respect to this Mortgage and/or the liens or security interests created hereby) other than as set out in this paragraph, need be given by the Trustees, the Global Administrative Agent, the other Lender Parties or any other person. The Mortgagor hereby designates as its address for the purpose of such notice the address set out on the signature page hereof, and agrees that such address may be changed only in the manner set forth in Section 10.1 of the Credit Agreement. The Mortgagor authorizes and empowers the Trustees to sell the Texas portion of the Mortgaged Property in lots or parcels or in its entirety as the Trustees shall deem expedient; and to execute and deliver to the purchaser or purchasers thereof deeds conveying the property, but without any covenant or warranty, express or implied. Where portions of the Mortgaged Property lie in different counties, sales in such counties may be conducted in any order that the Trustees may deem expedient; and one or more such sales may be conducted in the same month, or in successive or different months as the Trustees may deem expedient. The Trustees may postpone the sale provided for in this SECTION 5.1(a)(1) by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. The provisions hereof with respect to the posting and giving of notices of sale are intended to comply with the provisions of Section 51.002 of the Property Code of the State of Texas, effective January 1, 12 1984, and in the event the requirements, or any notice, under such Section 51.002 of the Property Code of the State of Texas shall be eliminated or the prescribed manner of giving such notices modified by future amendment to, or adoption of any statute superseding, Section 51.002 of the Property Code of the State of Texas, the requirement for such particular notices shall be deemed stricken from or modified in this instrument in conformity with such amendment or superseding statute, effective as of the effective date thereof. (2) With respect to that portion, if any, of the Deed of Trust Mortgaged Property situated in the State of Alaska (or within the offshore area over which the United States of America asserts jurisdiction and to which the laws of Alaska are applicable with respect to this Mortgage and/or the liens or security interests created hereby), notice of such sale shall be given as required by law, after the completion of which the Trustees, without demand on Mortgagor, shall sell said portion of the Deed of Trust Mortgaged Property in Anchorage, Alaska (or at such location as may be permitted by law if Anchorage is not permitted to be the point of sale), at the place provided by law at the time fixed by the Trustees in said notice of sale, either as a whole or in separate parcels and in such order as it may determine, at public auction to the highest and best cash bidder. In conformity with SECTION 5.6 hereof. the Global Administrative Agent shall have the right to make an offset bid without cash in an amount not in excess of the balance owed by the Mortgagor at the time of the sale, including any sums expended by the Global Administrative Agent and the Trustees under this Mortgage with interest, attorneys' fees, and costs of sale. The Trustees may postpone sale of all or any portion of said property by public announcement at such time and place of sale and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. The Trustees shall deliver to the purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. After deducting all allowable costs, fees, and expenses of the Trustees in connection with the sale, the Trustees shall apply the proceeds of sale as set forth in SECTION 5.9 hereof. Nothing contained herein shall be construed to limit the right of the Global Administrative Agent to foreclose this Mortgage by judicial action. The Global Administrative Agent and, subject to the terms of the Intercreditor Agreement, each of the Lender Parties shall further be entitled to bring an action upon any or all of the Secured Obligations without attempting to foreclose this Mortgage either by judicial action or by exercise of the power of sale. B. During the continuation of an Event of Default, the Global Administrative Agent, shall have the right to foreclose this Mortgage, as to the real property constituting a part of the Other Mortgaged Property, in any manner permitted by applicable law. (1) With respect to that portion, if any, of the Other Mortgaged Property, whether movable (personal) or immovable (real) and whether corporeal (tangible) or 13 incorporeal (intangible), which is subject to the laws of the State of Louisiana, including but not limited to any Other Mortgaged Property situated in the State of Louisiana or within the offshore area over which the United States of America asserts jurisdiction and to which the laws of such state are applicable with respect to this Mortgage and/or the liens or security interests created hereby, the Global Administrative Agent may foreclose this Mortgage by executory process subject to, and on the terms and conditions required or permitted by, applicable law, and shall have the right to appoint a keeper of such Other Mortgaged Property. For purposes of Louisiana executory process the Mortgagor acknowledges the Secured Obligations, whether now existing or arising hereafter, and for the Mortgagor, the Mortgagor's heirs, devisees, personal representatives, successors and assigns, hereby confesses judgment for the full amount of the Secured Obligations in favor of the Global Administrative Agent. The Mortgagor further agrees that the Global Administrative Agent may cause all or any part of the Other Mortgaged Property to be seized and sold after due process of law, the Mortgagor waiving the benefit of all laws or parts of law relative to the appraisement or property seized and sold under executory process or other legal process, and consenting that all or any part of the Other Mortgaged Property may be sold without appraisement, either in its entirety or in lots or parcels, as the Global Administrative Agent may determine, to the highest bidder for cash. The Mortgagor hereby waives (i) the benefit of appraisement provided for in articles 2332, 2336, 2723, and 2724 of the Louisiana Code of Civil Procedure and all other laws conferring the same; (ii) the demand and three (3) days notice of demand as provided in articles 2639 and 2721 of the Louisiana Code of Civil Procedure; (iii) the notice of seizure provided for in articles 2293 and 2721 of the Louisiana Code of Civil Procedure; (iv) the three (3) days delay provided for in articles 2331 and 2722 of the Louisiana Code of Civil Procedure; and (v) all other laws providing rights of notice, demand, appraisement, or delay. Mortgagor expressly authorized and agrees that the Global Administrative Agent shall have the right to appoint a keeper of the Other Mortgaged Property pursuant to the terms and provisions of La. R.S. 9:5131, ET SEQ. and La. R.S. 9:5136, ET SEQ., which keeper may be the Global Administrative Agent, any agent or employee thereof, or any other person, firm, or corporation and who shall be entitled to reasonable compensation for its services. (2) With respect to that portion, if any, of the Other Mortgaged Property situated in the State of Wyoming, the Global Administrative Agent may elect to foreclose this Mortgage by advertisement and sale of the Other Mortgaged Property as provided by the Wyoming Foreclosure of Mortgages and Power of Sale Act (Sections 34-4-101, ET SEQ., Wyoming Statutes Annotated, 1999 Edition), as the same may be amended from time to time or by other applicable statutory authority (the power of sale provided for by said Wyoming Foreclosure of Mortgages and Power of Sale Act or other statutory authority being hereby expressly granted to the Global Administrative Agent by Mortgagor). In the event any of the Other Mortgaged Property located in 14 the State of Wyoming shall consist of distinct tracts or lots, they shall first be offered for sale separately, and no more tracts or lots shall be sold than shall be necessary to satisfy the amount of the Secured Obligations; provided, however, that in the event the aggregate of bids on the distinct tracts or lots is not sufficient to satisfy the entire amount of the Secured Obligations, the tracts of lots shall be offered and sold as a whole. No action of the Global Administrative Agent based upon the provisions contained herein or contained in the Wyoming Foreclosure of Mortgages and Power of Sale Act, including, without limitation, the giving and service of written notice of intent to foreclose by power of sale or the publication of the foreclosure sale notice, shall constitute an election of remedies that would preclude the Global Administrative Agent from pursuing judicial foreclosure before or at any time after commencement of the power of sale foreclosure procedure. 5.2 RIGHTS OF THE TRUSTEES AND THE GLOBAL ADMINISTRATIVE AGENT WITH RESPECT TO PERSONAL PROPERTY CONSTITUTING A PART OF THE MORTGAGED PROPERTY. During the continuation of an Event of Default, the Global Administrative Agent will have all rights and remedies granted by law, and particularly by the Uniform Commercial Code or similar statute in force in any other state to the extent the same is applicable law, including, but not limited to, the right to take possession of all personal property constituting a part of the Mortgaged Property and for this purpose the Global Administrative Agent may enter upon any premises on which any or all of such personal property is situated and take possession of and operate such personal property (or any portion thereof) or remove it therefrom. The Global Administrative Agent may require the Mortgagor to assemble such personal property to the extent feasible and make it available to the Global Administrative Agent at a place to be designated by the Global Administrative Agent which is reasonably convenient to all parties. Unless such personal property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Global Administrative Agent will give the Mortgagor reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of such personal property is to be made. This requirement of sending reasonable notice will be met if the notice is mailed by first-class mail, postage prepaid, to the Mortgagor at the address shown below the signatures at the end of this instrument (or at such other address for notice hereafter designated by Mortgagor in conformity with Section 10.1 of the Credit Agreement) at least ten (10) days before the time of the sale or disposition. 5.3 RIGHTS OF THE TRUSTEES WITH RESPECT TO FIXTURES CONSTITUTING A PART OF THE MORTGAGED PROPERTY. During the continuation of an Event of Default, the Trustees or the Global Administrative Agent, as applicable, may elect to treat the fixtures constituting a part of the Mortgaged Property as either real property collateral or personal property collateral and then proceed to exercise such rights as apply to such type of collateral. 5.4 JUDICIAL PROCEEDINGS. The Trustees, with respect to the Deed of Trust Mortgaged Property, and the Global Administrative Agent, with respect to the Other Mortgaged Property, in lieu of or in addition to exercising any power of sale herein given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder, or for the sale of the Mortgaged Property, or for the 15 specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy. The Mortgagor hereby acknowledges the Secured Obligations secured hereby, whether now existing or to arise hereafter, and confesses judgment thereon in the full amount of the Secured Obligations in favor of the Global Administrative Agent if such obligations are not paid at maturity. 5.5 POSSESSION OF THE MORTGAGED PROPERTY. It shall not be necessary for the Trustees or the Global Administrative Agent to have physically present or constructively in their possession at any sale held by the Trustees, the Global Administrative Agent, or by any court, receiver or public officer any of the Mortgaged Property; and the Mortgagor shall deliver to the purchasers at such sale on the date of sale the Mortgaged Property purchased by such purchasers at such sale, and if it should be impossible or impracticable for any of such purchasers to take actual delivery of the Mortgaged Property, then the title and right of possession to the Mortgaged Property shall pass to such purchaser at such sale as completely as if the same had been actually present and delivered. 5.6 CERTAIN ASPECTS OF A SALE. The Global Administrative Agent and any Lender Party shall have the right to become the purchaser at any sale made pursuant to this Article V, but only the Global Administrative Agent shall have the right to credit upon the amount of the bid made therefor the amount payable to the Lender Parties out of the net proceeds of such sale. To the extent permitted by applicable law, recitals contained in any conveyance made to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the Secured Obligations, after the same have become due and payable, advertisement and conduct of such sale in the manner provided herein or appointment of any successor Trustee hereunder. 5.7 RECEIPT TO PURCHASER. Upon any sale, whether made under the power of sale herein granted and conferred or by virtue of judicial proceedings, the receipt of the Trustees, or of the officer making sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, or his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Trustees or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. 5.8 EFFECT OF SALE. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of the Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against the Mortgagor, and the Mortgagor's successors or assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under the Mortgagor or the Mortgagor's successors or assigns. Nevertheless, the Mortgagor, if requested by the Global Administrative Agent or the Trustees to do so, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. 16 5.9 APPLICATION OF PROCEEDS. The proceeds of any sale of the Mortgaged Property, or any part thereof, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall be applied in the manner set forth in the Intercreditor Agreement. 5.10 THE MORTGAGOR'S WAIVER OF APPRAISEMENT, MARSHALING AND OTHER RIGHTS. The Mortgagor agrees, to the full extent that the Mortgagor may lawfully so agree, that the Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this instrument or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; the Mortgagor, for the Mortgagor and all who may claim through or under the Mortgagor, so far as the Mortgagor or those claiming through or under the Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such laws. The Mortgagor, for the Mortgagor and all who may claim through or under the Mortgagor, waives, to the extent that the Mortgagor may lawfully do so, any and all right to have the Mortgaged Property marshaled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that the Trustees, the Global Administrative Agent or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. The Mortgagor, for the Mortgagor and all who may claim through or under the Mortgagor, further waives, to the full extent that the Mortgagor may lawfully do so, any requirement for posting a receiver's bond or replevin bond or other similar type of bond if the Trustees or the Global Administrative Agent commence an action for appointment of a receiver or an action for replevin to recover possession of any of the Mortgaged Property. If any law in this paragraph referred to and now in force, of which the Mortgagor or the Mortgagor's successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this paragraph. 5.11 COSTS AND EXPENSES. All costs and expenses (including attorneys' fees) incurred by the Trustees, the Global Administrative Agent or the other Lender Parties in protecting and enforcing their rights hereunder shall constitute a demand obligation owing by the Mortgagor to the party incurring such costs and expenses and shall draw interest at an annual rate equal to the rate of interest from time to time accruing on the ABR Loans under the Credit Agreement plus two percent (2%) until paid, all of which shall constitute a portion of the Secured Obligations. 5.12 OPERATION OF THE MORTGAGED PROPERTY BY THE TRUSTEES OR THE GLOBAL ADMINISTRATIVE AGENT. Upon the occurrence of an Event of Default and in addition to all other rights herein conferred on the Trustees and the Global Administrative Agent, the Trustees, with respect to the Deed of Trust Mortgaged Property, or the Global Administrative Agent, with respect to the Other Mortgaged Property, (or any person, firm or corporation designated by the Trustees or the Global Administrative Agent) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property, and to exclude the Mortgagor, and the Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer, manage and operate 17 the same to the extent that the Mortgagor shall be at the time entitled and in its place and stead. The Trustees or the Global Administrative Agent, or any person, firm or corporation designated by the Trustees or by the Global Administrative Agent, may operate the same without any liability to the Mortgagor in connection with such operations, except to use ordinary care in the operation of such properties, and the Trustees or the Global Administrative Agent or any person, firm or corporation designated by the Trustees or the Global Administrative Agent, shall have the right to collect, receive and receipt for all Hydrocarbons produced and sold from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of the Mortgagor with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) have been paid and the Secured Obligations paid, said properties shall, if there has been no sale or foreclosure, be returned to the Mortgagor. ARTICLE VI. MISCELLANEOUS PROVISIONS 6.1 POOLING AND UNITIZATION. The Mortgagor shall have the right, and is hereby authorized, to pool or unitize all or any part of any tract of land described in EXHIBIT A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds and other interests, when, in the reasonable judgment of the Mortgagor, it is necessary, advisable or desirable to do so in order to form a drilling unit to facilitate the orderly development of that part of the Mortgaged Property affected thereby, or to comply with the requirements of any law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom; PROVIDED, HOWEVER, that the Hydrocarbons produced from any unit so formed shall be allocated among the separately owned tracts or interests comprising the unit in a uniform manner consistently applied. Any unit so formed may relate to one or more zones or horizons, and a unit formed for a particular zone or horizon need not conform in area to any other unit relating to a different zone or horizon, and a unit formed for the production of oil need not conform in area with any unit formed for the production of gas. The interest of the Mortgagor in any such unit attributable to the Mortgaged Property (or any part thereof) included therein shall become a part of the Mortgaged Property and shall be subject to the lien hereof in the same manner and with the same effect as though such unit and the interest of the Mortgagor therein were specifically described in EXHIBIT A. 6.2 SUCCESSOR TRUSTEES. Any Trustee may resign in writing addressed to the Global Administrative Agent or may be removed at any time with or without cause by an instrument in writing duly executed by the Global Administrative Agent. In case of the death, resignation or removal of a Trustee, one or more successor Trustees may be appointed by the Global Administrative Agent by instrument of substitution complying with any applicable requirements of law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustees, all the estate and title of the prior Trustee in the Mortgaged Property, and he or they shall thereupon 18 succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to the Trustees shall be deemed to refer to the Trustees from time to time acting hereunder. 6.3 ACTIONS OR ADVANCES BY THE GLOBAL ADMINISTRATIVE AGENT, THE LENDER PARTIES OR THE TRUSTEES. Each and every covenant herein contained shall be performed and kept by the Mortgagor solely at the Mortgagor's expense. If the Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this instrument, the Global Administrative Agent, the Trustees, any Lender Party or any receiver or keeper appointed hereunder, may, but shall not be obligated to, take action and/or make advances to perform the same in the Mortgagor's behalf, and the Mortgagor hereby agrees to repay the reasonable expense of such action and such advances upon demand plus interest at an annual rate equal to the rate of interest from time to time accruing on ABR Loans under the Credit Agreement plus two percent (2%) until paid. No such advance or action by the Global Administrative Agent, the Trustees, any Lender Party or any keeper or receiver appointed hereunder shall be deemed to relieve the Mortgagor from any default hereunder. 6.4 THE MORTGAGED PROPERTY TO REVERT; RELEASE OF THIS MORTGAGE. If the Secured Obligations shall be paid in full in cash and all of the Commitments have been terminated and all of the Letters of Credit have expired or have been terminated, then this Mortgage shall terminate and, to the extent applicable under local law, all of the Mortgaged Property shall revert to the Mortgagor and the entire estate, right, title and interest of the Trustees and the Global Administrative Agent and the other Lender Parties granted hereunder shall thereupon cease; and the Trustees and the Global Administrative Agent (for itself and as agent for the Lender Parties) in such case shall, upon the request of the Mortgagor and at the Mortgagor's cost and expense, deliver to the Mortgagor proper instruments in recordable form acknowledging satisfaction of this instrument. 6.5 RENEWALS, AMENDMENTS AND OTHER SECURITY. Renewals and extensions of the Secured Obligations may be given at any time and amendments may be made to agreements (other than this instrument) relating to any part of such Secured Obligations or the Mortgaged Property and the Trustees and the Lender Parties may take or may now hold other security for the Secured Obligations, all without notice to or consent of the Mortgagor. The Trustees or the Lender Parties may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this instrument, which shall continue as a first Lien upon and prior perfected security interest, subject to Liens permitted by Section 7.2 of the Credit Agreement, in the Mortgaged Property not expressly released until the Secured Obligations are fully paid. 6.6 INSTRUMENT AS ASSIGNMENT, ETC. This instrument shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, and from time to time as any one or more thereof. 19 6.7 UNENFORCEABLE OR INAPPLICABLE PROVISIONS. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction, and the invalidity of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. Any reference herein contained to a statute or law of a state in which no part of the Mortgaged Property is situated shall be deemed inapplicable to, and not used in, the interpretation hereof. 6.8 RIGHTS CUMULATIVE. Each and every right, power and remedy herein given to the Trustees, the Global Administrative Agent or the other Lender Parties under this Mortgage shall be cumulative and not exclusive; and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by the Trustees, the Global Administrative Agent or the other Lender Parties, as the case may be, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter, any other right, power or remedy. No delay or omission by the Trustees, the Global Administrative Agent or the other Lender Parties in the exercise of any right, power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing. 6.9 WAIVER BY THE TRUSTEES. Any and all covenants in this instrument may from time to time be waived by instrument in writing signed by the Trustees and the Global Administrative Agent to such extent and in such manner as the Required Lenders may desire, but no such waiver shall ever affect or impair either the Trustees', the Global Administrative Agent's or the other Lender Parties' rights or liens or security interests hereunder, except to the extent specifically stated in such written instrument. 6.10 ACTION BY INDIVIDUAL TRUSTEE. Any Trustee from time to time serving hereunder shall have the absolute right, acting individually, to take any action and to exercise any right, remedy, power, privilege or authority conferred upon the Trustees, and any action taken by either Trustee from time to time serving hereunder shall be binding upon the other Trustee and no person dealing with either Trustee from time to time serving hereunder shall be obligated to confirm the power and authority of such Trustee to act without the concurrence of the other Trustee. In this instrument, the term "Trustee" shall mean ROBERT C. MERTENSOTTO of Houston, Texas, and, as to the Deed of Trust Mortgaged Property located in (or which covers properties located in) the State of Utah, GREGORY P. WILLIAMS of Salt Lake City, Utah, or either of them, as the context requires, and any successor Trustee. 6.11 NO PARTNERSHIP. Nothing contained in this instrument is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, joint venture, or association among the Mortgagor, the Trustees, the Global Administrative Agent, the other Lender Parties and their respective Affiliates, or in any way as to make the Global Administrative Agent, the other Lender Parties or the Trustees co-principals with the Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 20 6.12 SUCCESSORS AND ASSIGNS. This instrument is binding upon the Mortgagor, the Mortgagor's successors and assigns, and shall inure to the benefit of the Trustees, their successors, and the Global Administrative Agent and the other Lender Parties and their respective successors and assigns, and the provisions hereof shall likewise be covenants running with the land. 6.13 ARTICLE AND SECTION HEADINGS. The article and section headings in this instrument are inserted for convenience of reference and shall not be considered a part of this instrument or used in its interpretation. 6.14 EXECUTION IN COUNTERPARTS. This instrument may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which are identical, except that, to facilitate recordation or filing, in any particular counterpart portions of EXHIBIT A hereto which describe properties situated in parishes, recording districts, or counties other than the parish, recording district, or county in which such counterpart is to be recorded or filed may have been omitted. Complete copies of this instrument containing the entire EXHIBIT A have been retained by the Mortgagor and the Global Administrative Agent. 6.15 SPECIAL FILING AS FINANCING STATEMENT. This instrument shall likewise be a Security Agreement and a Financing Statement. This instrument shall be filed for record, among other places, in the real estate records of each county, recording district or parish in which any portion of the real property covered by the oil and gas leases described in EXHIBIT A hereto is situated, and, when filed in such counties, recording districts, or parishes shall be effective as a financing statement covering (1) fixtures located or to become located on said oil and gas properties and (2) oil, gas and other minerals extracted from said oil and gas properties (and accounts arising from the sale of said oil, gas and other minerals) at the wellheads of wells located now or hereafter on the real property described in EXHIBIT A hereto. At the option of the Global Administrative Agent, a carbon, photographic or other reproduction of this instrument or of any financing statement covering the Mortgaged Property or any portion thereof shall be sufficient as a financing statement and may be filed as such. 6.16 NOTICES. Except as otherwise expressly provided herein, any notice, request, demand or other instrument which may be required or permitted to be given or served upon the Mortgagor shall be sufficiently given when given to the Mortgagor in care of the Borrower in accordance with Section 10.1 of the Credit Agreement. 6.17 RELIANCE. Notwithstanding any reference herein to the Credit Agreement or any Hedging Agreement, no party shall have any obligation to inquire into the terms or conditions of any such documents and all parties shall be fully authorized to rely upon any statement, certificate, or affidavit of the Global Administrative Agent or any future holder of any portion of the indebtedness evidenced by the Credit Agreement and the other Loan Documents as to the occurrence of any event such as the occurrence of any Event of Default. 21 6.18 EFFECTIVE AS MORTGAGE. As to the Deed of Trust Mortgaged Property, this instrument shall be effective as a mortgage as well as a deed of trust and during the continuation of an Event of Default may be foreclosed as to the Deed of Trust Mortgaged Property, or any portion thereof, in any manner permitted by applicable law, and any foreclosure suit may be brought by the Trustees or by the Global Administrative Agent. To the extent, if any, required to cause this instrument to be so effective as a mortgage as well as a deed of trust, Mortgagor hereby mortgages the Deed of Trust Mortgaged Property to the Global Administrative Agent. 6.19 NO LIABILITY FOR TRUSTEE. THE TRUSTEES SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT OR ACT DONE BY THE TRUSTEES IN GOOD FAITH, OR BE OTHERWISE RESPONSIBLE OR ACCOUNTABLE UNDER ANY CIRCUMSTANCES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE TRUSTEES' NEGLIGENCE), EXCEPT FOR THE TRUSTEES' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. The Trustees shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. All moneys received by the Trustees shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and the Trustees shall be under no liability for interest on any moneys received by them hereunder. 6.20 GOVERNING LAW. THIS INSTRUMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF THE PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE PROPERTY) NECESSARILY GOVERNS WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE LENDER PARTIES GRANTED HEREIN, THE LAW OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE. 6.21 NO UNWRITTEN ORAL AGREEMENTS. THIS INSTRUMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 6.22 ACCEPTANCE. In accordance with the provisions of Louisiana Civil Code article 3289, the Global Administrative Agent has not signed this Mortgage, its acceptance, on behalf of the Lender Parties, is presumed and tacit and is evidenced by the execution and delivery of the Credit Agreement. 22 THUS DONE AND PASSED on the day first set forth above, in my presence and in the presence of the undersigned competent witnesses, who hereunto sign their names with Mortgagor and me, Notary, after reading of the whole. FOREST OIL CORPORATION By: /s/ DONALD H. STEVENS ---------------------------------- Name: Donald H. Stevens Title: Vice President and Treasurer Witnesses: /s/ FRANCIS BRADLEY - ----------------------- Name: Francis Bradley /s/ SUZANNE SNOW - ----------------------- Name: Suzanne Snow /s/ ANGELINA M. ROTHWELL ------------------------------------ Notary Public The name and mailing address of the Mortgagor is: Forest Oil Corporation 1600 Broadway, Suite 2200 Denver, Colorado 80202 Attention: Vice President and Treasurer Telephone: (303) 812-1400 Telecopy: (303) 812-1510 The names and mailing addresses of the Trustees are: Robert C. Mertensotto, Trustee c/o CHASE SECURITIES, INC. Global Oil & Gas 600 Travis, 20th Floor Houston, TX 77002 Telephone: (713) 216-4147 Telecopy: (713) 216-8870 S - 1 Gregory P. Williams, Trustee c/o VanCOTT, BAGLEY, CORNWALL & McCARTHY 50 South Main, Suite 1600 Salt Lake City, UT 84144 Telephone: (801) 532-3333 ext. 362 Telecopy: (801) 534-0058 The name and mailing address of the Global Administrative Agent is: THE CHASE MANHATTAN BANK Loan and Agency Services One Chase Manhattan Plaza, 8th floor New York, NY 10081 Attention: Michael Cerniglia Telephone: (212) 552-7906 Telecopy: (212) 552-5777 with a copy to: c/o The Chase Manhattan Bank The Chase Manhattan Bank Global Oil & Gas Group 600 Travis, 20th Floor Houston, Texas 77002 Attention: Peter Licalzi Telephone: (713) 216-8869 Telecopy: (713) 216-4117 S - 2 STATE OF TEXAS ) ) SS. COUNTY OF HARRIS ) BE IT REMEMBERED that I, Angelina M. Rothwell, a Notary Public duly qualified, commissioned, sworn and acting in and for the County and State aforesaid, hereby certify that, on this 17th day of November, 2000, there appeared before me severally each of the following persons, each being either a Trustee or else the designated officer of the corporation or association set opposite his name, and each such Trustee, corporation and association being a party to the foregoing instrument: Donald H. Stevens, the Vice President and Treasurer of FOREST OIL CORPORATION, whose address is 1600 Broadway, Suite 2200, Denver, Colorado 80202. ALASKA AND TEXAS This instrument was acknowledged before me on this day by each such person as the designated officer of the corporation or association set opposite his name on behalf of said corporation or association set opposite his name. UTAH On this day personally appeared before me such persons, who, being by me duly sworn, did say, that (as the case may be) they are the designated officers of said corporation or association or are Trustees and that said instrument was signed (as the case may be) on behalf of said corporation or association by resolution of its Board of Directors (or on behalf of themselves as Trustees, as the case may be), and said persons acknowledged to me that said corporation, association or Trustees executed the same. WYOMING The foregoing instrument was acknowledged before me by the above individuals on this day. Witness my hand and official seal. /s/ ANGELINA M. ROTHWELL --------------------------------------- Notary Public Residing at: Ham's County My commission expires: April 5, 2003 ---------------------- S - 3 EXHIBIT A TO MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING, EXECUTED NOVEMBER 17, 2000, DATED AS OF DECEMBER 7, 2000, FROM FOREST OIL CORPORATION TO ROBERT C. MERTENSOTTO AND GREGORY P. WILLIAMS, AS TRUSTEES AND THE CHASE MANHATTAN BANK, AS GLOBAL ADMINISTRATIVE AGENT LIST OF PROPERTIES 1. Depth limitations, unit designations, unit tract descriptions and descriptions of undivided leasehold interests, well names, "Operating Interests", "Working Interests" and "Net Revenue Interests" contained in this EXHIBIT A and the listing of any percentage, decimal or fractional interest in this EXHIBIT A shall not be deemed to limit or otherwise diminish the interests being subjected to the lien, security interest and encumbrance of this instrument. 2. Some of the land descriptions in this EXHIBIT A may refer only to a portion of the land covered by a particular lease. This instrument is not limited to the land described in EXHIBIT A but is intended to cover the entire interest of the Mortgagor in any lease described in EXHIBIT A even if such interest relates to land not described in EXHIBIT A. Reference is made to the land descriptions contained in the documents of title recorded as described in this EXHIBIT A. To the extent that the land descriptions in this EXHIBIT A are incomplete, incorrect or not legally sufficient, the land descriptions contained in the documents so recorded are incorporated herein by this reference. 3. References in EXHIBIT A to instruments on file in the public records are made for all purposes. Unless provided otherwise, all recording references in EXHIBIT A are to the official real property records of the county or counties (or parish or parishes or recording district or recording districts) in which the mortgaged property is located and in which records such documents are or in the past have been customarily recorded, whether Deed Records, Oil and Gas Records, Oil and Gas Lease Records or other records. 4. A statement herein that a certain interest described herein is subject to the terms of certain described or referred to agreements, instruments or other matters shall not operate to subject such interest to any such agreement, instrument or other matter except to the extent that such agreement, instrument or matter is otherwise valid and presently subsisting nor shall such statement be deemed to constitute a recognition by the parties hereto that any such agreement, instrument or other matter is valid and presently subsisting. [Do not detach this page] Exhibit A - Page 1 EX-4.14 6 a2040776zex-4_14.txt EXHIBIT 4.14 Exhibit 4.14 [CANADIAN CREDIT AGREEMENT] ================================================================================ CREDIT AGREEMENT dated as of October 10, 2000 among CANADIAN FOREST OIL LTD., THE SUBSIDIARY BORROWERS FROM TIME TO TIME PARTIES HERETO, THE LENDERS PARTY HERETO, BANK OF MONTREAL, as Canadian Syndication Agent, THE TORONTO-DOMINION BANK, as Canadian Documentation Agent, THE CHASE MANHATTAN BANK OF CANADA as Canadian Administrative Agent and THE CHASE MANHATTAN BANK, as Global Administrative Agent ---------------- CHASE SECURITIES INC., as Sole Book Manager and Lead Arranger ================================================================================ TABLE OF CONTENTS ARTICLE I Definitions...................................................................................1 1.1. Defined Terms.................................................................................1 1.2. Classification of Loans and Borrowings.......................................................16 1.3. Terms Generally..............................................................................16 1.4. [Intentionally omitted.].....................................................................16 1.5. Provision with Respect to Borrowers..........................................................16 1.6. U.S. Credit Agreement Definitions............................................................16 ARTICLE II The Credits..................................................................................17 2.1. Commitments..................................................................................17 2.2. Loans and Borrowings.........................................................................17 2.3. Requests for Borrowings......................................................................18 2.4. Letters of Credit............................................................................19 2.5. Funding of Borrowings........................................................................23 2.6. Interest Elections...........................................................................23 2.7. [Intentionally omitted.].....................................................................25 2.8. Termination and Reduction of Commitments.....................................................25 2.9. Repayment of Loans; Evidence of Debt.........................................................25 2.10. Prepayment of Loans..........................................................................26 2.11. Fees.........................................................................................28 2.12. Interest.....................................................................................30 2.13. Alternate Rate of Interest...................................................................31 2.14. Illegality...................................................................................32 2.15. Increased Costs..............................................................................33 2.16. Break Funding Payments.......................................................................34 2.17. Taxes........................................................................................34 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs..................................36 2.19. Mitigation Obligations; Replacement of Lenders...............................................37 2.20. Currency Conversion and Currency Indemnity...................................................38 2.21. Addition of Lenders and Increase in Commitments..............................................39 2.22. Bankers' Acceptances.........................................................................40 ARTICLE III Representations and Warranties...............................................................46 3.1. Organization; Powers.........................................................................46 3.2. Authorization; Enforceability................................................................46 3.3. Approvals; No Conflicts......................................................................46 3.4. Properties...................................................................................47 3.5. Compliance with Laws and Agreements..........................................................47 3.6. Unfunded Pension Liabilities.................................................................47 3.7. Disclosure...................................................................................47
i 3.8. Priority; Security Matters...................................................................47 3.9. Solvency.....................................................................................47 3.10. Representations and Warranties in U.S. Credit Agreement......................................48 ARTICLE IV Conditions...................................................................................48 4.1. Effectiveness................................................................................48 4.2. Initial Loan.................................................................................48 4.3. Each Credit Event............................................................................51 ARTICLE V Affirmative Covenants........................................................................51 5.1. Financial Reporting; Ratings Change; Notices and Other Information...........................51 5.2. Notice of Material Events....................................................................52 5.3. Existence; Conduct of Business...............................................................52 5.4. Casualty and Condemnation....................................................................52 5.5. Books and Records; Inspection and Audit Rights...............................................53 5.6. Compliance with Laws.........................................................................53 5.7. Use of Proceeds and Letters of Credit........................................................53 5.8. Additional Subsidiaries......................................................................53 5.9. Further Assurances...........................................................................54 5.10. Covenants in U.S. Credit Agreement...........................................................54 ARTICLE VI [Not Used]...................................................................................55 ARTICLE VII Negative Covenants...........................................................................55 7.1. Transactions with Affiliates.................................................................55 7.2. Restrictive Agreements.......................................................................55 7.3. Subordinated Indebtedness....................................................................56 7.4. No Action to Affect Security Documents.......................................................56 ARTICLE VIII Events of Default............................................................................56 8.1. Listing of Events of Default.................................................................56 8.2. Action if Bankruptcy.........................................................................58 8.3. Action if Other Event of Default.............................................................58 ARTICLE IX Agents.......................................................................................58 ARTICLE X Miscellaneous................................................................................61 10.1. Notices......................................................................................61 10.2. Waivers; Amendments..........................................................................64 10.3. Expenses; Indemnity; Damage Waiver...........................................................65 10.4. Successors and Assigns.......................................................................67 10.5. Survival.....................................................................................69 10.6. Counterparts; Effectiveness..................................................................69
ii 10.7. Severability.................................................................................70 10.8. Right of Setoff..............................................................................70 10.9. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS......................................................................................70 10.10. WAIVER OF JURY TRIAL.........................................................................71 10.11. Headings.....................................................................................71 10.12. Confidentiality..............................................................................71 10.13. Interest Rate Limitation.....................................................................72 10.14. Collateral Matters; Hedging Agreements.......................................................74 10.15. Arranger; Canadian Documentation Agent; Canadian Syndication Agent...........................74 10.16. Intercreditor Agreement; Security Documents..................................................74 10.17. Status as Senior Indebtedness................................................................74 10.18. NO ORAL AGREEMENTS...........................................................................74
iii SCHEDULES AND EXHIBITS ----------------------
EXHIBITS: - -------- Exhibit A-1 Form of Legal Opinion of Macleod Dixon Exhibit A-2 Form of Legal Opinion of Vinson & Elkins L.L.P. Exhibit B Form of Lender Certificate Exhibit C Form of Compliance Certificate Exhibit D Form of Assignment and Acceptance Exhibit E-1 Form of Borrowing Request Exhibit E-2 Form of Interest Election Request Exhibit F Form of Guaranty -- Parent Exhibit G Form of Guaranty -- Subsidiary Exhibit H Form of Debenture Exhibit I Form of Deposit Agreement Exhibit J [Intentionally omitted] Exhibit K Power of Attorney Terms -- Bankers' Acceptances Exhibit L Form of Bankers' Acceptance Request Exhibit M Calculation of Net Proceeds of Bankers' Acceptances Exhibit N Details of Issue of Bankers' Acceptance SCHEDULES: - --------- Schedule 2.1 Commitments
iv CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of October 10, 2000, is among CANADIAN FOREST OIL LTD., a corporation organized under the laws of the Province of Alberta, Canada ("CANADIAN FOREST"), each of the SUBSIDIARY BORROWERS from time to time parties hereto (the "SUBSIDIARY BORROWERS") (Canadian Forest and the Subsidiary Borrowers, collectively the "BORROWER"), the LENDERS party hereto, BANK OF MONTREAL, as Canadian Syndication Agent, THE TORONTO-DOMINION BANK, as Canadian Documentation Agent, THE CHASE MANHATTAN BANK OF CANADA, as Canadian Administrative Agent, and THE CHASE MANHATTAN BANK, as Global Administrative Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below: "ACCEPTANCE DATE" means any date, which must be a Business Day, on which a Bankers' Acceptance is or is to be issued. "ACCEPTING LENDER" means any Lender which has accepted a Bankers' Acceptance issued by Canadian Forest or a Subsidiary Borrower under this Agreement. "ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a form supplied by the Global Administrative Agent. "AGENTS" means each of the Global Administrative Agent, the Canadian Administrative Agent, the Canadian Syndication Agent, the Canadian Documentation Agent and the Technical Lenders. "AGREED CURRENCY" is defined in SECTION 2.20(a). "AGREEMENT" means this Credit Agreement, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "ALLOCATED CANADIAN BORROWING BASE" means from time to time the "Allocate Canadian Borrowing Base" as determined in accordance with SECTION 2.7(d)(ii) of the U.S. Credit Agreement. "ALLOCATED U.S. BORROWING BASE" means from time to time the "Allocated U.S. Borrowing Base" as determined in accordance with SECTION 2.7(d)(i) of the U.S. Credit Agreement. "APPLICABLE LENDING OFFICE" means, for each Lender and for each Type of Loan, such office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify in writing to the Global Administrative Agent, the Canadian Administrative Agent and Borrower as the office by which its Loans of such Type are to be made and/or issued and maintained. "APPLICABLE PERCENTAGE" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently set forth in the Register, giving effect to any assignments made in accordance with SECTION 10.4 or any increases or decreases in Commitments made in accordance with this Agreement. "APPLICABLE RATE" means, for any day and with respect to any Eurodollar Loans, any Canadian Prime Loans, any USBR Loans, any Bankers' Acceptance, any Unavailable Fees or any Commitment Fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "Eurodollar Loans", "Canadian Prime Loans", "USBR Loans", "Bankers' Acceptances Stamping Fee" or "Commitment Fees & Unavailable Fees", as the case may be, based on the Applicable Rating Level on such date
- ---------------------------------------------------------------------------------------------------------------------------------- APPLICABLE RATIO OF TOTAL EURODOLLAR CANADIAN USBR BANKERS' COMMITMENT RATING DEBT TO LOANS (IN PRIME LOANS LOANS (IN ACCEPTANCE FEES & LEVEL: EBITDA BASIS POINTS) (IN BASIS BASIS POINTS) STAMPING UNAVAILABLE POINTS) FEE (IN BASIS FEES (IN BASIS POINTS) POINTS) - ---------------------------------------------------------------------------------------------------------------------------------- Level I 2.0 > x 87.5 0.0 0.0 87.5 25.0 2.0 < or = to x < 2.5 100.0 0.0 0.0 100.0 25.0 2.5 < or = to x 112.5 12.5 12.5 112.5 25.0 - ---------------------------------------------------------------------------------------------------------------------------------- Level II 2.0 > x 112.5 12.5 12.5 112.5 37.5 2.0 < or = to x < 2.5 137.5 37.5 37.5 137.5 37.5 2.5 < or = to x 150.0 50.0 50.0 150.0 37.5 - ---------------------------------------------------------------------------------------------------------------------------------- Level III 2.0 > x 125.0 25.0 25.0 125.0 37.5 2.0 < or = to x < 2.5 150.0 50.0 50.0 150.0 37.5 2.5 < or = to x 175.0 75.0 75.0 175.0 37.5 - ----------------------------------------------------------------------------------------------------------------------------------
As used in this definition, "x" means, at any time, the ratio of Total Debt to EBITDA calculated pursuant to SECTION 6.1 of the U.S. Credit Agreement. For purposes of the foregoing, any change in the Applicable Rate will occur automatically without prior notice upon any change in the Applicable Rating Level. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. Notwithstanding anything in this definition to the contrary, at all times on or before December 31, 2000, the Applicable Rate 2 for (i) Eurodollar Loans and Bankers Acceptances shall equal 150 basis points, (ii) Canadian Prime Loans and USBR Loans shall equal 50 basis points, and (iii) Commitment Fees and Unavailable Fees shall equal 37.5 basis points. "ARRANGER" means Chase Securities Inc. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by SECTION 10.4), and accepted by the Global Administrative Agent and the Canadian Administrative Agent, in substantially the form of EXHIBIT D or any other form approved by the Global Administrative Agent and the Canadian Administrative Agent. "AUTHORIZED OFFICER" means, with respect to a Borrower, the Chairman, the President, any Vice President or the Treasurer of such Borrower or any other officer of such Borrower specified as such to the Canadian Administrative Agent in writing by any of the aforementioned officers of Borrower or, with respect to Parent, the Chairman, the President, any Vice President or the Treasurer of Parent or any other officer of Parent specified as such to the Global Administrative Agent in writing by any of the aforementioned officers of Parent. "AVAILABILITY PERIOD" means the period from and including the Global Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "BA EXPOSURE" means, with respect to any Accepting Lender, the Principal Amount of Bankers' Acceptances and BA Loans to be paid by a Borrower to the Canadian Administrative Agent at the Principal Office for which such Borrower has not reimbursed such Accepting Lender. "BA LOAN" is defined in SECTION 2.22(h) hereof. "BA MATURITY DATE" means the date on which a Bankers' Acceptance is payable. "BA NET PROCEEDS" means, in respect of any Bankers' Acceptance, the amount determined in accordance with the formula set forth in EXHIBIT M LESS the Stamping Fees applicable to each Bankers' Acceptances. "BANKERS' ACCEPTANCES" means bankers' acceptances denominated in Canadian Dollars in the form of either a depository bill, as defined in the DEPOSITORY BILLS AND NOTES ACT (Canada), or a blank non-interest bearing bill of exchange, as defined in the BILLS OF EXCHANGE ACT (Canada), in either case issued by a Borrower and accepted by a Lender (and, if applicable, purchased by a Lender) at the request of such Borrower, such depository bill or bill of exchange to be substantially in the standard form of such Lender. "BANKERS' ACCEPTANCE LIABILITY" means, with respect to any Bankers' Acceptance, the obligation of a Borrower to pay to the Canadian Administrative Agent at the Principal Office the 3 Principal Amount of any Bankers' Acceptances for which such Borrower has not reimbursed the Accepting Lender. "BANKERS' ACCEPTANCE RATE" means: (i) for a Lender which is a Schedule I Lender, the arithmetic average of the rates for the Schedule I Reference Lenders which are listed in Schedule I to the Bank Act (Canada) as quoted on Reuters Services page CDOR as at 10:00 a.m. on the Acceptance Date for the appropriate term of the requested Bankers' Acceptance; and (ii) for a Lender which is a Schedule II Lender, the arithmetic average of the actual discount rates applicable to Bankers' Acceptances accepted by the Schedule II Reference Lenders which are listed in Schedule II of the Bank Act (Canada) as at 10:00 a.m. on the Acceptance Date for the appropriate term of the requested Bankers' Acceptance, but not to exceed the sum of (a) Banker's Acceptance Rate in paragraph (i) of this definition PLUS (b) 10 basis points per annum. "BANKERS' ACCEPTANCE REQUEST" is defined in SECTION 2.22(b) and contains the information set forth in EXHIBIT L. "BANKRUPTCY INSOLVENCY ACT (CANADA)" means, collectively, the Bankruptcy and Insolvency Act (Canada) and the Companies' Creditor Arrangement Act (Canada), each as amended from time to time and any similar statute of Canada or any province thereof. "BORROWER" has the meaning given to such term in the preamble as further described in SECTION 1.5. "BORROWER ARRANGEMENT" is defined in SECTION 2.22(c). "BORROWING" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, BA Loans or Bankers' Acceptances, as to which a single Interest Period is in effect. "BORROWING REQUEST" means a request by Borrower for a Borrowing in accordance with SECTION 2.3, in substantially the form of EXHIBIT E-1 or any other form approved by the Canadian Administrative Agent and the Global Administrative Agent. "BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York, New York and Toronto, Canada are authorized or required by law to remain closed; PROVIDED that, (a) when used in connection with a Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market, (b) when used in connection with a Canadian Prime Loan, BA Loan or Banker's Acceptance, the term "BUSINESS DAY" shall also exclude any day on which 4 commercial banks in Calgary, Canada and Toronto, Canada are authorized or required by law to remain closed, and (c) when used in connection with a USBR Loan, the term "BUSINESS DAY" shall also exclude any day on which commercial banks in Calgary, Canada, Toronto, Canada and New York, New York are authorized or required by law to remain closed. "CANADIAN ADMINISTRATIVE AGENT" means The Chase Manhattan Bank of Canada, in its capacity as Canadian administrative agent for the Lenders hereunder and any successor thereto. "CANADIAN BORROWING BASE DEFICIENCY" means the amount by which (a) the aggregate Credit Exposures of the Lenders exceeds (b) the then current Allocated Canadian Borrowing Base. "CANADIAN DOCUMENTATION AGENT" means The Toronto-Dominion Bank, in its capacity as Canadian documentation agent for the Lenders hereunder and includes any successors thereto. "CANADIAN DOLLARS" or "C$" refers to lawful money of Canada. "CANADIAN FOREST" means Canadian Forest Oil Ltd, a corporation organized under the laws of the Province of Alberta, Canada. "CANADIAN LIEN SEARCHES" means central and local current financing statement searches from each province in which any Collateral or a Borrowing Base Property owned by a Borrower or any Restricted Subsidiary of a Borrower is located, and such other jurisdictions as the Global Administrative Agent may request, covering each Loan Party together with copies of all financing statements listed in such searches. "CANADIAN PRIME", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Canadian Prime Rate. "CANADIAN PRIME RATE" means the greater of (a) per annum floating rate of interest established from time to time by the Canadian Administrative Agent as the base rate the Canadian Administrative Agent will use to determine rates of interest on Canadian Dollar loans to its customers in Canada and (b) the sum of (i) the discount rate expressed as a rate of interest per annum payable by the purchasers of thirty-day bankers' acceptances, duly accepted by the Canadian Administrative Agent, as established by the Canadian Administrative Agent, and (ii) 100 basis points. Without notice to Borrower or any other Person, the Canadian Prime Rate shall change automatically from time to time as and in the amount by which said prime rate shall fluctuate. The Canadian Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Canadian Administrative Agent may make commercial loans and other loans at rates of interest at, above or below the Canadian Prime Rate. For purposes of this Agreement, any change in any interest rate due to a change in the Canadian Prime Rate shall be effective on the date such change in the Canadian Prime Rate is announced. 5 "CANADIAN SYNDICATION AGENT" means Bank of Montreal, in its capacity as Canadian syndication agent for the Lenders hereunder and includes any successors thereto. "CASUALTY EVENT" means any loss, casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any Property or asset of Parent or any of its Restricted Subsidiaries having a fair market value in excess of U.S. $1,000,000 (or its equivalent in other currencies). "CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or any Issuing Bank (or, for purposes of SECTION 2.15(b), by any Applicable Lending Office of such Lender or any Issuing Bank or by such Lender's or any Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "COLLATERAL" means any and all "Mortgaged Property" and "Collateral", as defined in all Security Documents. "COMBINED COMMITMENTS" means, with respect to each Combined Lender, the commitment of such Combined Lender to make Loans (or in the case of U.S. Lenders, "Loans" (as defined in the U.S. Credit Agreement)), expressed as an amount representing the maximum aggregate amount of such Combined Lender's Credit Exposure (or in the case of U.S. Lenders, "Credit Exposure" (as defined in the U.S. Credit Agreement)) under the Combined Credit Agreements with amounts outstanding in Canadian Dollars being converted into an Equivalent Amount (calculated by the Global Administrative Agent) of U.S. Dollars solely for this purpose, as such commitment may be reduced, increased or terminated from time to time pursuant to the Combined Loan Documents. The initial amount of each Combined Lender's Commitment is set forth on SCHEDULE 2.1 to the applicable Combined Credit Agreement, or in a Assignment and Acceptance (as defined in this Agreement and the U.S. Credit Agreement) or pursuant to which such Combined Lender shall have assumed its Combined Commitment, as applicable. The initial aggregate amount of the Combined Lenders' Combined Commitments is U.S.$600,000,000. "COMBINED CREDIT AGREEMENTS" means this Agreement and the U.S. Credit Agreement. "COMBINED CREDIT EXPOSURES" means the Equivalent Amount in U.S. Dollars of the Credit Exposures and the "Credit Exposures" (as defined in the U.S. Credit Agreement). "COMBINED LENDERS" means the Lenders hereunder and the U.S. Lenders. "COMBINED LOAN DOCUMENTS" means the Loan Documents and the U.S. Loan Documents. 6 "COMBINED LOANS" means the loans made by the Combined Lenders to Borrower and Parent pursuant to the Combined Loan Documents. "COMBINED OBLIGATIONS" means the aggregate of the Equivalent Amount of the Obligations (expressed in U.S. Dollars) and the U.S. Obligations. "COMMITMENT" means, with respect to each Lender, the commitment of such Lender to make Loans, to acquire participations in Letters of Credit hereunder, and to accept Bankers' Acceptances or make a BA Loan hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to SECTION 2.8, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to SECTION 10.4, (c) increased from time to time pursuant to SECTION 2.21, and (d) terminated pursuant to SECTIONS 8.2 or 8.3. The initial amount of each Lender's Commitment is set forth on SCHEDULE 2.1, or in the Register following any Assignment and Acceptance to which such Lender is a party or the delivery of a Lender Certificate to which such Lender is a party. The initial aggregate amount of the Commitments of the Lenders is U.S.$100,000,000. "COMMITMENT FEE" is defined in SECTION 2.11(a). "CREDIT EXPOSURE" means, with respect to any Lender at any time, the Equivalent Amount in U.S. Dollars of the sum of (a) the outstanding principal amount of such Lender's Loans PLUS (b) its LC Exposure PLUS (c) its BA Exposure at such time. "CURRENCY" means, with respect to any Loan, whether such Loan is denominated in Canadian Dollars or U.S. Dollars. "DBNA" is defined in SECTION 2.22(l). "DEBENTURE" means a Demand Debenture and Negative Pledge, dated as of the Global Effective Date or otherwise delivered pursuant to the Loan Documents, substantially in the form of EXHIBIT H, as amended, supplemented, restated or otherwise modified from time to time in accordance with the Loan Documents. The term "Debentures" shall include each and every Debenture executed and delivered pursuant to the Loan Documents. "DEFAULT" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "DEPOSIT AGREEMENT" means a Deposit Agreement, dated as of the Global Effective Date or otherwise delivered pursuant to the Loan Documents, substantially in the form of EXHIBIT I, as amended, supplemented, restated or otherwise modified from time to time in accordance with the Loan Documents. The term "DEPOSIT AGREEMENTS" shall include each and every Deposit Agreement executed and delivered pursuant to the Loan Documents. 7 "EQUIVALENT AMOUNT" means as at any date the amount of Canadian Dollars into which an amount of U.S. Dollars may be converted, or the amount of U.S. Dollars into which an amount of Canadian Dollars may be converted, in either case at The Bank of Canada mid-point noon spot rate of exchange for such date in Toronto at approximately 12:00 noon, Toronto time on such date. "EURODOLLAR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the LIBO Rate. "EVENT OF DEFAULT" has the meaning assigned to such term in SECTION 8.1. "EXCLUDED TAXES" means, with respect to any Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the federal, or any provincial, government of Canada, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its Applicable Lending Office is located, (b) any branch profits taxes imposed by the federal, or any provincial, government of Canada or any similar tax imposed by any other jurisdiction in which Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by Borrower under SECTION 2.19(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender. "EXISTING CREDIT FACILITIES" means that certain Fourth Amended and Restated Credit Agreement, dated as of March 4, 1999, among Borrower, Parent, each of the subsidiaries of Parent that becomes a guarantor pursuant to such agreement, the banks party thereto, The Chase Manhattan Bank, as U.S. administrative agent, Christiania Bank og Kreditkasse, Hibernia National Bank, and Societe Generale, Southwest Agency, as co-agents, and The Chase Manhattan Bank of Canada, as Canadian administrative agent, as amended by Amendment No. 1 dated as of June 24, 1999. "FEE LETTER" means that certain Fee Letter dated as of July 17, 2000, by and among Parent, the Global Administrative Agent and the Arranger, as such letter may be amended, supplemented, restated or otherwise modified from time to time in accordance with the Loan Documents. "FINANCING TRANSACTIONS" means the execution, delivery and performance by each Loan Party of the Loan Documents to which it is to be a party, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. "FORCE" means Forcenergy Inc., a Delaware corporation. "FOREIGN LENDER" means any Lender that is not a resident in Canada for purposes of the INCOME TAX ACT (CANADA). For purposes of this definition, Canada and each province thereof shall be deemed to constitute a single jurisdiction. 8 "FOREIGN SUBSIDIARY" means any Subsidiary that is organized under the laws of a jurisdiction other than Canada or any province thereof. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System of the United States arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Global Administrative Agent from three Federal funds brokers of recognized standing selected by it. "GLOBAL ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, in its capacity as global administrative agent for the Combined Lenders and its successors. "GLOBAL BORROWING BASE" means the "Global Borrowing Base" (as defined in the U.S. Credit Agreement) as determined from time to time pursuant to SECTION 2.7 of the U.S. Credit Agreement. "GLOBAL BORROWING BASE DEFICIENCY" means the amount by which (a) the Combined Credit Exposures of all Combined Lenders under this Agreement and the U.S. Credit Agreement exceeds (b) the then current Global Borrowing Base. "GLOBAL EFFECTIVE DATE" means a date agreed upon by Parent and Borrower and the Global Administrative Agent as the date on which the conditions specified in SECTION 4.2 of each Combined Credit Agreement are satisfied (or waived in accordance with SECTION 10.2 of each Combined Credit Agreement). "GLOBAL EFFECTIVENESS NOTICE" means a notice and certificate of Parent properly executed by an Authorized Officer of Parent, addressed to the Combined Lenders and delivered to the Global Administrative Agent whereby Parent certifies satisfaction or waiver of all the conditions precedent to the effectiveness under SECTION 4.2 of each Combined Credit Agreement. "GUARANTY" means a Guaranty, dated as of the Global Effective Date or otherwise delivered pursuant to the Loan Documents, made by Parent, Force (if Force is not merged into Parent on or before the Global Effective Date), 3189503 or Producers Marketing or any other Restricted Subsidiary of Borrower in favor of the Global Administrative Agent, substantially in the form of EXHIBIT F, in the case of the Parent or Force, or EXHIBIT G, in the case of 3189503, Producers Marketing or any Restricted Subsidiary, as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms of this Agreement and the other Loan Documents. The term "Guaranties" shall include each and every Guaranty executed and delivered hereunder. "HIGHEST LAWFUL RATE" is defined in SECTION 10.13. 9 "INCOME TAX ACT (CANADA)" means the Income Tax Act (Canada), as amended from time to time. "INCREASED COMMITMENT AMOUNT" is defined in SECTION 2.21. "INDEMNIFIED TAXES" means Taxes other than Excluded Taxes. "INDEMNITEE" is defined in SECTION 10.3(b). "INFORMATION" is defined in SECTION 10.12. "INITIAL RESERVE REPORT" means the Independent Reserve Report delivered to the Global Administrative Agent dated as of January 1, 2000, with respect to the Oil and Gas Properties of Parent and its Restricted Subsidiaries, a true and correct copy of which has been delivered to the Global Administrative Agent, the Canadian Administrative Agent and the Lenders. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement dated as of even date herewith, by and among the Global Administrative Agent, the U.S. Documentation Agent, the U.S. Syndication Agent, the Canadian Administrative Agent, the Canadian Documentation Agent, the Canadian Syndication Agent, and the Combined Lenders, as amended, supplemented, restated or otherwise modified from time to time in accordance with the Loan Documents. "INTEREST ELECTION REQUEST" means a request by Borrower to convert or continue a Borrowing in accordance with SECTION 2.6, in substantially the form of EXHIBIT E-2 or any other form approved by the Global Administrative Agent and the Canadian Administrative Agent. "INTEREST PAYMENT DATE" means (a) with respect to any Canadian Prime Loan or USBR Loan, the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three (3) months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three (3) months' duration after the first day of such Interest Period, and (c) with respect to any BA Loan, the maturity date of the Bankers' Acceptances issued concurrently with the advance of such BA Loan. "INTEREST PERIOD" means (a) with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day, or, with the consent of the Global Administrative Agent and the Canadian Administrative Agent, such other day, in the calendar month that is one, two, three or six months (or, with the consent of each Lender, nine or twelve months) thereafter, as Borrower may elect and (b) with respect to any BA Loan, each period commencing on the date such BA Loan is made or converted from another Type of Loan or the last day of the next preceding Interest Period for such BA Loan and ending on the date not less than 30 days or more than 180 days thereafter, as Borrower may select as provided in SECTION 2.6; PROVIDED, that (a) if any Interest Period would end on a day other than a Business Day, such 10 Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period,(c) no Interest Period may end later than the last day of the Availability Period, and (d) the Interest Period for a BA Loan shall end on the BA Maturity Date of the Bankers' Acceptances issued concurrently therewith. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "ISSUING BANK" means any Lender in its capacity as the issuer of Letters of Credit hereunder, PROVIDED that, upon written notice to the Global Administrative Agent, the Canadian Administrative Agent and Borrower, any Lender (other than Bank of Montreal) may decline to act in the capacity of an Issuing Bank under this Agreement, and PROVIDED FURTHER that The Chase Manhattan Bank of Canada and The Chase Manhattan Bank, Toronto Branch, shall not be an Issuing Bank for the purposes of this Agreement. Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "JUDGMENT CURRENCY" is defined in SECTION 2.20(b). "LC DISBURSEMENT" means a payment made by any Issuing Bank pursuant to a Letter of Credit. "LC EXPOSURE" means, at any time, the Equivalent Amount in U.S. Dollars of the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "LENDER AFFILIATE" means, with respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "LENDER CERTIFICATE" is defined in SECTION 2.21. 11 "LENDERS" means the Persons listed on SCHEDULE 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance or pursuant to SECTION 2.21, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LETTER OF CREDIT" means any letter of credit issued pursuant to this Agreement. "LIBO RATE" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Global Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., Toronto time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO RATE" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of U.S.$5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Global Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "LOAN DOCUMENT" means (a) this Agreement, the Security Documents, the Fee Letter, the Intercreditor Agreement, the Guaranties, the Hedging Agreements between Borrower or any of its Restricted Subsidiaries and any Lender or any Affiliate of a Lender, any Borrowing Request, any Interest Election Request, any Assignment and Acceptance, any election notice, any agreement with respect to fees described in SECTION 2.11, and (b) each other agreement, document or instrument delivered by Borrower or any other Person in connection with this Agreement, as such may be amended from time to time. "LOAN PARTIES" means Parent, each Borrower and, after the date of this Agreement, any other Affiliate or Restricted Subsidiary of Borrower which executes a Loan Document for so long as such Loan Document is in effect. "LOANS" means the loans (including, without limitation, the Canadian Prime Loans, the Eurodollar Loans, the USBR Loans and the BA Loans) made by the Lenders to Borrower pursuant to this Agreement and the acceptance of Bankers' Acceptances. "MATERIAL ADVERSE EFFECT"means a material adverse effect on (a) the business, Property, operations, prospects, or condition, financial or otherwise, of Parent and its Subsidiaries (including Force) taken as a whole, (b) the ability of any Loan Party (as defined herein or in the U.S. Credit Agreement) to perform any of its respective obligations under any Combined Loan Document to which it is a party, or (c) the rights of or benefits available to the Combined Lenders under any of the Combined Loan Documents, as the case may be. 12 "MATURITY DATE" means October 10, 2005. "OBLIGATIONS" means, at any time, the sum of (a) the Credit Exposures of the Lenders under the Loan Documents PLUS (b) all accrued and unpaid interest and fees owing to the Lenders under the Loan Documents PLUS (c) all Hedging Obligations in connection with all Hedging Agreements between Borrower or any of its Restricted Subsidiaries and any Lender or any Affiliate of a Lender PLUS (d) all other obligations (monetary or otherwise) of Parent, any Borrower or any Restricted Subsidiary to any Lender or any Agent, whether or not contingent, arising under or in connection with any of the Loan Documents. "OTHER CURRENCY" is defined in SECTION 2.20(a). "PARENT" means Forest Oil Corporation, a New York corporation. "PARTICIPANT" is defined in SECTION 10.4(e). "PRINCIPAL AMOUNT" means, for a Bankers' Acceptance, the face amount thereof, for a BA Loan, the principal amount thereof determined in accordance with SECTION 2.22(h) hereof, and for any other Loans, the outstanding principal amount thereof. "PRINCIPAL OFFICE" means the principal office of the Canadian Administrative Agent, which on the date of this Agreement is located at 1 First Canadian Place, 100 King Street West, Suite 6900, P.O. Box 106, Toronto, Ontario, Canada M5X 1A4. "PRODUCERS MARKETING" means Producers Marketing Ltd., a corporation organized under the laws of the Province of Alberta, Canada. "REGISTER" has the meaning set forth in SECTION 10.4(c). "REQUIRED LENDERS" means Combined Lenders having in the aggregate greater than 50% of the aggregate total Combined Commitments under the Combined Loan Documents, or, if the Combined Commitments have been terminated, Combined Lenders holding greater than 50% of the aggregate unpaid principal amount of the outstanding Combined Credit Exposure under the Combined Loan Documents. "RESTRICTED SUBSIDIARY" means any Subsidiary of Borrower that is not an Unrestricted Subsidiary. "SCHEDULE I LENDER" means a Lender which is a Canadian chartered bank listed on Schedule I to the BANK ACT (Canada). "SCHEDULE I REFERENCE LENDERS" means Bank of Montreal and The Toronto-Dominion Bank. 13 "SCHEDULE II LENDERS" means a Lender which is a Canadian chartered bank that is listed on Schedule II or Schedule III to the BANK ACT (Canada). "SCHEDULE II REFERENCE LENDER" means The Chase Manhattan Bank, Toronto Branch and Bank of America Canada. "SECURITY DOCUMENTS" means each of the Guaranties, each of the Debentures, each of the Deposit Agreements, and each other security agreement or other instrument or document executed and delivered pursuant to SECTION 5.8 or SECTION 5.9 or pursuant to the Loan Documents to secure any of the Obligations. "SHARING PERCENTAGE" means, at any time: (a) for the Lenders, the percentage determined by dividing the Obligations by the Combined Obligations; and (b) for the U.S. Lenders, the percentage determined by dividing the U.S. Obligations by the Combined Obligations. "STAMPING FEE" means, in respect of any Bankers' Acceptance or BA Loan, the fee payable by Borrower described in SECTION 2.22(c). "SUBORDINATED INDEBTEDNESS" means, collectively, (a) the Subordinated Indebtedness-8-3/4% Senior Subordinated Notes and any Refinancing Indebtedness, and (b) any other Subordinated Debt of any of the Loan Parties. "SUBORDINATED INDEBTEDNESS DOCUMENTS" means the indentures or other agreements under which the Subordinated Indebtedness is issued and all other instruments, agreements and other documents evidencing or governing the Subordinated Indebtedness or providing for any Guarantee or other right in respect thereof. "SUBORDINATED INDEBTEDNESS-8-3/4% SENIOR SUBORDINATED NOTES" means the Indebtedness of Canadian Forest evidenced by and in respect of 8-3/4% Senior Subordinated Notes of Canadian Forest due 2007 in an aggregate principal amount not to exceed U.S.$200,000,000 issued pursuant to that certain Indenture dated as of September 29, 1997 among Parent, as guarantor, Canadian Forest, as issuer, and State Street Bank and Trust Company, as trustee, as amended by that certain Supplemental Indenture dated as of December 1, 1999, and as the same shall, subject to SECTION 7.3, be modified and in effect from time to time, and any Guarantees thereof by any Restricted Subsidiaries of Parent. "SUBSIDIARY" means any subsidiary of Borrower. 14 "3189503" means 3189503 Canada Ltd., a corporation organized under the federal laws of Canada. "TYPE", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the LIBO Rate or the Canadian Prime Rate or the Bankers' Acceptance Rate or the U.S. Base Rate. "UNAVAILABLE FEE" is defined in SECTION 2.11(b). "UNUTILIZED COMMITMENT" means, at the time of determination, the Equivalent Amount in U.S. Dollars of the amount by which (a) the amount of the Allocated Canadian Borrowing Base as then in effect at such time, PROVIDED that if the Applicable Rating Level is Level I or Level II, then the amount of the aggregate Commitments at such time, exceeds (b) the amount of the aggregate Credit Exposures of the Lenders at such time. "UPFRONT FEE" is defined in SECTION 2.11(d). "U.S. BASE RATE" means, with respect to USBR Loans, the greater of: (a) the annual rate of interest announced from time to time by the Canadian Administrative Agent as being its reference rate then in effect for determining interest rates on U.S. Dollar denominated commercial loans made by the Canadian Administrative Agent in Canada; and (b) a rate of interest per three hundred sixty-five (365) day period equal to the Federal Funds Effective Rate (equated, for these purposes, to a rate based on a year of 365 days rather than 360 days) plus 1/2 of 1%. "USBR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined in reference to the U.S. Base Rate. "U.S. CREDIT AGREEMENT" means that certain Credit Agreement of even date herewith among the Parent, the U.S. Lenders, the Global Administrative Agent, Citibank, N.A., as U.S. documentation agent, and Bank of America, N.A., as U.S. syndication agent, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "U.S. DOCUMENTATION AGENT" means Citibank, N.A., in its capacity as U.S. documentation agent for the U.S. Lenders. "U.S. DOLLARS" or "U.S.$" or "$" or "DOLLARS" refers to lawful money of the United States of America. 15 "U.S. LENDERS" means the financial institutions from time to time party to the U.S. Credit Agreement and their respective successors and permitted assigns. "U.S. LOAN DOCUMENTS" means the U.S. Credit Agreement, any guaranties, any security documents, any assignment agreements, and any agreement with respect to fees, together with all exhibits, schedules and attachments thereto, and all other agreements, documents, certificates, financing statements and instruments from time to time executed and delivered pursuant to or in connection with any of the foregoing. "U.S. SYNDICATION AGENT" means Bank of America, N.A., in its capacity as U.S. syndication agent for the U.S. Lenders. "U.S. OBLIGATIONS" means, at any time, the sum of (a) the "Credit Exposures" of the U.S. Lenders under the U.S. Loan Documents PLUS (b) all accrued and unpaid interest and fees owing to the U.S. Lenders under the U.S. Loan Documents PLUS (c) all other obligations (monetary or otherwise) of Parent or any of its Restricted Subsidiaries to any U.S. Lender or any of the "Agents" under the U.S. Credit Agreement, whether or not contingent, arising under or in connection with any of the U.S. Loan Documents. SECTION 1.2. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of this Agreement, Loans and Borrowings may be classified and referred to by Type (E.G., a "EURODOLLAR LOAN" or "EURODOLLAR BORROWING" or "BA LOAN" or "BA BORROWING" or "USBR LOAN" or "USBR BORROWING" or "CANADIAN PRIME LOAN" or "CANADIAN PRIME BORROWING"). SECTION 1.3. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, provided such successors and assigns are permitted by the Loan Documents, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement. SECTION 1.4. [Intentionally omitted.] 16 SECTION 1.5. PROVISION WITH RESPECT TO BORROWERS. Unless expressly provided for to the contrary, (a) all payment or indemnification of obligations of "Borrower" shall be joint and several as among Canadian Forest and each Subsidiary Borrower, (b) all notices from "Borrower" shall mean a notice from each of Canadian Forest and each Subsidiary Borrower, (c) all covenants, agreements and other obligations of "Borrower" shall be joint and several as among Canadian Forest and each Subsidiary Borrower, (d) references to "each Borrower" or "any Borrower" shall mean a reference to Canadian Forest or any Subsidiary Borrower, and (e) each of Canadian Forest and the Subsidiary Borrowers are entitled to, subject to the terms and conditions of this Agreement, request Loans hereunder, notwithstanding any provision referencing only "Borrower". SECTION 1.6. U.S. CREDIT AGREEMENT DEFINITIONS. Unless the context otherwise requires, capitalized terms used herein and not otherwise defined shall have the meanings given to them in the U.S. Credit Agreement. ARTICLE II THE CREDITS SECTION 2.1. COMMITMENTS. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans (including BA Loans made in accordance with SECTION 2.22) in Canadian Dollars or U.S. Dollars to Borrower and each Accepting Lender agrees to accept Bankers' Acceptances presented to it by Borrower pursuant to SECTION 2.22 in each case from time to time during the Availability Period in an aggregate principal amount that will not result in (a) the Credit Exposure of any Lender exceeding the Commitment of such Lender, or (b) the aggregate amount of the Credit Exposures of all Lenders exceeding (i) in the event the Applicable Rating Level is Level III, the lesser of (A) the aggregate amount of the Allocated Canadian Borrowing Base then in effect and (B) the aggregate amount of the Commitments of the Lenders or (ii) in the event the Applicable Rating Level is Level I or II, the aggregate amount of the Commitments of the Lenders. Within the foregoing limits and subject to the terms and conditions set forth herein, Borrower may repay (but not prepay) Bankers' Acceptances and may borrow, prepay and reborrow Loans. SECTION 2.2. LOANS AND BORROWINGS. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Applicable Percentages. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; PROVIDED that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to SECTIONS 2.13 and 2.14, each Borrowing shall be comprised entirely of Canadian Prime Loans, Eurodollar Loans or USBR Loans as Borrower may request in accordance herewith or shall be comprised of Bankers' Acceptances and BA Loans made in accordance with SECTION 2.22. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that any exercise of such 17 option shall not affect the obligation of Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of U.S.$1,000,000 and not less than U.S.$1,000,000 (including any continuation or conversion of existing Loans made in connection therewith). At the time that each Canadian Prime Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of C$1,000,000 and not less than C$1,000,000 (including any continuation or conversion of existing Loans made in connection therewith); PROVIDED that a Canadian Prime Borrowing may be in an aggregate amount that is equal to the Equivalent Amount in Canadian Dollars of the entire Unutilized Commitment, if less. At the time that each USBR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of U.S.$1,000,000 and not less than U.S.$1,000,000 (including any continuation or conversion of existing Loans made in connection therewith); provided that an USBR Borrowing may be in an aggregate amount that is equal to the entire Unutilized Commitment, if less. Borrowings of more than one Type may be outstanding at the same time; PROVIDED that there shall not at any time be more than a total of ten (10) Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, Borrower shall not be entitled to request, or to elect to convert or continue, any Eurodollar Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.3. REQUESTS FOR BORROWINGS. To request a Borrowing, Borrower shall notify the Global Administrative Agent and the Canadian Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 1:00 p.m., Toronto time, three Business Days before the date of the proposed Borrowing or (b) in the case of a Canadian Prime Borrowing or USBR Borrowing, not later than 11:00 a.m., Toronto time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Global Administrative Agent and the Canadian Administrative Agent of a written Borrowing Request executed by an Authorized Officer of Borrower, substantially in the form of EXHIBIT E-1 or otherwise in a form approved by the Global Administrative Agent and the Canadian Administrative Agent. Each such telephonic and written Borrowing Request shall specify the following information in compliance with SECTION 2.2: (i) the aggregate amount of the requested Borrowing (which amount will be in the appropriate Currency as required pursuant to the last sentence of this SECTION 2.3; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be a Canadian Prime Borrowing, a USBR Borrowing or a Eurodollar Borrowing; and 18 (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period". If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be a Canadian Prime Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Canadian Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan (which shall be made in the appropriate Currency based on the currency of the Borrowings being requested) to be made as part of the requested Borrowing. Notwithstanding anything herein to the contrary, Canadian Prime Loans and BA Loans may only be denominated in Canadian Dollars and USBR Loans and Eurodollar Loans may only be denominated in U.S. Dollars. SECTION 2.4. LETTERS OF CREDIT. (a) GENERAL. Subject to the terms and conditions set forth herein, Borrower may request the issuance of Letters of Credit for its own account or the account of any Restricted Subsidiary, in a form reasonably acceptable to the Global Administrative Agent, the Canadian Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by Borrower to, or entered into by Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN CONDITIONS. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to an Issuing Bank, the Canadian Administrative Agent and the Global Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with PARAGRAPH (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information (including, if applicable, the Currency of such Letter of Credit which shall be Canadian Dollars or U.S. Dollars) as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC 19 Exposure shall not exceed U.S.$25,000,000 and (ii) the total Credit Exposures shall not exceed the lesser of (x) the aggregate Commitments of the Lenders or (y) if the Applicable Rating Level is Level III, the Allocated Canadian Borrowing Base then in effect. (c) EXPIRATION DATE. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the Maturity Date. (d) PARTICIPATIONS. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Canadian Administrative Agent, for the account of the Issuing Bank in the Currency in which such Letter of Credit is denominated, such Lender's Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by Borrower on the date due as provided in PARAGRAPH (e) of this Section, or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) REIMBURSEMENT. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, Borrower shall reimburse such LC Disbursement in the Currency in which such Letter of Credit is denominated by paying to the Canadian Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, Toronto time, on the date that such LC Disbursement is made, if Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., Toronto time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 12:00 noon, Toronto time, on (i) the Business Day that Borrower receives such notice, if such notice is received prior to 10:00 a.m., Toronto time, on the day of receipt, or (ii) the Business Day immediately following the day that Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; PROVIDED that, unless such LC Disbursement is less than C$1,000,000 or U.S.$1,000,000, as applicable, Borrower may, subject to the conditions to Borrowing set forth herein, request in accordance with SECTION 2.3 that such payment be financed with a Borrowing in an equivalent amount and, to the extent so financed, Borrower's obligation to make such payment shall be discharged and replaced by the resulting Borrowing. If Borrower fails to make such payment when due, the Canadian Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of 20 such notice, each Lender shall pay to the Canadian Administrative Agent its Applicable Percentage of the payment then due from Borrower, in the same manner as provided in SECTION 2.5 with respect to Loans made by such Lender in the appropriate Currency (and SECTION 2.5 shall apply, MUTATIS MUTANDIS, to the payment obligations of the Lenders), and the Canadian Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Canadian Administrative Agent of any payment from Borrower pursuant to this paragraph, the Canadian Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of Canadian Prime Loans or USBR Loans as contemplated above) shall not constitute a Loan and shall not relieve Borrower of its obligation to reimburse such LC Disbursement. (f) OBLIGATIONS ABSOLUTE. Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein proving to be untrue or inaccurate in any respect, (iii) payment by an Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, Borrower's obligations hereunder. Neither the Agents, the Lenders or any Issuing Bank nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of such Issuing Bank; PROVIDED that the foregoing shall not be construed to excuse such Issuing Bank from liability to Borrower to the extent of any direct or actual damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by Borrower to the extent permitted by applicable law) suffered by Borrower that are caused by such Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole 21 discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) DISBURSEMENT PROCEDURES. An Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the Canadian Administrative Agent and Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; PROVIDED that any failure to give or delay in giving such notice shall not relieve Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) INTERIM INTEREST. If an Issuing Bank shall make any LC Disbursement, then, unless Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that Borrower reimburses such LC Disbursement, at the rate per annum then applicable to Canadian Prime Loans or USBR Loans as applicable; PROVIDED that, if Borrower fails to reimburse such LC Disbursement within two (2) Business Days after such reimbursement is due pursuant to PARAGRAPH (e) of this Section, then SECTION 2.12(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to PARAGRAPH (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) [Intentionally omitted]. (j) CASH COLLATERALIZATION. If any Event of Default shall occur and be continuing, on the Business Day that Borrower receives notice from the Global Administrative Agent, the Canadian Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, Borrower shall deposit in an account with the Canadian Administrative Agent, in the name of the Canadian Administrative Agent and for the benefit of the Lenders, an amount in cash (in the applicable Currency) equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; PROVIDED that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to Borrower described in SECTION 8.1(g). Borrower also shall deposit cash collateral pursuant to this paragraph as and to the extent required by SECTION 2.10, and any such cash collateral so deposited and held by the Canadian Administrative Agent hereunder shall constitute part of the Global Borrowing Base for purposes of determining compliance with SECTION 2.10. Each such deposit shall be held by the Canadian Administrative Agent as collateral for the payment and performance of the obligations of Borrower under this Agreement. The Canadian Administrative 22 Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Canadian Administrative Agent and at Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Canadian Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of Borrower under this Agreement. If Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to Borrower within three (3) Business Days after all Events of Default have been cured or waived. If Borrower is required to provide an amount of cash collateral hereunder pursuant to SECTION 2.10, such amount (to the extent not applied as aforesaid) shall be returned to Borrower as and to the extent that, after giving effect to such return, Borrower would remain in compliance with SECTION 2.10 and no Default shall have occurred and be continuing. SECTION 2.5. FUNDING OF BORROWINGS. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, Toronto time, to the account of the Canadian Administrative Agent most recently designated by it for such purpose by notice to the Lenders, which Loan shall be in the appropriate Currency (based on the relevant Borrowing Request). The Canadian Administrative Agent will make such Loans available to Borrower by promptly crediting the amounts so received, in like funds, to an account of Borrower maintained with the Canadian Administrative Agent in Toronto; PROVIDED that Canadian Prime Loans and/or USBR Loans made to finance the reimbursement of an LC Disbursement as provided in SECTION 2.4(e) Shall be remitted by the Canadian Administrative Agent to the applicable Issuing Bank. (b) Unless the Canadian Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Canadian Administrative Agent such Lender's share of such Borrowing, the Canadian Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Canadian Administrative Agent, then the applicable Lender and Borrower severally agree to pay to the Canadian Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to Borrower to but excluding the date of payment to the Canadian Administrative Agent, at (i) in the case of such Lender, the greater of the cost incurred by the Canadian Administrative Agent for making such Lender's share of such Borrowing or a rate determined by the Canadian Administrative Agent in accordance with banking industry 23 rules on interbank compensation or (ii) in the case of Borrower, the interest rate applicable to Loans made in such Borrowing. If such Lender pays such amount to the Canadian Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. (c) Borrowings, conversion or continuations of Loans, and prepayments of Loans of different Currencies at the same time hereunder shall be deemed to be separate Borrowings, continuations, conversions and prepayments, respectively, one for each Currency. SECTION 2.6. INTEREST ELECTIONS. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request (or a Canadian Prime Borrowing if no Type is specified) and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request (or one month if no Interest Period is specified). Thereafter, Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. Borrower may, subject to the requirements of SECTION 2.2(c), elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, Borrower shall notify the Global Administrative Agent and the Canadian Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under SECTION 2.3 if Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Global Administrative Agent and the Canadian Administrative Agent of a written Interest Election Request executed by an Authorized Officer of Borrower, substantially in the form of EXHIBIT E-2 or otherwise in a form approved by the Global Administrative Agent and the Canadian Administrative Agent. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with SECTION 2.2: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; 24 (iii) whether the resulting Borrowing is to be a Canadian Prime Borrowing or USBR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Canadian Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an USBR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Global Administrative Agent or the Canadian Administrative Agent, at the request of the Required Lenders, so notifies Borrower, then, so long as such Event of Default is continuing, (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless the Indebtedness has been accelerated pursuant to SECTION 8.3, each Eurodollar Borrowing shall be converted to an USBR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.7. [Intentionally omitted.] SECTION 2.8. TERMINATION AND REDUCTION OF COMMITMENTS. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) Borrower may at any time terminate, or from time to time reduce, the Commitments; PROVIDED that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of U.S.$1,000,000 and not less than U.S.$5,000,000 and (ii) Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with SECTION 2.10, the sum of the Credit Exposures would exceed the aggregate Commitments of the Lenders. (c) Borrower shall notify the Global Administrative Agent and the Canadian Administrative Agent of any election to terminate or reduce the Commitments under PARAGRAPH (b) of this Section at least two (2) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any 25 notice, the Canadian Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by Borrower pursuant to this Section shall be irrevocable; PROVIDED that a notice of termination of the Commitments delivered by Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by Borrower (by notice to the Global Administrative Agent and the Canadian Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Subject to the rights of Borrower under SECTION 2.21, any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their Applicable Percentage of the Commitments. SECTION 2.9. REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) Borrower hereby unconditionally promises to pay to the Canadian Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan and Borrowing of such Lender on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Canadian Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from Borrower to each Lender hereunder and (iii) the amount of any sum received by the Canadian Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to PARAGRAPHS (b) or (c) of this Section shall be PRIMA FACIE evidence of the existence and amounts of the obligations recorded therein; PROVIDED that the failure of any Lender or the Canadian Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by one or more promissory notes. In such event, Borrower shall prepare, execute and deliver to such Lender promissory notes payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns and in a form approved by the Global Administrative Agent and the Canadian Administrative Agent). Thereafter, the Loans evidenced by such promissory notes and interest thereon shall at all times (including after assignment pursuant to SECTION 10.4) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if any such promissory note is a registered note, to such payee and its registered assigns). 26 SECTION 2.10. PREPAYMENT OF LOANS. (a) Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section. Borrower shall not be permitted to prepay any Bankers' Acceptance or BA Loans at any time. (b) If, (i) during any period when the Applicable Rating Level is Level III, either the Global Borrowing Base or the Allocated Canadian Borrowing Base is (A) redetermined under SECTION 2.7 of the U.S. Credit Agreement, (B) [intentionally omitted], (C) reduced as the result of a Casualty Event under SECTION 2.7(h) of the U.S. Credit Agreement, (D) reduced as the result of an asset disposition under SECTION 2.7(i) of the U.S. Credit Agreement, (E) reallocated pursuant to SECTION 2.7(d) of the U.S. Credit Agreement, or (F) reduced pursuant to any other provision of the U.S. Credit Agreement, and (ii) as a result thereof, either a Global Borrowing Base Deficiency or a Canadian Borrowing Base Deficiency occurs, then Borrower shall take the following actions: (1) in the case of a Global Borrowing Base Deficiency resulting from a redetermination or reduction of the Global Borrowing Base, prepay, or cause to be prepaid, Combined Loans in an aggregate principal amount equal to such deficiency, together with interest on the principal amount paid accrued to the date of such prepayment and, if after prepaying all of the Combined Loans (other than Bankers Acceptances) a Global Borrowing Base Deficiency remains as a result of a BA Exposure, pay to the Canadian Administrative Agent an amount equal to such remaining Global Borrowing Base Deficiency to be held as cash collateral as provided in SECTION 2.22(m), and, if after prepaying all of the Combined Loans (other than Bankers Acceptances) and providing cash collateral for all Bankers' Acceptances pursuant to this Section, a Global Borrowing Base Deficiency remains as a result of an LC Exposure or an "LC Exposure" under the U.S. Credit Agreement, pay to the Global Administrative Agent an amount equal to such remaining Global Borrowing Base Deficiency to be held as cash collateral as provided in SECTION 2.4(j); PROVIDED that Borrower shall be obligated to make (or cause to be made) such prepayment and/or deposit of cash collateral within 180 days following the Deficiency Notification Date with respect to such deficiency; and PROVIDED FURTHER that within 90 days following the Deficiency Notification Date, Borrower shall have prepaid (or caused to be prepaid), or deposited cash in an amount equal to, one-half of such Global Borrowing Base Deficiency; (2) in the case of a Canadian Borrowing Base Deficiency resulting from a redetermination or reduction of the Global Borrowing Base, take the action described under clause (1) above (except that prepayments shall be made in respect of Loans made pursuant to this Agreement); (3) [Intentionally omitted.] 27 (4) in the case of a Canadian Borrowing Base Deficiency resulting from a Casualty Event pursuant to SECTION 2.7(h) of the U.S. Credit Agreement, utilize the Net Proceeds of such Casualty Event to take the action described under clause (1) above (except that prepayments shall be made in respect of Loans made pursuant to this Agreement); PROVIDED that if a prepayment or deposit is required under this clause (4), then Borrower shall be obligated to make (or cause to be made) such prepayment and/or deposit of cash collateral on the Business Day immediately following the Deficiency Notification Date with respect to such deficiency; (5) in the case of a Canadian Borrowing Base Deficiency resulting from an asset disposition pursuant to SECTION 2.7(i) of the U.S. Credit Agreement, utilize the Net Proceeds of such asset disposition to take the action described under clause (1) above (except that prepayments shall be made in respect of Loans made pursuant to this Agreement); PROVIDED that if a prepayment or deposit is required under this clause (5), then Borrower shall be obligated to make (or cause to be made) such prepayment and/or deposit of cash collateral on the Business Day immediately following the receipt by Borrower or a Restricted Subsidiary of any Net Proceeds from such asset disposition; and (6) in the case of a Canadian Borrowing Base Deficiency resulting from a reallocation of the Global Borrowing Base pursuant to SECTION 2.7(d) of the U.S. Credit Agreement, prepay Loans in an aggregate principal amount equal to such deficiency, together with interest on the principal amount paid accrued to the date of such prepayment, and if a Canadian Borrowing Base Deficiency remains after prepaying all of the Loans as a result of an LC Exposure, pay to the Global Administrative Agent an amount equal to such remaining Canadian Borrowing Base Deficiency to be held as cash collateral as provided in SECTION 2.4(j); it being understood that Borrower shall be obligated to make such prepayment and/or deposit of cash collateral on the effective date of such reallocation. (7) notwithstanding anything in this SECTION 2.10 to the contrary, in the event that a Canadian Borrowing Base Deficiency exists at a time when no Global Borrowing Base Deficiency exists, then, to the extent that such action would cure (in whole or in part) such Canadian Borrowing Base Deficiency, Borrower may reallocate the Global Borrowing Base between the Allocated U.S. Borrowing Base and the Allocated Canadian Borrowing Base by providing the Global Administrative Agent and the Canadian Administrative Agent with its election to do so (which election will designate the relevant reallocations) on the Business Day on which such Canadian Borrowing Base Deficiency occurs; provided, however, that no reallocation shall be permitted to the extent such reallocation would cause the "Credit Exposures" of the U.S. Lenders under the U.S. Credit Agreement to be greater than the lesser of the aggregate "Commitments" thereunder and the Allocated U.S. Borrowing Base. 28 (c) Borrower shall notify the Global Administrative Agent and the Canadian Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 1:00 p.m., Toronto time, two Business Days before the date of prepayment or (ii) in the case of prepayment of a Canadian Prime Borrowing or USBR Borrowing, not later than 11:00 a.m., Toronto time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid (which amount shall be in a minimum principal amount of U.S.$2,000,000 or C$2,000,000, as the case may be, and in U.S.$1,000,000 or C$1,000,000 increments in excess thereof, as the case may be); PROVIDED that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by SECTION 2.8, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with SECTION 2.8. Promptly following receipt of any such notice relating to a Borrowing, the Canadian Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in SECTION 2.2. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by SECTION 2.12 and by any other amounts then due under this Agreement (including all amounts due under SECTION 2.16). SECTION 2.11. FEES. (a) Borrower agrees to pay to the Canadian Administrative Agent for the account of each Lender a commitment fee (the "COMMITMENT FEE"), which shall accrue at the Applicable Rate on the daily amount equal to the Applicable Percentage of such Lender of the Unutilized Commitment during the period from and including the Global Effective Date to but excluding the date on which the Commitments terminate. Accrued Commitment Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date of this Agreement; PROVIDED that any Commitment Fees accruing after the date on which the Commitments terminate shall be payable on demand. All Commitment Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) Borrower agrees to pay to the Canadian Administrative Agent for the account of each Lender an unavailable fee (the "UNAVAILABLE FEE"), which shall accrue at the Applicable Rate on the daily amount equal to the Applicable Percentage of such Lender of the Unutilized Commitment during the period from and including the date of this Agreement to but excluding the Global Effective Date. Accrued Unavailable Fees shall be payable in arrears on the last day of March, June, September and December of each year, commencing on the first such date to occur after the date of this Agreement. All Unavailable Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) Borrower agrees to pay (i) to the Canadian Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall 29 accrue at the same Applicable Rate as interest on Eurodollar Loans on the average daily amount of such Lender's Applicable Percentage of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the date of this Agreement to but excluding the later of the date on which the Commitments terminate and the date on which the Lenders cease to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee equal to the greater of (A) U.S.$500 or C$500, depending on the Currency in which the relevant Letter of Credit is denominated, and (B) the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements), which LC Exposure will be converted to an Equivalent Amount with respect to Letters of Credit which are denominated in Canadian Dollars, during the period from and including the date of this Agreement to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure , as well as the Issuing Bank's standard fees with respect to the administration, issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees shall be payable in arrears on the last day of each March, June, September and December of each year, commencing on the first such date to occur after the date of this Agreement; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (d) Borrower agrees to pay to the Global Administrative Agent, for its own account and for the account of each Lender, as applicable, fees, including, without limitation, an upfront fee (the "UPFRONT FEE"), in the amounts and at the times separately agreed upon between Parent and the Global Administrative Agent, including, without limitation, the amounts agreed upon between Parent and the Global Administrative Agent in the Fee Letter. (e) Unless otherwise set forth herein, all fees payable hereunder shall be paid on the dates due, in immediately available funds in U.S. Dollars, to the Global Administrative Agent or the Canadian Administrative Agent (or the Issuing Bank, in the case of fees payable to it), as the case may be, for distribution, in the case of Commitment Fees, Unavailable Fees and participation fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. SECTION 2.12. INTEREST. (a) Subject to SECTIONS 2.12(f), (g) and (h) and SECTION 10.13, the Loans comprising each Canadian Prime Borrowing shall bear interest at the Canadian Prime Rate plus the Applicable Rate for Canadian Prime Loans, and Loans comprising each USBR Borrowing shall bear interest at the USBR plus the Applicable Rate for U.S. Base Rate Loans. 30 (b) Subject to SECTIONS 2.12(f), (g) and (h) and SECTION 10.13, the Loans comprising each Eurodollar Borrowing shall bear interest at the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate for Eurodollar Loans. (c) Notwithstanding the foregoing, but subject to SECTIONS 2.12(f), (g) and (h) and SECTION 10.13, if any principal of or interest on any Loan or any fee or other amount payable by Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section PLUS, to the extent permitted by applicable law, 2% or (ii) in the case of any other amount, the rate applicable to Canadian Prime Loans as provided in paragraph (a) of this Section PLUS, to the extent permitted by applicable law, 2%. (d) Subject to SECTIONS 2.12(f), (g) and (h) and SECTION 10.13, accrued interest on each Loan (other than a Loan consisting of the acceptance of a Bankers' Acceptance) shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; PROVIDED that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand of the Canadian Administrative Agent or the Required Lenders (through the Canadian Administrative Agent), (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) Subject to SECTIONS 2.12(f), (g) and (h) and SECTION 10.13, all interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Canadian Prime Rate or the U.S. Base Rate and interest associated with BA Loans shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Canadian Prime Rate, U.S. Base Rate or LIBO Rate shall be determined by the Canadian Administrative Agent, and such determination shall be conclusive absent manifest error. (f) To the extent permitted by applicable law, any provision of the INTEREST ACT (CANADA) or the JUDGMENT INTEREST ACT (ALBERTA) which restricts any rate of interest set forth herein shall be inapplicable to this Agreement and is hereby waived by Borrower. (g) The theory of deemed reinvestment shall not apply to the calculation of interest or payment of fees or other amounts hereunder, notwithstanding anything contained in this Agreement, acceptance or other evidence of indebtedness or in any other Loan Document now or hereafter taken by any Agent or any Lender for the obligations of Borrower under this Agreement, or any other instrument referred to herein, and all interest and fees payable by Borrower to the Lenders, shall accrue from day to day, computed as described herein in accordance with the "nominal rate" method of interest calculation. 31 (h) Where, in this Agreement, a rate of interest or fees is to be calculated on the basis of a 360-day year, such rate is, for the purpose of the INTEREST ACT (Canada), equivalent to the said rate (i) multiplied by the actual number of days in the one year period beginning on the first day of the period of calculation and (ii) divided by 360. SECTION 2.13. ALTERNATE RATE OF INTEREST. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Canadian Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Interest Period; (b) the Canadian Administrative Agent is advised by the Required Lenders that the LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; or (c) the Canadian Administrative Agent determines in good faith (which determination shall be conclusive) that by reason of circumstances affecting the interbank dollar market generally, deposits in U.S. Dollars in the London interbank dollar market are not being offered for the applicable Interest Period and in an amount equal to the amount of the Eurodollar Loan requested by Borrower, then the Canadian Administrative Agent shall give notice thereof to Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Canadian Administrative Agent notifies Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing for the affected Interest Period shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as a Eurodollar Loan having the shortest Interest Period which is not unavailable under clauses (a) through (c) of this Section, and if no Interest Period is available, as an USBR Borrowing. SECTION 2.14. ILLEGALITY. (a) Notwithstanding any other provision of this Agreement to the contrary, if (i) by reason of the adoption of any applicable Governmental Rule or any change in any applicable Governmental Rule or in the interpretation or administration thereof by any Governmental Authority or compliance by any Lender with any request or directive (whether or not having the force of law) of any central bank or other Governmental Authority or (ii) circumstances affecting the London interbank dollar market or the position of a Lender therein shall at any time make it unlawful or impracticable in the sole discretion of a Lender exercised in good faith for such Lender or its Applicable Lending Office to (A) honor its obligation to make Eurodollar Loans either generally or for a particular Interest Period provided for hereunder, or (B) maintain Eurodollar Loans either generally or for a particular Interest Period provided for hereunder, then such Lender shall promptly notify Borrower thereof 32 through the Canadian Administrative Agent and such Lender's obligation to make or maintain Eurodollar Loans having an affected Interest Period hereunder shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans having an affected Interest Period (in which case the provisions of SECTION 2.14(b) hereof shall be applicable). Before giving such notice pursuant to this SECTION 2.14, such Lender will designate a different available Applicable Lending Office for the affected Eurodollar Loans of such Lender or take such other action as Borrower may request if such designation or action will avoid the need to suspend such Lender's obligation to make Eurodollar Loans hereunder and will not, in the sole opinion of such Lender exercised in good faith, be disadvantageous to such Lender (PROVIDED, that such Lender shall have no obligation so to designate an Applicable Lending Office for Eurodollar Loans located in the United States of America). (b) If the obligation of any Lender to make or maintain any Eurodollar Loans shall be suspended pursuant to SECTION 2.14(a) hereof, all Loans having an affected Interest Period which would otherwise be made by such Lender as Eurodollar Loans shall be made instead as USBR Loans (and, if such Lender so requests by notice to Borrower with a copy to the Global Administrative Agent and the Canadian Administrative Agent, each Eurodollar Loan having an affected Interest Period of such Lender then outstanding shall be automatically converted into a USBR Loan on the last day of the Interest Period for such Eurodollar Loans unless earlier conversion is required by applicable law) and, to the extent that Eurodollar Loans are so made as (or converted into) USBR Loans, all payments of principal which would otherwise be applied to such Eurodollar Loans shall be applied instead to such USBR Loans. SECTION 2.15. INCREASED COSTS. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the LIBO Rate) or any Issuing Bank; or (ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or BA Loan or Bankers' Acceptance (or of maintaining its obligation to make any such Loan or BA Loan or Bankers' Acceptance ) or to increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit or BA Loan or Bankers' Acceptance, or to reduce the amount of any sum received or receivable by such Lender or such Issuing Bank hereunder (whether of principal, interest or otherwise), then Borrower will pay to such Lender or such Issuing Bank such additional amount or amounts as will compensate 33 such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or any Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or such Issuing Bank's capital or on the capital of such Lender's or such Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or such Issuing Bank's policies and the policies of such Lender's or such Issuing Bank's holding company with respect to capital adequacy), then Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof. (d) Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or such Issuing Bank's right to demand such compensation; PROVIDED that Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or such Issuing Bank's intention to claim compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.16. BREAK FUNDING PAYMENTS. In the event of (a) the payment (including prepayment) of any principal of any Eurodollar Loan or BA Loan or Bankers' Acceptance other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan or BA Loan or Bankers' Acceptance other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under SECTION 2.10(b) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan or BA Loans or Bankers' Acceptances other than on the last day of the Interest Period applicable thereto as a result of a request by Borrower pursuant to SECTION 2.19 34 then, in any such event, Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the London interbank market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to Borrower, the Global Administrative Agent and the Canadian Administrative Agent and shall be conclusive absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof. SECTION 2.17. TAXES. (a) Any and all payments by or on account of any obligation of Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), the Global Administrative Agent, the Canadian Administrative Agent, each Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law; PROVIDED that if a Lender is in breach of its representations and warranties under SECTION 2.17(e), then Borrower shall only be obligated to comply with clauses (ii) and (iii) of this SECTION 2.17(a) with respect to payments to be made to such Lender. (b) In addition, Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Borrower shall indemnify the Global Administrative Agent, the Canadian Administrative Agent, each Lender and each Issuing Bank, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Global Administrative Agent, the Canadian Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of Borrower hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified 35 Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; PROVIDED that if a Lender is in breach of its representations under SECTION 2.17(e), then Borrower shall have no obligations under this SECTION 2.17(c) with respect to any payments or liability described herein made or owed by such Lender. A certificate as to the amount of such payment or liability delivered to Borrower by a Lender or an Issuing Bank, or by either the Global Administrative Agent or the Canadian Administrative Agent on its own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrower to a Governmental Authority, if available, Borrower shall deliver to the Global Administrative Agent and the Canadian Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Global Administrative Agent and the Canadian Administrative Agent. (e) Each Lender represents and warrants that it is not a Foreign Lender. (f) If Borrower at any time pays an amount under SECTION 2.17(a), (b) or (c) to any Lender, the Global Administrative Agent, the Canadian Administrative Agent or any Issuing Bank, and such payee receives a refund of or credit for any part of any Indemnified Taxes or Other Taxes which such payee determines in its sole judgment is made with respect to such amount paid by Borrower, such Lender, the Global Administrative Agent, the Canadian Administrative Agent or any Issuing Bank, as the case may be, shall pay to such Borrower the amount of such refund or credit promptly, and in any event within 60 days, following the receipt of such refund or credit by such payee. SECTION 2.18. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS. (a) Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under SECTION 2.15, 2.16 or 2.17, or otherwise) prior to the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 12:00 noon, Toronto time), on the date when due, in immediately available funds in the appropriate Currency, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Canadian Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Canadian Administrative Agent c/o The Chase Manhattan Bank of Canada, 1 First Canadian Place, 100 King Street West, Suite 6900, P.O. Box 106, Toronto, Ontario, Canada M5X 1A4, Attention: Portfolio Management Associates, Telephone: 416-216-4135 or 4106, Fax: 416-216-4162, with a copy to The Chase Manhattan Bank, Loan and Agency Services, One Chase Manhattan Plaza, 8th floor, New York, NY 10081, Attention: Michael Cerniglia, Telephone: 212-552-7906, Fax: 212-552-5777, with a copy to The Chase Manhattan Bank, Global Oil & Gas, 600 Travis Street, 20th floor, Houston, Texas 77002, Attention: Peter 36 Licalzi, Telephone: 713-216-8869, Fax: 713-216-4117, except payments to be made directly to an Issuing Bank as expressly provided herein and payments pursuant to SECTIONS 2.15, 2.16, 2.17(c) and 10.3 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein. The Canadian Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. Except as set forth in clause (a) of the definition of "Interest Period", if any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Loan Document shall be made in the appropriate Currency as required pursuant to the Loan Documents. (b) If at any time insufficient funds are received by and available to the Canadian Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; PROVIDED that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of Borrower in the amount of such participation. 37 (d) Unless the Canadian Administrative Agent shall have received notice from Borrower prior to the date on which any payment is due to the Canadian Administrative Agent for the account of the Lenders or an Issuing Bank hereunder that Borrower will not make such payment, the Canadian Administrative Agent may assume that Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or an Issuing Bank, as the case may be, the amount due. In such event, if Borrower has not in fact made such payment, then each of the Lenders or each of the Issuing Banks, as the case may be, severally agrees to repay to the Canadian Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Global Administrative Agent, at the greater of the cost incurred by the Canadian Administrative Agent for making such distributed amount and a rate determined by the Global Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to SECTION 2.4(d) or (e), 2.5(b), 2.18(d) or 10.3(c) then the Canadian Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Canadian Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.19. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS. (a) If any Lender requests compensation under SECTION 2.15, or if Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 2.17, then such Lender shall use reasonable efforts to designate a different Applicable Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to SECTION 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If (i) any Lender asserts that events have occurred suspending its obligation to make or maintain Eurodollar Loans under Section 2.14 when substantially all other Lenders have not also done so, (ii) any Lender requests compensation under SECTION 2.15, (iii) Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 2.17, or (iv) any Lender defaults in its obligation to fund Loans hereunder, then Borrower may, at its sole expense and effort, upon notice to such Lender, the Canadian Administrative Agent and the Global Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in SECTION 10.4), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such 38 assignment); PROVIDED that (1) Borrower shall have received the prior written consent of the Global Administrative Agent and the Canadian Administrative Agent, which consents shall not unreasonably be withheld or delayed, (2) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or Borrower (in the case of all other amounts), (3) the assignee and assignor shall have entered into an Assignment and Acceptance, and (4) in the case of any such assignment resulting from a claim for compensation under SECTION 2.15 or payments required to be made pursuant to SECTION 2.17, such assignment will result in a reduction in such compensation or payments. SECTION 2.20. CURRENCY CONVERSION AND CURRENCY INDEMNITY. (a) PAYMENTS IN AGREED CURRENCY. Borrower shall make payment relative to any Obligation in the currency (the "AGREED CURRENCY") in which the Obligation was effected. If any payment is received on account of any Obligation in any currency (the "OTHER CURRENCY") other than the Agreed Currency (whether voluntarily or pursuant to an order or judgment or the enforcement thereof or the realization of any Collateral or the liquidation of Borrower or otherwise howsoever), such payment shall constitute a discharge of the liability of Borrower hereunder and under the other Loan Documents in respect of such obligation only to the extent of the amount of the Agreed Currency which the relevant Lender or Agent, as the case may be, is able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange. (b) CONVERSION OF AGREED CURRENCY INTO JUDGMENT CURRENCY. If, for the purpose of obtaining or enforcing judgment in any court in any jurisdiction, it becomes necessary to convert into a particular currency (the "JUDGMENT CURRENCY") any amount due in the Agreed Currency then the conversion shall be made on the basis of the rate of exchange prevailing on the next Business Day following the date such judgment is given and in any event Borrower shall be obligated to pay the Agents and the Lenders any deficiency in accordance with SECTION 2.20(c). For the foregoing purposes "rate of exchange" means the rate at which the relevant Lender or Agent, as applicable, in accordance with its normal banking procedures is able on the relevant date to purchase the Agreed Currency with the Judgment Currency after deducting any premium and costs of exchange. (c) CIRCUMSTANCES GIVING RISE TO INDEMNITY. To the fullest extent permitted by applicable law, if (i) any Lender or any Agent receives any payment or payments on account of the liability of Borrower hereunder pursuant to any judgment or order in any Other Currency, and (ii) the amount of the Agreed Currency which the relevant Lender or Agent, as applicable, is able to purchase on the Business Day next following such receipt with the proceeds of such payment or payments in accordance with its normal procedures and after deducting any premiums and costs of exchange is less than the amount of the Agreed Currency due in respect of such liability immediately prior to such judgment or order, then Borrower on demand shall, and Borrower hereby 39 agrees to, indemnify the Lenders and the Agents from and against any loss, cost or expense arising out of or in connection with such deficiency. (d) INDEMNITY SEPARATE OBLIGATION. To the fullest extent permitted by applicable law, the agreement of indemnity provided for in SECTION 2.20(c) shall constitute an obligation separate and independent from all other obligations contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Lenders or Agents or any of them from time to time, and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order. SECTION 2.21. ADDITION OF LENDERS AND INCREASE IN COMMITMENTS. It is agreed by the parties hereto that one or more financial institutions acceptable to Canadian Forest, the Canadian Administrative Agent and the Global Administrative Agent may become a Lender under this Agreement, with the consent of the Required Lenders, by executing and delivering to Canadian Forest, the Canadian Administrative Agent and the Global Administrative Agent a certificate substantially in the form of EXHIBIT B hereto (a "LENDER CERTIFICATE"). Upon receipt and agreement by Canadian Forest, the Canadian Administrative Agent, the Global Administrative Agent and the Required Lenders of any such Lender Certificate, (a) the aggregate amount of the Commitments of the Lenders (including any Person that becomes a Lender by delivery of such a Lender Certificate) automatically without further action by Borrower, the Canadian Administrative Agent, the Global Administrative Agent or any Lender shall be increased by the amount indicated in such Lender Certificate (but not in excess of U.S.$100,000,000 in the aggregate for all such increases pursuant to this Section and the increases pursuant to Section 2.21 of the U.S. Credit Agreement) on the effective date set forth in such Lender Certificate (such increased amount herein the "INCREASED COMMITMENT AMOUNT"), (b) the Register shall be amended to add such Commitment of such additional Lender or to reflect the increase in the Commitment of an existing Lender and the Applicable Percentages of the Lenders shall be adjusted accordingly to reflect the additional Lender or in the increase in the Commitment of an existing Lender, (c) any such additional Lender shall be deemed to be a party in all respect to this Agreement and the other Loan Documents, and (d) upon the effective date set forth in such Lender Certificate, any such Lender party to the Lender Certificate shall purchase a pro rata portion of the outstanding Credit Exposures of each of the current Lenders such that the Lenders (including any additional Lender, if applicable) shall have the appropriate portion of the aggregate outstanding Credit Exposures (based in each case of such Lender's Applicable Percentage, as revised pursuant to this Section). SECTION 2.22. BANKERS' ACCEPTANCES. Subject to the terms and conditions of this Agreement, the Commitments may be utilized, upon the request of Borrower, in addition to the Loans provided for by SECTION 2.2 and the issuance of Letters of Credit provided for by SECTION 2.4, for the acceptance by the Lenders of Bankers' Acceptances issued by Borrower, PROVIDED that in no event shall (i) the aggregate amount of all Bankers' Acceptance Liabilities together with the Equivalent Amount in U.S. Dollars of the aggregate principal amount of the Loans and the aggregate amount of all LC Exposure exceed (A) in the event the Applicable Rating Level is Level III, the 40 lesser of (1) the aggregate amount of the Allocated Canadian Borrowing Base then in effect and (2) the aggregate amount of the Commitments of the Lenders or (B) in the event the Applicable Rating Level is Level I or II, the aggregate amount of the Commitments of the Lenders, and (ii) any Bankers' Acceptances have maturities of less than 30 days or more than 180 days from the Acceptance Date (and shall in no event mature on a date after the Maturity Date). Whenever Borrower is required to furnish a notice to the Canadian Administrative Agent pursuant to the following additional provisions of this Section, it shall give a copy of such notice to the Global Administrative Agent. The following additional provisions shall apply to Bankers' Acceptances: (a) In order to facilitate and expedite the issuance and acceptance of Bankers' Acceptances hereunder, Borrower agrees to the terms and conditions of the Power of Attorney with respect to the Bankers' Acceptance attached hereto as EXHIBIT K. (b) When Borrower wishes to make a Borrowing by way of Bankers' Acceptances, Borrower shall give the Canadian Administrative Agent and the Global Administrative Agent prior written notice with respect to the issuance of the Bankers' Acceptances (such written notice a "BANKERS' ACCEPTANCE REQUEST") by not later than 1:00 p.m., Toronto time, two (2) Business Days' prior to the Acceptance Date. Each Bankers' Acceptance Request shall be irrevocable and binding on Borrower. Borrower shall indemnify each Lender against any loss or expense incurred by such Lender as a result of any failure by Borrower to fulfill or honor before the date specified as the Acceptance Date, the applicable conditions set forth in ARTICLE IV, if, as a result of such failure the requested Bankers' Acceptance is not made on such date. Unless otherwise agreed among the Canadian Administrative Agent, the Global Administrative Agent and the Lenders, the aggregate amount of all Bankers' Acceptances issued on any Acceptance Date hereunder shall be accepted PRO RATA by all Lenders relative to their respective Applicable Percentage, rounded, upwards or downwards, as the case may be, to the nearest C$100,000. Upon receipt of a Bankers' Acceptance Request, the Canadian Administrative Agent shall advise each Lender of the contents thereof. (c) Unless Borrower has notified the Canadian Administrative Agent and the Global Administrative Agent in the Bankers' Acceptance Request that Borrower intends to arrange the sale of the Bankers' Acceptances which are the subject of such Bankers' Acceptance Request (a "BORROWER ARRANGEMENT"), on the Acceptance Date at 10:30 a.m., Toronto time, the Canadian Administrative Agent shall determine the Bankers' Acceptance Rate for each of the Accepting Lenders. Not later than 2:00 p.m., Toronto time, each such Accepting Lender shall accept and purchase its share of the Bankers' Acceptances that are issued and shall make available to the Canadian Administrative Agent, in accordance with SECTION 2.5, the BA Net Proceeds of the purchase of Bankers' Acceptances on such day by such Lender. The Canadian Administrative Agent shall transfer to the applicable Borrower those BA Net Proceeds of the Bankers' Acceptances and shall notify such Borrower and each such Lender by facsimile or telephone (if by telephone, to be confirmed subsequently in writing) of the details of the issue, substantially in the form set out in EXHIBIT N. Each Accepting Lender may at any time and from time to time hold, sell, rediscount or otherwise dispose of any or all Bankers' Acceptances accepted and purchased by it. 41 On the Acceptance Date, such Borrower shall pay each Accepting Lender and each Lender providing a BA Loan a Stamping Fee with respect to each Bankers' Acceptance and each BA Loan and each Lender is hereby authorized to deduct such Stamping Fee prior to remitting the BA Net Proceeds to the Canadian Administrative Agent. For each Bankers' Acceptance or BA Loan, the Stamping Fee payable by such Borrower shall be the product obtained by multiplying: (i) the applicable Bankers' Acceptance Stamping Fee specified in the definition of Applicable Rate in effect from time to time; by (ii) the Principal Amount of that Bankers' Acceptance or BA Loan; and prorating that product for the number of days in the term from and including the Acceptance Date to but not including the BA Maturity Date of that Bankers' Acceptance or the Interest Period for the BA Loan, as the case may be, on the basis of a year of 365 days. (d) [Intentionally omitted.] (e) On each day during the period commencing with the issuance by Borrower of any Bankers' Acceptance and until such Bankers' Acceptance Liability shall have been paid by Borrower, the Commitment of each Accepting Lender that is able to extend credit by way of Bankers' Acceptances shall be deemed to be utilized for all purposes of this Agreement in an amount equal to the Principal Amount of such Bankers' Acceptance. The Commitment of any Lender providing a BA Loan rather than Bankers' Acceptances shall be deemed utilized during this period in an amount equal to its Applicable Percentage of the total amount of Bankers' Acceptances and BA Loans in each Bankers' Acceptance Request. (f) Borrower agrees to pay on the BA Maturity Date for each Bankers' Acceptance, to the Canadian Administrative Agent for account of each Accepting Lender, an amount equal to the Bankers' Acceptance Liability for such Bankers' Acceptance. Each Borrower hereby waives presentment for payment of Bankers' Acceptances by the Accepting Lenders and any defense to payment of amounts due to an Accepting Lender in respect of a Bankers' Acceptance which might exist by reason of such Bankers' Acceptance being held at maturity by the Accepting Lender which accepted it and agree not to claim from such Lenders any days of grace for the payment at maturity of Bankers' Acceptances. (g) In the event any Borrower fails to notify the Canadian Administrative Agent in writing not later than 1:00 p.m., Toronto time, on the Business Day prior to any BA Maturity Date that such Borrower intends to pay with Borrower's own funds the Bankers' Acceptance Liabilities due on such BA Maturity Date or fails to make such payment, such Borrower shall be deemed, for 42 all purposes to have given the Canadian Administrative Agent notice of a borrowing of a Canadian Prime Loan pursuant to SECTION 2.3 for an amount equal to the Principal Amount of such Bankers' Acceptance; PROVIDED that: (i) the BA Maturity Date for such Bankers' Acceptances shall be considered to be the date of such borrowing; (ii) the proceeds of such Canadian Prime Loan shall be used to pay the amount of the Bankers' Acceptance Liability due on such BA Maturity Date; (iii) if after giving effect to such Canadian Prime Loan, a Canadian Borrowing Base Deficiency would exist, the Global Administrative Agent shall so advise Borrower and Borrower shall comply with the provisions of SECTION 2.10; (iv) each Lender which has made a maturing BA Loan (in accordance with SECTION 2.22(h) hereof) shall continue to extend credit to Borrower by way of a Canadian Prime Loan (without further advance of funds to Borrower) in the Principal Amount equal to its Applicable Percentage of the total amount of credit requested to be extended by Bankers' Acceptances when the BA Loan was made; and (v) the Canadian Administrative Agent shall promptly and in any event within three (3) Business Days following the BA Maturity Date of such Bankers' Acceptances, notify Borrower in writing of the making of such Canadian Prime Loan pursuant to this SECTION 2.22(g). (h) If, in the sole judgment of a Lender, such Lender is unable, as a result of applicable law or customary market practice, to extend credit by way of Bankers' Acceptance in accordance with this Agreement, such Lender shall give notice to such effect to the Canadian Administrative Agent and Borrower prior to 1:00 p.m., Toronto time, on the date of the requested credit extension (which notice may, if so stated therein, remain in effect with respect to subsequent requests for extension of credit by way of Bankers' Acceptance until revoked by notice to the Global Administrative Agent, the Canadian Administrative Agent and Borrower) and shall make available to the Canadian Administrative Agent, in accordance with SECTION 2.1 hereof prior to 2:00 p.m., Toronto time, on the date of such requested credit extension a Canadian Dollar loan (a "BA LOAN") in the Principal Amount equal to such Lender's Applicable Percentage of the total amount of credit requested to be extended by way of Bankers' Acceptances. The Stamping Fee for that BA Loan shall be calculated on that Principal Amount. Such BA Loan shall have an Interest Period equal to the term of the Bankers' Acceptances for which it is a substitute and shall bear interest throughout such Interest Period applicable to that BA Loan at a rate per annum equal to the Bankers' Acceptance Rate for such Bankers' Acceptances. On the maturity date of the Bankers' Acceptances issued concurrently with the advance of the BA Loan, Borrower shall pay to each Lender which made a BA Loan, in satisfaction of the BA Loan and accrued interest thereon, an amount equal to the Principal Amount of such BA Loan, failing which such Principal Amount shall be converted to a Canadian 43 Prime Loan. The amount of the proceeds of that BA Loan to be disbursed to Borrower on the Acceptance Date shall be the same amount as if that Lender had accepted and purchased its Lender's Applicable Percentage of the requested Bankers' Acceptances at a discount from the Principal Amount of that Bankers' Acceptance calculated at a discount rate per annum equal to the Bankers' Acceptance Rate for the term of such Bankers' Acceptances in the same manner that BA Net Proceeds are calculated; provided that the Principal Amount of such BA Loan shall be the same amount as the face amount of the Bankers' Acceptance which such Lender would have accepted but for this SECTION 2.22(h). (i) If any Borrower notifies the Canadian Administrative Agent of a Borrower Arrangement, on the Acceptance Date of the Bankers' Acceptances constituting such Borrower Arrangement: (i) Borrower shall obtain quotations from prospective purchasers regarding the sale of the Bankers' Acceptances to be accepted by the Lenders, and shall, on or before 11:00 a.m., Toronto time, on such date, provide the Canadian Administrative Agent with all necessary information required by each Lender to enable each Lender to determine the Bankers' Acceptance discount rate applicable to such issue, together with the identity of and the face amount of Bankers' Acceptances to be purchased by each of the purchaser(s) of the Bankers' Acceptances accepted by each Lender. In obtaining such quotes, Borrower shall offer each Lender the right to bid on the Bankers' Acceptances accepted by it. The Lenders and the Canadian Administrative Agent shall not be responsible for any losses occasioned by the failure of any Borrower to comply with its obligations under this paragraph and shall not be required to purchase any Bankers' Acceptances on such Acceptance Date if the applicable Borrower has requested a Borrower Arrangement; and (ii) on receipt from Borrower of the information referred to in paragraph (i), the Canadian Administrative Agent shall promptly notify each Lender of: (A) the Bankers' Acceptance discount rate to be applicable to such issue; (B) the proceeds to be received by such Lender on the sale of the Bankers' Acceptances accepted by such Lender, based upon such Bankers' Acceptance discount rate obtained by such Borrower for each such Lender; and (C) the Stamping Fee payable to such Lender in connection with such issue. (j) [Intentionally omitted.] 44 (k) If a Lender determines in good faith, which determination shall be final, conclusive and binding upon Borrower, and notifies Borrower that, by reason of circumstances affecting the money market: (i) there is no market for Bankers' Acceptances generally or of a requested duration; or (ii) the demand for Bankers' Acceptances is insufficient to allow the sale or trading of the Bankers' Acceptances created and purchased hereunder generally or in connection with a requested duration; then: (x) the right of any Borrower to request Bankers' Acceptances or a BA Loan of the affected duration from that Lender shall be suspended until such Lender determines that the circumstances causing such suspension no longer exist and such Lender so notifies each Borrower; and (y) any Bankers' Acceptance Request for an affected duration which is outstanding shall be canceled and the Bankers' Acceptances or BA Loan requested therein shall not be made and a Bankers' Acceptance or BA Loan having the shortest duration available (or if none) a Canadian Prime Loan shall be made in its place. (l) It is the intention of the Canadian Administrative Agent, the Lenders and Borrower that, except to the extent a Lender advises otherwise, pursuant to the DEPOSITORY BILLS AND NOTES ACT ("DBNA"), all Bankers' Acceptances accepted by the Lenders under this Agreement shall be issued in the form of a "depository bill" (as defined in the DBNA), deposited with the Canadian Depository for Securities Ltd. and made payable to CDS & Co. In order to give effect to the foregoing, the Canadian Administrative Agent shall, subject to the approval of Borrower and the Lenders, establish and notify Borrower and the Lenders of any procedure, consistent with the terms of this Agreement and the requirements of the DBNA, as is reasonably necessary to accomplish such intention, including, without limitation: (i) any instrument held by the Canadian Administrative Agent or a Lender for the purposes of Bankers' Acceptances shall have marked prominently and legibly on its face and within its text, at or before the time of issue, the words "This is a depository bill subject to the DEPOSITORY BILLS AND NOTES ACT (Canada)"; (ii) any reference to the authentication of the Bankers' Acceptances will be removed; and 45 (iii) any reference to "bearer" will be removed and no Bankers' Acceptance shall be marked with any words prohibiting negotiation, transfer or assignment of it or of an interest in it. (m) If any Event of Default shall occur and be continuing, on the Business Day that Borrower receives notice from the Global Administrative Agent, the Canadian Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with BA Exposure representing greater than 50% of the total BA Exposure) demanding the deposit of cash collateral pursuant to this paragraph, Borrower shall deposit in an account with the Canadian Administrative Agent, in the name of the Canadian Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the BA Exposure as of such date plus any accrued and unpaid interest thereon; PROVIDED that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default described in SECTION 8.1(g). Borrower shall also deposit cash collateral pursuant to this paragraph as and to the extent required by SECTION 2.10, and any such cash collateral so deposited and held by the Canadian Administrative Agent hereunder shall constitute part of the Global Borrowing Base for purposes of determining compliance with SECTION 2.10. Each such deposit shall be held by the Canadian Administrative Agent as collateral for the payment and performance of the obligations of Borrower under this Agreement. The Canadian Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Canadian Administrative Agent and at Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Canadian Administrative Agent for the satisfaction of the obligations of Borrower with respect to the BA Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with BA Exposure representing greater than 50% of the total BA Exposure), be applied to satisfy other obligations of Borrower under this Agreement. If Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to Borrower within three (3) Business Days after all Events of Default have been cured or waived. If Borrower is required to provide an amount of cash collateral hereunder pursuant to SECTION 2.10, such amount (to the extent not applied as aforesaid) shall be returned to Borrower as and to the extent that, after giving effect to such return, Borrower would remain in compliance with SECTION 2.10 and no Default shall have occurred and be continuing. ARTICLE III REPRESENTATIONS AND WARRANTIES In order to induce the Global Administrative Agent, the Canadian Administrative Agent, the other Agents, any Issuing Bank and the Lenders to enter into this Agreement and to make Loans (including making BA Loans and accepting Bankers' Acceptances) hereunder, Borrower represents 46 and warrants to the Global Administrative Agent, the Canadian Administrative Agent, the other Agents, any Issuing Bank and the Lenders as set forth in this Article. SECTION 3.1. ORGANIZATION; POWERS. Each of Borrower and its Restricted Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.2. AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by Borrower of this Agreement and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Loan Party of each Loan Document executed or to be executed by it, are within Borrower's and each such Loan Party's corporate, limited liability company and/or partnership powers, and have been duly authorized by all necessary corporate, limited liability company and/or partnership action, and if required, stockholder, member and/or partner action. This Agreement and each other Loan Document executed or to be executed by it has been duly executed and delivered by Borrower and constitutes, and each other Loan Document executed or to be executed by any Loan Party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of Borrower or such Loan Party (as the case may be), enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.3. APPROVALS; NO CONFLICTS. The execution, delivery and performance by Borrower of this Agreement and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Loan Party of each Loan Document executed or to be executed by such Loan Party, (a) do not require any Governmental Approval or third party approvals, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents, (b) will not violate any applicable Governmental Rule or the Organic Documents of Borrower or any such Loan Party or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon Borrower or any such Loan Party or its assets, or give rise to a right thereunder to require any payment to be made by Borrower or any such Loan Party, and (d) will not result in the creation or imposition of any Lien on any asset of Borrower or any such Loan Party except Liens created under the Loan Documents. SECTION 3.4. PROPERTIES. Each of Borrower and its Restricted Subsidiaries owns its Properties free and clear of all Liens (other than Liens permitted by SECTION 7.2 of the U.S. Credit Agreement). SECTION 3.5. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of Borrower and its Restricted Subsidiaries is in compliance with all Governmental Rules applicable to such Person or 47 its Property and all indentures, agreements and other instruments binding upon it or its Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.6. UNFUNDED PENSION LIABILITIES. The unfunded pension or similar liabilities of Canadian Forest and its Subsidiaries do not in the aggregate exceed an amount which could reasonably be expected to have a Material Adverse Effect. SECTION 3.7. DISCLOSURE. Borrower has disclosed to the Lenders, the Canadian Administrative Agent and the Global Administrative Agent all agreements, court orders, judgments, instruments and corporate or other restrictions to which Borrower or any of its Subsidiaries is subject, and all other matters known to any of them relating to any of the foregoing, which agreements, court orders, judgments, instruments, restrictions and other matters individually or in aggregate could reasonably be expected to result in a Material Adverse Effect. None of the documents, reports, financial statements, certificates or other information furnished by or on behalf of Borrower or any of its Subsidiaries to the Global Administrative Agent, the Canadian Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED that, with respect to projected financial information, Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.8. PRIORITY; SECURITY MATTERS. The Obligations are and shall be at all times secured by Liens in all Collateral located in the Provinces of Alberta, Saskatchewan and British Columbia to the extent perfection has or will occur by the filing of an instrument to create a floating charge under the laws of the Provinces of Alberta, Saskatchewan and British Columbia, or by possession, and, except for Liens permitted by SECTION 7.2, all such Liens shall be first priority Liens. SECTION 3.9. SOLVENCY. Immediately after the consummation of the Financing Transactions to occur on the Global Effective Date and immediately following the making of each Loan made on the Global Effective Date and after giving effect to the application of the proceeds of such Loans, (a) each Loan Party will not have unreasonably small capital with which to conduct the business in which such Loan Party is engaged as such business is now conducted and is proposed to be conducted following the Global Effective Date; and (b) Canadian Forest and each Loan Party will be Solvent. SECTION 3.10. REPRESENTATIONS AND WARRANTIES IN U.S. CREDIT AGREEMENT. Each Borrower represents and warranties that each of the representations and warranties contained in the U.S. Credit Agreement, including, without limitation, Article III of the U.S. Credit Agreement, pertaining or otherwise applicable to such Borrower in its capacity as a Restricted Subsidiary of the Parent is true, correct and complete in all respects (except with respect to such representations and 48 warranties which expressly relate to an earlier date, in which case such representations and warranties are true, correct and complete as of such earlier date). ARTICLE IV CONDITIONS SECTION 4.1. EFFECTIVENESS. This Agreement shall become effective on the date on which each of the following conditions is satisfied (or waived in accordance with SECTION 10.2): (a) CERTAIN LOAN DOCUMENTS. The Global Administrative Agent (or its counsel) shall have received from each party thereto either a counterpart of each of the following documents duly executed on behalf of such party or written evidence satisfactory to the Global Administrative Agent (which may include telecopy transmission of a signed signature page of such document) that each such party has duly executed for delivery to the Global Administrative Agent a counterpart of each of the following documents which documents must be acceptable to the Global Administrative Agent in its sole and absolute discretion: this Agreement, the U.S. Credit Agreement and the Intercreditor Agreement. (b) FEES AND EXPENSES. The Global Administrative Agent, the Canadian Administrative Agent, the Arranger and the Lenders shall have received all fees, including the Upfront Fee, and other amounts due and payable pursuant to this Agreement or any other Loan Document on or prior to the date hereof, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder or under any other Combined Loan Document. SECTION 4.2. INITIAL LOAN. The obligations of the Lenders to make Loans (including making BA Loans and accepting Bankers' Acceptances) or for any Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with SECTION 10.2): (a) CERTAIN LOAN DOCUMENTS. The Global Administrative Agent (or its counsel) shall have received from each party thereto either a counterpart of each of the following documents duly executed on behalf of such party or written evidence satisfactory to the Global Administrative Agent (which may include telecopy transmission of a signed signature page of such document) that each such party has duly executed for delivery to the Global Administrative Agent a counterpart of each of the following documents: a Guaranty from each of Parent, Force (if Force is not merged into Parent on or before the Global Effective Date), 3189503 and Producers Marketing, the Fee Letter, the Debentures and Deposit Agreements required by SECTION 4.2(f), and all related financing statements and other filings. (b) U.S. LOAN DOCUMENTS. The Global Administrative Agent shall have received copies of the executed U.S. Loan Documents (other than the U.S. Credit Agreement) and the conditions for making Loans provided in the U.S. Credit Agreement shall have been contemporaneously satisfied. 49 (c) OPINIONS OF COUNSEL. The Global Administrative Agent shall have received opinions, dated the Global Effective Date, addressed to the Global Administrative Agent and the Canadian Administrative Agent, the other Agents and all Lenders, from (i) Macleod Dixon, counsel to Borrower, in substantially the form attached hereto as EXHIBIT A-1, and (ii) Vinson & Elkins L.L.P., U.S. counsel to the Parent and Force, in substantially the form attached hereto as EXHIBIT A-2. (d) ORGANIZATIONAL DOCUMENTS. The Global Administrative Agent shall have received a certificate of an Authorized Officer of each Loan Party dated as of the Global Effective Date, certifying: (i) that attached to each such certificate are (A) a true and complete copy of the Organic Documents of such Loan Party, as the case may be, as in effect on the date of such certificate, (B) a true and complete copy of a certificate from the Governmental Authority of Canada or the province of such entity's organization certifying that such entity is duly organized and validly existing in such jurisdiction, and (C) a true and complete copy of a certificate from the appropriate Governmental Authority of each province (without duplication) certifying that such entity is duly qualified and in good standing to transact business in such state as a foreign corporation, if the failure to be so qualified or in good standing could reasonably be expected to have a Material Adverse Effect; (ii) that attached to such certificate is a true and complete copy of resolutions duly adopted by the board of directors or management committee of such Loan Party, as applicable, authorizing the execution, delivery and performance of such of the Loan Documents to which such Loan Party is or is intended to be a party; and (iii) as to the incumbency and specimen signature of each officer of such Loan Party executing such of the Loan Documents to which such Loan Party is or is intended to be a party. (e) [Intentionally omitted.] (f) DEBENTURES AND DEPOSIT AGREEMENTS. The Global Administrative Agent shall have received executed counterparts of the duly executed Debentures and Deposit Agreements which Debentures and Deposit Agreements shall create a floating charge in favor of the Canadian Administrative Agent for the benefit of the Lenders on substantially all of the Properties (including Oil and Gas Properties) of Canadian Forest and its Restricted Subsidiaries located in Canada, together with (i) stock certificates representing all of the outstanding shares of capital stock of Producers Marketing owned by or on behalf of Canadian Forest (in the case of Debenture(s) and Deposit Agreement(s) made by Canadian Forest) as of the Global Effective Date after giving effect to the Financing Transactions, and stock powers and instruments of transfer, endorsed in blank, with respect to such stock certificates, and (ii) all releases and all other documents and instruments necessary to release the Liens granted by Borrower and its Restricted Subsidiaries (including, 50 without limitation, any Liens granted under the Existing Credit Facilities), and together with such other documents or instruments as the Global Administrative Agent may reasonably request. (g) [Intentionally omitted.] (h) CANADIAN LIEN SEARCHES. The Global Administrative Agent shall have received (i) the Canadian Lien Searches, all dated reasonably close to the Global Effective Date, in the discretion of the Global Administrative Agent and in form and substance satisfactory to the Global Administrative Agent, and (ii) evidence reasonably satisfactory to the Global Administrative Agent that the Liens indicated by the financing statements (or similar documents) in such Canadian Lien Searches are permitted by SECTION 7.2 or have been released. (i) PRIORITY; SECURITY INTEREST. The Collateral shall be free and clear of all Liens, except Liens permitted by SECTION 7.2 of the U.S. Credit Agreement. All filings, notices, recordings and other action necessary to perfect the Liens in the Collateral shall have been made, given or accomplished or arrangements for the completion thereof satisfactory to the Global Administrative Agent and its counsel shall have been made and all filing fees and other expenses related to such actions either have been paid in full or arrangements have been made for their payment in full which are satisfactory to the Global Administrative Agent. (j) [Intentionally omitted.] (k) INITIAL RESERVE REPORT. The Global Administrative Agent and the Lenders shall have received and shall be satisfied with the contents, results and scope of the Initial Reserve Report. (l) OTHER DOCUMENTS. The Global Administrative Agent shall have received such other legal opinions, instruments and documents as any of the Agents or their counsel may have reasonably requested. (m) SATISFACTORY LEGAL FORM. All documents executed or submitted pursuant hereto by and on behalf of Borrower or any other Loan Party shall be in form and substance reasonably satisfactory to the Global Administrative Agent and its counsel. The Global Administrative Agent and its counsel shall have received all information, approvals, documents or instruments as the Global Administrative Agent or its counsel may reasonably request. The Global Administrative Agent shall notify Canadian Forest, the other Agents and the Lenders of the Global Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Banks to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to SECTION 10.2) at or prior to 3:00 p.m., New York City time, on December 31, 2000 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). 51 SECTION 4.3. EACH CREDIT EVENT. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Banks to issue, amend, renew or extend any Letter of Credit, is subject to receipt of the request therefor in accordance herewith and to the satisfaction of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, the representations and warranties of each Loan Party set forth in the Loan Documents to which it is a party shall be true and correct on and as of such date after giving effect to such funding and to the intended use thereof in all material respects as if made on and as of such date (or, if stated to have been made expressly as of an earlier date, were true and correct in all material respects as of such date). (b) NO DEFAULTS. At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing and Borrower shall be in compliance with the financial covenants set forth in ARTICLE VI. (c) NO MATERIAL ADVERSE EFFECT. At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, no event or events shall have occurred which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. (d) BORROWING REQUEST. The Global Administrative Agent and the Canadian Administrative Agent shall have received a Borrowing Request for any Borrowing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V AFFIRMATIVE COVENANTS Borrower agrees with the Global Administrative Agent, the Canadian Administrative Agent, the other Agents, any Issuing Bank and each Lender that, until the Commitments have expired or been terminated and Obligations shall have been paid and performed in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed and no Bankers' Acceptances Liabilities are outstanding, Borrower will perform the obligations set forth in this Article. SECTION 5.1. FINANCIAL REPORTING; RATINGS CHANGE; NOTICES AND OTHER INFORMATION. Borrower will furnish, or will cause to be furnished, to each Lender, the Global Administrative Agent and the Canadian Administrative Agent copies of the following financial statements, reports, notices and information: 52 (a) Concurrently with any delivery of financial statements under CLAUSE (a) or (b) of Section 5.1 of the U.S. Credit Agreement, if Parent has not supplied a compliance certificate, in substantially the form of EXHIBIT C thereto or any other form approved by the Global Administrative Agent, executed by an Authorized Officer of Parent, then Canadian Forest shall deliver a compliance certificate substantially in the form of EXHIBIT C hereto certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto; and (b) Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Borrower or any Restricted Subsidiary, including, without limitation, any requested Internal Reserve Report, or compliance with the terms of this Agreement, as the Global Administrative Agent, the Canadian Administrative Agent or any Lender may reasonably request. SECTION 5.2. NOTICE OF MATERIAL EVENTS. (a) Promptly, and in any event within three (3) Business Days of Canadian Forest or any of its Restricted Subsidiaries becoming aware of the following events, Canadian Forest will furnish to the Global Administrative Agent and each Lender written notice of the occurrence of any Default. (b) Each notice delivered under this Section shall be accompanied by a statement of an Authorized Officer of Canadian Forest setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.3. EXISTENCE; CONDUCT OF BUSINESS. Borrower will, and will cause each of its Restricted Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (i) its legal existence and (ii) the rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business, except where the failure to so preserve, renew or keep in full force and effect such rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks or trade names could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.4. CASUALTY AND CONDEMNATION. Canadian Forest (a) will furnish to the Global Administrative Agent and the Lenders written notice promptly, and in any event within three (3) Business Days of the occurrence, of any Casualty Event to any Collateral or the commencement of any action or proceeding for the taking of any material portion of the Collateral or any part thereof or interest therein under power of eminent domain or by condemnation or similar proceeding and (b) will ensure that the Net Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are collected and applied in accordance with the applicable provisions of the Combined Loan Documents. 53 SECTION 5.5. BOOKS AND RECORDS; INSPECTION AND AUDIT RIGHTS. Canadian Forest will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Canadian Forest will, and will cause each of its Restricted Subsidiaries to, permit any representatives or agents designated by the Global Administrative Agent, the Canadian Administrative Agent or any Lender (including any consultants, accountants, lawyers and appraisers), upon reasonable prior notice and at the reasonable cost and expense of Canadian Forest, to visit and inspect its Property, including, without limitation, the Oil and Gas Properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.6. COMPLIANCE WITH LAWS. Canadian Forest will, and will cause each of its Subsidiaries to, comply with all Governmental Rules applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.7. USE OF PROCEEDS AND LETTERS OF CREDIT. Canadian Forest will, and will cause each Subsidiary to, use the proceeds of the Loans (a) to refinance existing Indebtedness of Canadian Forest and its Subsidiaries, (b) to reimburse each Issuing Bank for LC Disbursements in accordance with SECTION 2.4(e), or (c) for Borrower's and its Subsidiaries' general corporate purposes, including any non-hostile acquisitions. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that is prohibited by Section 5.11 of the U.S. Credit Agreement. Letters of Credit will be issued only to support normal and customary oil and gas operations undertaken by Canadian Forest or any of its Subsidiaries in the ordinary course of its business. SECTION 5.8. ADDITIONAL SUBSIDIARIES. If any Restricted Subsidiary as of the date of the date of its formation, its acquisition or at any time thereafter has a total asset value in excess of U.S.$25,000,000 (or its equivalent in other currencies) and has incurred Indebtedness or Guaranteed Indebtedness in excess of U.S.$5,000,000 (or its equivalent in other currencies) in favor of any Person other than a Loan Party, then Canadian Forest will (a) cause such Subsidiary (unless such Subsidiary is a Foreign Subsidiary) either (i) to become a Subsidiary Borrower or (ii) to execute a Guaranty within 30 days after such Subsidiary is formed or acquired or it is determined to have the requisite total asset value and Indebtedness owed to third parties and (b) if the Applicable Rating Level is Level III, execute a Debenture and a Deposit Agreement (to the extent necessary to comply with SECTION 5.15(c) of the U.S. Credit Agreement) and promptly take such actions to create and perfect Liens on such Subsidiary's assets to secure the Obligations as the Global Administrative Agent shall reasonably request and pledge or cause to be pledged, pursuant to such foregoing Debentures and Deposit Agreements, all Equity Interests in such Restricted Subsidiary within 30 days after such Subsidiary is formed or acquired. 54 SECTION 5.9. FURTHER ASSURANCES. (a) Borrower will, and will cause each Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents), which may be required under any applicable law, or which the Global Administrative Agent, the Canadian Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. Borrower also agrees to provide to the Global Administrative Agent and the Canadian Administrative Agent, from time to time upon reasonable request of the Global Administrative Agent or the Canadian Administrative Agent, information which is in the possession of Canadian Forest or its Restricted Subsidiaries or otherwise reasonably obtainable by any of them, reasonably satisfactory to the Global Administrative Agent and the Canadian Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents. The Security Documents shall remain in effect at all times unless otherwise released pursuant to the terms of this Agreement. (b) Borrower hereby authorizes the Global Administrative Agent, the Canadian Administrative Agent and the Lenders to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Borrower or any other Loan Party where permitted by law. A carbon, photographic or other reproduction of the Security Documents or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. The Global Administrative Agent will promptly send Canadian Forest any financing or continuation statements it files without the signature of Borrower or any other Loan Party and the Global Administrative Agent will promptly send Canadian Forest the filing or recordation information with respect thereto. SECTION 5.10. COVENANTS IN U.S. CREDIT AGREEMENT. Until the payment in full in cash of all Obligations and the termination or expiration of all Commitments and Letters of Credit and Bankers' Acceptances, each Borrower covenants and agrees that such Borrower will perform, comply with, observe and fulfill, and will cause each of its Restricted Subsidiaries to perform, comply with, observe and fulfill, each of the covenants, agreements and obligations contained in the U.S. Credit Agreement, including, without limitation, Article V (other than Section 5.12 of the U.S. Credit Agreement) and Article VII of the U.S. Credit Agreement, pertaining or otherwise applicable to such Borrower in its capacity as a Restricted Subsidiary of the Parent. Each Borrower hereby irrevocably and unconditionally agrees to be bound by such covenants, agreements and obligations applicable to it in such capacity as if such Borrower were a party to the U.S. Credit Agreement and such covenants, agreements, and obligations applicable to it in such capacity are hereby reaffirmed by such Borrower. 55 ARTICLE VI [NOT USED] ARTICLE VII NEGATIVE COVENANTS Borrower agrees with the Global Administrative Agent, the Canadian Administrative Agent, the other Agents, any Issuing Bank, and each Lender that, until the Commitments have expired or been terminated and Obligations shall have been paid and performed in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed and no Bankers' Acceptances Liabilities are outstanding, Borrower will perform the obligations set forth in this Article. SECTION 7.1. TRANSACTIONS WITH AFFILIATES. Borrower will not, and will not permit any Restricted Subsidiary to, sell, lease or otherwise transfer any Property or assets to, or purchase, lease or otherwise acquire any Property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions in the ordinary course of business and that are at prices and on terms and conditions not less favorable to Borrower or such Restricted Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among Borrower and the Restricted Subsidiaries not involving any other Affiliate, (c) any Restricted Payment permitted by SECTION 7.8 of the U.S. Credit Agreement, and (d) any Investment permitted by SECTION 7.4 of the U.S. Credit Agreement. SECTION 7.2. RESTRICTIVE AGREEMENTS. Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits or restricts (a) the ability of Borrower or any Restricted Subsidiary to create, incur or permit to exist any Lien in favor of the Global Administrative Agent and/or the Canadian Administrative Agent for the benefit of the Combined Lenders upon any of its Property, or (b) the ability of any Restricted Subsidiary to make Restricted Payments to Borrower or any other Restricted Subsidiary or to Guarantee Indebtedness of Borrower or any other Restricted Subsidiary; PROVIDED that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Combined Loan Document or Subordinated Indebtedness Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date of this Agreement identified on SCHEDULE 7.10 of the U.S. Credit Agreement (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary pending such sale, PROVIDED such restrictions and conditions apply only to the Restricted Subsidiary that is to be sold and such sale is permitted hereunder, (iv) CLAUSE (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness or other obligations permitted by this Agreement or the U.S. Credit Agreement if such restrictions or conditions apply only to the Property or assets securing such Indebtedness or other obligation, and (v) CLAUSE (a) of the foregoing shall not apply to customary provisions in leases or other agreements restricting the assignment thereof. 56 SECTION 7.3. SUBORDINATED INDEBTEDNESS. Canadian Forest will not amend or modify the terms of subordination contained in any of the Subordinated Indebtedness Documents or otherwise shorten the maturity or average life, or increase the interest payable on, any of the Subordinated Indebtedness. SECTION 7.4. NO ACTION TO AFFECT SECURITY DOCUMENTS. Except for transactions expressly permitted hereby, Canadian Forest shall not, and shall not permit any of its Subsidiaries to, do anything to adversely affect the priority of the Security Documents given or to be given in respect of the obligations of Canadian Forest or any other Borrower hereunder. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. LISTING OF EVENTS OF DEFAULT. Each of the following events or occurrences described in this SECTION 8.1 shall constitute an "EVENT OF DEFAULT": (a) NON-PAYMENT OF OBLIGATIONS. Any Loan Party shall default in the payment or prepayment when due of any principal of any Loan (including BA Loans and Bankers' Acceptances) or of any reimbursement obligation with respect to any Letter of Credit or Bankers' Acceptance; or Borrower shall default in the payment when due of any interest, fee or of any other obligation hereunder or under any other Loan Document and such default continues for a period of three (3) Business Days. (b) BREACH OF WARRANTY. Any representation or warranty of any Loan Party made or deemed to be made hereunder or in any other Loan Document or any other writing or certificate furnished by or on behalf of any Loan Party to the Global Administrative Agent, the Canadian Administrative Agent, any other Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document is or shall be false or misleading when made in any material respect. (c) NON-PERFORMANCE OF COVENANTS AND OBLIGATIONS. Any Loan Party shall default in the due performance and observance of any of its obligations under SECTIONS 5.2 or 5.7, or under ARTICLE VII. (d) NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. Any Loan Party shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to Borrower by the Global Administrative Agent or the Required Lenders. (e) DEFAULT ON OTHER INDEBTEDNESS. Any Loan Party shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating U.S.$15,000,000 or more, or in the payment when due of U.S.$5,000,000 or more in the aggregate under one or more Hedging Agreements; or any event specified in any note, agreement, indenture or other document evidencing 57 or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity. (f) [Intentionally omitted.] (g) BANKRUPTCY AND INSOLVENCY. Any Loan Party shall (i) generally fail to pay, or admit in writing its inability or unwillingness to generally pay, debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, receiver and manager, sequestrator or other custodian for any Loan Party, or any substantial part of the property of any thereof, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, receiver and manager, sequestrator or other custodian for any Loan Party, or for a substantial part of the property of any thereof, and such trustee, receiver, receiver and manager, sequestrator or other custodian shall not be discharged within 60 days, provided that each Loan Party hereby expressly authorizes the Global Administrative Agent and the Canadian Administrative Agent to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend the rights of the Combined Lenders under the Loan Documents; (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law (including the Bankruptcy and Insolvency Act (Canada)), or any dissolution, winding up or liquidation proceeding, in respect of any Loan Party, and, if any such case or proceeding is not commenced by such Loan Party, such case or proceeding shall be consented to or acquiesced in by such Loan Party or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that each Loan Party hereby expressly authorizes the Global Administrative Agent and the Canadian Administrative Agent to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend the rights of the Combined Lenders under the Loan Documents; or (v) take any corporate or partnership action authorizing, or in furtherance of, any of the foregoing. (h) JUDGMENTS. One or more judgments or orders for the payment of money in excess of U.S.$5,000,000 in the aggregate (exclusive of amounts fully covered by valid and collectible insurance in respect thereof subject to customary deductibles or fully covered by an indemnity with respect thereto reasonably acceptable to the Required Lenders) shall be rendered against any Loan Party and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) such judgment shall have become final and non-appealable and shall have remained outstanding for a period of 60 consecutive days. (i) CHANGE IN CONTROL. Parent shall fail to own or control, directly or indirectly, all of the outstanding shares of common stock of Canadian Forest or any other Borrower. 58 (j) FAILURE OF LIENS. The Liens created by the Security Documents shall at any time not constitute a valid and perfected Lien on the collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Global Administrative Agent or, except for expiration in accordance with its terms, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Loan Party. (k) EVENT OF DEFAULT UNDER U.S. LOAN DOCUMENTS. Any "Event of Default" as defined in the U.S. Loan Documents shall occur; PROVIDED that the occurrence of a "Default" as defined in the U.S. Loan Documents shall constitute a Default under this Agreement; PROVIDED FURTHER that if such "Default" or "Event of Default" is cured or waived under the U.S. Loan Documents, as applicable, then such "Default" or "Event of Default" shall no longer constitute a Default or an Event of Default, respectively, under this Agreement. SECTION 8.2. ACTION IF BANKRUPTCY. If any Event of Default with respect to any Borrower described in SECTION 8.1(g) shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other obligations hereunder shall automatically be and become immediately due and payable, without demand, protest or presentment or notice of any kind, all of which are hereby expressly waived by Borrower and its Subsidiaries. Without limiting the foregoing, the Agents and the Lenders shall be entitled to exercise any and all other remedies available to them under the Loan Documents and applicable law. SECTION 8.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default (other than any Event of Default described in SECTION 8.1(g) with respect to any Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Required Lenders, may, by notice to Borrower declare (a) the Commitments (if not theretofore terminated) to be terminated and/or (b) all of the outstanding principal amount of the Loans (including BA Loans and Bankers' Acceptances) and all other obligations hereunder to be due and payable, whereupon the Commitments shall terminate and the full unpaid amount of such Loans and other obligations shall be and become immediately due and payable, without demand, protest or presentment or notice of any kind, all of which are hereby waived by Borrower and its Subsidiaries. Without limiting the foregoing, the Agents and the Lenders shall be entitled to exercise any and all other remedies available to them under the Loan Documents and applicable law. ARTICLE IX AGENTS Each of the Lenders, the Issuing Banks and the other Agents hereby irrevocably appoints The Chase Manhattan Bank as the Global Administrative Agent, The Chase Manhattan Bank of Canada, as the Canadian Administrative Agent, Bank of Montreal as Canadian Syndication Agent, The Toronto-Dominion Bank as Canadian Documentation Agent, and The Chase Manhattan Bank, Bank of America, N.A. and Citibank, N.A. as Technical Lenders, and authorizes each such Agent to take 59 such actions on its behalf and to exercise such powers as are delegated to such Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Any bank serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder. The Agents shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Agents shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) each Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that such Agent is required to exercise following its receipt of written instructions from the Required Lenders (or such other number or percentage of the Combined Lenders as shall be necessary under the circumstances as provided in SECTION 10.2), and (c) except as expressly set forth in the Loan Documents, the Agents shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Parent, Borrower or any of their Subsidiaries that is communicated to or obtained by the bank serving as such Agent or any of its Related Parties in any capacity. Each Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Combined Lenders as shall be necessary under the circumstances as provided in SECTION 10.2) or in the absence of its own gross negligence or wilful misconduct; PROVIDED, HOWEVER, THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT EACH OF THE AGENTS BE INDEMNIFIED IN THE CASE OF ITS OWN NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL. Each Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to such Agent by Borrower or a Lender, and such Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in ARTICLE IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to such Agent. The Global Administrative Agent, the Canadian Administrative Agent and the other Agents shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Global Administrative Agent, the 60 Canadian Administrative Agent and the other Agents also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Global Administrative Agent, the Canadian Administrative Agent and the other Agents may consult with legal counsel (who may be counsel for Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Any Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by such Agent. Any Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of such Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as an Agent. Subject to the appointment and acceptance of a successor Global Administrative Agent or the Canadian Administrative Agent as provided in this paragraph, the Global Administrative Agent or the Canadian Administrative Agent may resign at any time by notifying the Combined Lenders and Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Global Administrative Agent or retiring Canadian Administrative Agent gives notice of its resignation, then the retiring Global Administrative Agent or the Canadian Administrative Agent may, on behalf of the Combined Lenders and the Issuing Banks, appoint a successor Global Administrative Agent or the Canadian Administrative Agent, respectively, which shall be a bank with an office in New York, New York or Toronto, Canada, respectively, or an Affiliate of any such bank. Upon the acceptance of its appointment as Global Administrative Agent or the Canadian Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Global Administrative Agent or the Canadian Administrative Agent, as the case may be, and the retiring Global Administrative Agent or the retiring Canadian Administrative Agent shall be discharged from its duties and obligations hereunder (other than its obligations under SECTION 10.12). The fees payable by Borrower to a successor Global Administrative Agent or successor Canadian Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrower and such successor. After the Global Administrative Agent's or Canadian Administrative Agent's resignation hereunder, the provisions of this Article and SECTION 10.3 shall continue in effect for the benefit of such retiring Global Administrative Agent or retiring Canadian Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Global Administrative Agent or the Canadian Administrative Agent, respectively. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the Intercreditor 61 Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. Each of the Lenders, for itself and on behalf of any of its Affiliates, and the Issuing Banks hereby irrevocably appoints the Global Administrative Agent and the Canadian Administrative Agent to act as its agent under the Intercreditor Agreement and authorizes the Global Administrative Agent and the Canadian Administrative Agent to execute the Intercreditor Agent on its behalf and to take such actions on its behalf and to exercise such powers as are delegated to the Global Administrative Agent or Canadian Administrative Agent, as the case may be, by the terms hereof and thereof, together with such actions and powers as are reasonably incidental thereto. ARTICLE X MISCELLANEOUS SECTION 10.1. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) IF TO BORROWER, TO: Canadian Forest Oil Ltd. 600, 800 Sixth Avenue, S.W. Calgary, Alberta T2P 3G3 Canada Attention: Vice President - Finance Telephone: 403-261-7665 Facsimile: 403-292-8000 with a copy to Forest Oil Corporation 1600 Broadway Suite 2200 Denver, Colorado 80202 Attention: Donald H. Stevens, Vice President and Treasurer Telephone: 303-812-1400 Facsimile: 303-812-1510 62 (b) IF TO THE GLOBAL ADMINISTRATIVE AGENT, TO: The Chase Manhattan Bank Loan and Agency Services One Chase Manhattan Plaza, 8th floor New York, NY 10081 Attention: Michael Cerniglia Telephone: 212-552-7906 Facsimile: 212-552-5777 with a copy to: The Chase Manhattan Bank Global Oil & Gas Group 600 Travis, 20th Floor Houston, Texas 77002 Attention: Peter Licalzi Telephone: 713-216-8869 Facsimile: 713-216-4117 and, with respect to non-Borrowing related matters, with a copy to: The Chase Manhattan Bank Global Oil & Gas Group 600 Travis, 20th Floor Houston, Texas 77002 Attention: Robert Mertensotto Telephone: 713-216-4147 Facsimile: 713-216-8870 (c) if to the Canadian Administrative Agent: The Chase Manhattan Bank of Canada 1 First Canadian Place 100 King Street West, Suite 6900 P.O. Box 106 Toronto, Ontario Canada M5X 1A4 Attention: Portfolio Management Associates Telephone: 416-216-4135 or 4106 Facsimile: 416-216-4162 63 (d) if to the Canadian Syndication Agent: Bank of Montreal 24th Floor, 1st Canadian Place Toronto, Ontario Canada M5X 1A1 Attention: Telephone: 416-867-7110 Facsimile: 416-867-5938 (e) if to the Canadian Documentation Agent: The Toronto-Dominion Bank 66 Wellington TD Tower, 38th Floor Toronto, Ontario M5K1 A2 CANADA Attention: Joyce Dewey Telephone: (416) 308-4674 Facsimile: (416) 982-8619 with a copy to: The Toronto-Dominion Bank 909 Fannin Street, Suite 1700 Houston, TX 77010 Attention: Mr. Mark Greene Telephone: (713) 653-8201 Facsimile: (713) 951-9921 (f) if to any other Lender, to it at its address (or telecopy number) provided to the Global Administrative Agent, the Canadian Administrative Agent and Borrower or as set forth in its Administrative Questionnaire; and (g) if to any U.S. Lender, to it at its address (or telecopy number) provided to the Global Administrative Agent and Parent or as set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 64 SECTION 10.2. WAIVERS; AMENDMENTS. (a) No failure or delay by the Global Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Global Administrative Agent, the Issuing Banks and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by PARAGRAPH (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Global Administrative Agent, the Canadian Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any of the Combined Loan Documents nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Borrower and the Required Lenders or by Borrower and the Global Administrative Agent and the Canadian Administrative Agent with the consent of the Required Lenders, or, in the case of any other Combined Loan Document, pursuant to an agreement or agreements in writing entered into by the relevant Loan Parties thereto and the Required Lenders or by the relevant Loan Parties thereto and the Global Administrative Agent and the Canadian Administrative Agent with the consent of the Required Lenders; PROVIDED that the same waiver, amendment or modification is requested by Parent or Borrower in connection with each of the Combined Credit Agreements; and PROVIDED FURTHER that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change SECTION 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this SECTION 10.2, SECTION 2.10 or the definition of "Required Lenders" or any other provision of any Combined Loan Document specifying the number or percentage of Lenders, U.S. Lenders or Combined Lenders required to determine or redetermine the Global Borrowing Base, the Allocated U.S. Borrowing Base or the Allocated Canadian Borrowing Base or required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Combined Lender, (vi) release any Loan Party from its Guaranty (except as expressly provided in such Guaranty), or limit its liability in respect of such Guaranty, without the written 65 consent of each Combined Lender, or (vii) except as expressly provided herein, in the Intercreditor Agreement or in the Security Documents (as defined herein and in the U.S. Credit Agreement), release all or any part of the Collateral from the Liens of the Security Documents (as defined herein and in the U.S. Credit Agreement), without the written consent of each Combined Lender; PROVIDED FURTHER that no such agreement shall amend, waive, modify or otherwise affect the rights or duties of any Agent (as defined herein and in the U.S. Credit Agreement) or any Issuing Bank (as defined herein and in the U.S. Credit Agreement) without the prior written consent of such Agent (as defined herein and in the U.S. Credit Agreement) or any Issuing Bank (as defined herein and in the U.S. Credit Agreement), as the case may be; PROVIDED FURTHER that the Global Administrative Agent shall have the right to execute and deliver any release of Lien (or other similar instrument) without the consent of any Lender to the extent such release is required to permit Borrower or a Restricted Subsidiary to consummate a transaction permitted by this Agreement or the other Combined Loan Documents. SECTION 10.3. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) Borrower shall pay (i) all legal, printing, recording, syndication, travel, advertising and other reasonable out-of-pocket expenses incurred by the Agents, the Arranger and their Affiliates, including the reasonable fees, charges and disbursements of counsel for the Agents and the Arranger (on a solicitor and his own client basis), in connection with the syndication of the credit facilities provided for herein, the preparation, execution, delivery and administration of this Agreement, the Loan Documents and each other document or instrument relevant to this Agreement or the Loan Documents and any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by an Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) the filing, recording, refiling or rerecording of the Debentures, the Deposit Agreements and the other Security Documents and/or any financing statements relating thereto and all amendments, supplements and modifications to, and all releases and terminations of, any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or of the Debentures, the Deposit Agreements and the other Security Documents, and (iv) all out-of-pocket expenses incurred by the Agents, any Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Agents, any Issuing Bank or any Lender (on a solicitor and his own client basis), in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) Borrower shall indemnify the Agents, each Issuing Bank, the Arranger and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "INDEMNITEE") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable out-of-pocket fees, charges and 66 disbursements of any counsel for any Indemnitee (on a solicitor and his own client basis), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Financing Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any Mortgaged Property or any other property currently or formerly owned or operated by Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity and release shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee (IT BEING UNDERSTOOD THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT EACH OF THE INDEMNITEES BE INDEMNIFIED IN THE CASE OF ITS OWN NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL). (c) To the extent that Borrower fails to pay any amount required to be paid by Borrower to the Global Administrative Agent, the Canadian Administrative Agent or an Issuing Bank under PARAGRAPH (a) or (b) of this Section, each Lender severally agrees to pay to the Global Administrative Agent, the Canadian Administrative Agent or such Issuing Bank, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; PROVIDED that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Global Administrative Agent, the Canadian Credit Agreement or such Issuing Bank in its capacity as such. (d) To the extent permitted by applicable law, Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Financing Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable not later than thirty (30) days after written demand therefor. 67 SECTION 10.4. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Global Administrative Agent, each Issuing Bank and each Combined Lender (and any attempted assignment or transfer by Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Global Administrative Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) to any Person who is not a Foreign Lender; PROVIDED that (i) except in the case of an assignment to a Lender or a Lender Affiliate, each of Borrower, the Canadian Administrative Agent and the Global Administrative Agent (and, in the case of an assignment of all or a portion of a Commitment or any Lender's obligations in respect of its LC Exposure, the Issuing Banks) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or a Lender Affiliate or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Global Administrative Agent) shall be in increments of U.S.$1,000,000 and not less than U.S.$5,000,000 unless each of Borrower and the Global Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender's rights and obligations in respect of its Commitments or Loans in conformity with the Intercreditor Agreement, (iv) the parties to each assignment shall execute and deliver to the Global Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of U.S.$3,500, (v) the assignee, if it shall not be a Lender, shall deliver to the Global Administrative Agent an Administrative Questionnaire, and (vi) after giving effect to any assignment hereunder, the assigning Lender shall have a Commitment of at least U.S.$5,000,000 unless each of Borrower and the Global Administrative Agent otherwise consents; and PROVIDED FURTHER that any consent of Borrower otherwise required under this paragraph shall not be required if an Event of Default under SECTION 8.1 has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and to the other Loan Documents and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the 68 extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of SECTIONS 2.15, 2.16, 2.17, 2.18, 2.20 and 10.3 and be subject to the terms of SECTION 10.12). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Global Administrative Agent and the Canadian Administrative Agent, acting for this purpose as an agent of Borrower, shall maintain at one of its offices in The City of New York and Toronto, Canada, respectively, a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, and Borrower, the Global Administrative Agent, the Canadian Administrative Agent, the Issuing Banks and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement and the other Loan Documents, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrower, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by PARAGRAPH (b) of this Section, the Global Administrative Agent and the Canadian Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register and will provide prompt written notice to Borrower of the effectiveness of such assignment. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of Borrower, the Global Administrative Agent, the Canadian Administrative Agent or any Issuing Bank, sell participations to one or more banks or other entities which are resident in Canada for purposes of the INCOME TAX ACT (CANADA) (a "PARTICIPANT") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); PROVIDED that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) Borrower, the Global Administrative Agent, the Canadian Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall 69 retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; PROVIDED that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the second proviso to SECTION 10.2(b) that affects such Participant. Subject to paragraph (f) of this Section, Borrower agrees that each Participant shall be entitled to the benefits of SECTIONS 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of SECTION 10.8 and 10.12 as though it were a Lender, provided such Participant agrees to be subject to SECTION 2.18(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under SECTION 2.15, 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant. (g) Any Lender may at any time pledge or assign a Lien in all or any portion of its rights under this Agreement to secure obligations of such Lender, and this Section shall not apply to any such pledge or assignment; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.5. SURVIVAL. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Agent, any Issuing Bank, the Arranger or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of SECTIONS 2.15, 2.16, 2.17, 2.18, 2.20, 10.3 and 10.12 and ARTICLE IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 10.6. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in SECTION 4.1, this Agreement shall become effective when it shall have been executed by the Global Administrative Agent and the Canadian Administrative Agent and when the Global Administrative Agent and the Canadian Administrative Agent shall have received counterparts 70 hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 10.7. SEVERABILITY. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.8. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each of the Agents, the Issuing Banks, the Lenders and their Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of Borrower or any of its Restricted Subsidiaries against any and all the obligations of Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured; PROVIDED, HOWEVER, that any such set-off and application shall be subject to the provisions of SECTION 2.18. As security for such obligations, Borrower hereby grants to the Agents, each Issuing Bank and each Lender a continuing security interest in any and all balances, credits, deposits, accounts or moneys of Borrower and its Restricted Subsidiaries then or thereafter maintained with any of the Agents, such Issuing Bank and such Lenders. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 10.9. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ALBERTA AND OF CANADA APPLICABLE THEREIN. (b) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE PROVINCE OF ALBERTA, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH 71 ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS OF THE PROVINCE OF ALBERTA. EACH OF THE PARTIES HERETO AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT THE AGENTS OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. (c) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. (d) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE PROVINCE OF ALBERTA. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (b) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 72 SECTION 10.11. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 10.12. CONFIDENTIALITY. Each of the Agents, the Issuing Banks, and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any Hedging Agreement, (g) with the consent of Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section by any Person or (ii) becomes available to any Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than Borrower or any of its Affiliates. For the purposes of this Section, "INFORMATION" means all information received from Borrower or its Affiliate relating to Borrower and its Subsidiaries or their business, other than any such information that is available to any Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by Borrower or any of its Affiliates; PROVIDED that, in the case of information received from Borrower after the date of this Agreement, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 10.13. INTEREST RATE LIMITATION. It is the intention of the parties hereto to conform strictly to applicable interest, usury and criminal laws and, anything herein to the contrary notwithstanding, the obligations of Borrower and the Guarantors to a Lender, any Issuing Bank or any Agent under this Agreement or any Loan Document shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to such Lender, such Issuing Bank or Agent limiting rates of interest which may be charged or collected by such Lender, such Issuing Bank or Agent. Accordingly, if the transactions contemplated hereby or thereby would be illegal, unenforceable, usurious or criminal under laws applicable to a Lender, any Issuing Bank or any Agent (including the laws of any jurisdiction whose laws may be mandatorily applicable to such Lender or Agent notwithstanding anything to the contrary in this Agreement or any other Loan Document then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document, it is agreed as follows: 73 (i) the provisions of this Section shall govern and control; (ii) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received under this Agreement or any Loan Document or otherwise in connection with this Agreement or any Loan Document by such Lender, such Issuing Bank or such Agent shall under no circumstances exceed the maximum amount of interest allowed by applicable law (such maximum lawful interest rate, if any, with respect to each Lender, each Issuing Bank and the Agents herein called the "HIGHEST LAWFUL RATE"), and any excess shall be cancelled automatically and if theretofore paid shall be credited to Borrower by such Lender, such Issuing Bank or such Agent (or, if such consideration shall have been paid in full, such excess refunded to Borrower); (iii) all sums paid, or agreed to be paid, to such Lender, such Issuing Bank or such Agent for the use, forbearance and detention of the indebtedness of Borrower to such Lender, such Issuing Bank or such Agent hereunder or under any Loan Document shall, to the extent permitted by laws applicable to such Lender, such Issuing Bank or such Agent, as the case may be, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; (iv) if at any time the interest provided pursuant to this Section or any other clause of this Agreement or any other Loan Document, together with any other fees or compensation payable pursuant to this Agreement or any other Loan Document and deemed interest under laws applicable to such Lender, such Issuing Bank or such Agent, exceeds that amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees or compensation to accrue to such Lender, such Issuing Bank or such Agent pursuant to this Agreement or such other Loan Document shall be limited, notwithstanding anything to the contrary in this Agreement or any other Loan Document, to that amount which would have accrued at the Highest Lawful Rate, but any subsequent reductions, as applicable, shall not reduce the interest to accrue to such Lender, such Issuing Bank or such Agent pursuant to this Agreement or such other Loan Document below the Highest Lawful Rate until the total amount of interest accrued pursuant to this Agreement or such other Loan Document, as the case may be, and such fees or compensation deemed to be interest equals the amount of interest which would have accrued to such Lender or Agent if a varying rate PER ANNUM equal to the interest provided pursuant to any other relevant Section hereof (other than this Section) or thereof, as applicable, had at all times been in effect, PLUS the amount of fees which would have been received but for the effect of this Section; and (v) with the intent that the rate of interest herein shall at all times be lawful, and if the receipt of any funds owing hereunder or under any other agreement related hereto (including any of the other Loan Documents) by such Lender, such Issuing Bank or such Agent would cause such Lender to charge Borrower a criminal rate of interest, the Lenders, 74 the Issuing Banks and the Agents agree that they will not require the payment or receipt thereof or a portion thereof which would cause a criminal rate of interest to be charged by such Lender, such Issuing Bank or such Agent, as applicable, and if received such affected Lender, such Issuing Bank or Agent will return such funds to Borrower so that the rate of interest paid by Borrower shall not exceed a criminal rate of interest from the date this Agreement was entered into. SECTION 10.14. COLLATERAL MATTERS; HEDGING AGREEMENTS. The benefit of the Security Documents and of the provisions of this Agreement relating to the Collateral shall also extend to and be available to those Lenders or their Affiliates which are counterparties to the Hedging Agreements on a pro rata basis in respect of any obligations of Borrower or any of its Restricted Subsidiaries which arise under any Hedging Agreement that is in effect at such time as such Person (or its Affiliate) is a Lender, but only while such Person or its Affiliate is a Lender. SECTION 10.15. ARRANGER; CANADIAN DOCUMENTATION AGENT; CANADIAN SYNDICATION AGENT. None of the Persons identified on the facing page or the signature pages of this Agreement as the "Sole Book Manager and Lead Arranger" or "Canadian Documentation Agent" or the "Canadian Syndication Agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement or any other Loan Document other than, except in the case of the Arranger, those applicable to all Lenders as such. Without limiting the foregoing, none of the Arranger, the Canadian Documentation Agent or the Canadian Syndication Agent shall have or be deemed to have any fiduciary relationship with any Lender or Borrower or any of its Subsidiaries. Borrower and each Lender acknowledges that it has not relied, and will not rely, on any of the Arranger, the Canadian Documentation Agent or Canadian Syndication Agent in deciding to enter into this Agreement or in taking or not taking any action hereunder or under the Loan Documents. SECTION 10.16. INTERCREDITOR AGREEMENT; SECURITY DOCUMENTS. For so long as the Intercreditor Agreement shall be in effect, the terms and conditions of this Agreement and the other Loan Documents are subject to the terms of the Intercreditor Agreement. In the event of any inconsistency between this Agreement or any other Loan Document and the terms of the Intercreditor Agreement, the Intercreditor Agreement shall control. In the event of any inconsistency between this Agreement and the terms of any other Loan Document, this Agreement shall control. SECTION 10.17. STATUS AS SENIOR INDEBTEDNESS. The Loans are "Designated Senior Indebtedness" under the Subordinated Indebtedness Documents governing the Subordinated Indebtedness-8-3/4% Senior Subordinated Notes. SECTION 10.18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. 75 [SIGNATURES BEGIN ON FOLLOWING PAGE] 76 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. CANADIAN FOREST OIL LTD. By: /s/ JOAN C. SONNEN -------------------------------- Name: Joan C. Sonnen Title: Vice President and Secretary [SIGNATURE PAGE TO CANADIAN CREDIT AGREEMENT] S - 1 THE CHASE MANHATTAN BANK, as Global Administrative Agent By: /s/ ROBERT C. MERTENSOTTO --------------------------- Name: Robert C. Mertensotto Title: Managing Director [SIGNATURE PAGE TO CANADIAN CREDIT AGREEMENT] S - 2 THE CHASE MANHATTAN BANK OF CANADA, as Canadian Administrative Agent By: /s/ DREW MCDONALD /s/ CHRISTINE CHAN -------------------------------------- Name: Drew McDonald Christine Chan Title: Vice President Vice President [SIGNATURE PAGE TO CANADIAN CREDIT AGREEMENT] S - 3 THE CHASE MANHATTAN BANK, TORONTO BRANCH, as a Lender By: /s/ DREW MCDONALD /s/ CHRISTINE CHAN -------------------------------------- Name: Drew McDonald Christine Chan Title: Authorized Authorized Representative Representative [SIGNATURE PAGE TO CANADIAN CREDIT AGREEMENT] S - 4 BANK OF MONTREAL, as Canadian Syndication Agent and as a Lender By: /s/ DANA KATHLEEN ARNELL ------------------------------------- Name: Dana Kathleen Arnell Title: Director, Corporate Banking [SIGNATURE PAGE TO CANADIAN CREDIT AGREEMENT] S - 5 THE TORONTO-DOMINION BANK, as Canadian Documentation Agent and as a Lender By: /s/ DEBBI L. BRITO ----------------------------------------- Name: Debbi L. Brito Title: Assistant Manager Credit Compliance & Administration Corporate Banking [SIGNATURE PAGE TO CANADIAN CREDIT AGREEMENT] S - 6 BANK OF AMERICA CANADA, as a Lender By: /s/ DONALD CHUNG ------------------------------------- Name: Donald Chung Title: Vice President [SIGNATURE PAGE TO CANADIAN CREDIT AGREEMENT] S - 7 Exhibit A-1 - Page 1 EX-21 7 a2040776zex-21.txt EXHIBIT 21 Exhibit 21 FOREST OIL CORPORATION List of Subsidiaries of the Registrant NAME OF SUBSIDIARY JURISDICTION IN WHICH ORGANIZED Canadian Forest Oil, Ltd. Alberta EX-23 8 a2040776zex-23.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS FOREST OIL CORPORATION We consent to the incorporation by reference in (i) the Registration Statements (Nos. 2-74151, 2-76946, 33-2748 and 33-59504) on Form S-8 of Forest Oil Corporation--Retirement Savings Plan of Forest Oil Corporation, (ii) the Registration Statement (No. 33-48440) on Form S-8 of Forest Oil Corporation--1992 Stock Option Plan of Forest Oil Corporation, (iii) the Registration Statements (Nos. 33-47477 and 33-47478 on Forms S-2 and S-3 of Forest Oil Corporation of Common Stock issuable to Richard Dorn and resales thereof, (iv) the Registration Statement (No. 333-45839) on Form S-3 of Forest Oil Corporation of Common Stock issuable to LLOG Exploration Company and resales thereof, (v) the Registration Statement (No. 333-30973) on Form S-3 of Forest Oil Corporation of Common Stock issuable to Saxon Petroleum Inc. and resales thereof, (vi) the Registration Statement (No. 333-49376) of Forest Oil Corporation on Form S-4, (vii) the Registration Statement (No. 333-49376) of Forest Oil Corporation on Form S-8 of Forcenergy 1999 Stock Plan filed as Post Effective Amendment No. 1 to the Registration Statement of Forest Oil Corporation on Form S-4, and (viii) the Registration Statement (No. 333-35270) on Form S-3 of Forest Oil Corporation senior debt securities, subordinated debt securities, preferred stock, Common Stock or warrant securities issuable in one or more series, of our report dated February 12, 2001 relating to the consolidated balance sheets of Forest Oil Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000 annual report on Form 10-K of Forest Oil Corporation. KPMG LLP Denver, Colorado March 12, 2001 EX-24 9 a2040776zex-24.txt EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Philip F. Anschutz ---------------------------------------- Philip F. Anschutz POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ William L. Britton ---------------------------------------- William L. Britton POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Cortlandt S. Dietler ---------------------------------------- Cortlandt S. Dietler POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Dod A. Fraser ---------------------------------------- Dod A. Fraser POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Cannon Y. Harvey ---------------------------------------- Cannon Y. Harvey POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Forrest E. Hoglund ---------------------------------------- Forrest E. Hoglund POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Stephen A. Kaplan ---------------------------------------- Stephen A. Kaplan POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ James H. Lee ---------------------------------------- James H. Lee POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ J. J. Simmons, III ---------------------------------------- J. J. Simmons, III POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Craig D. Slater ---------------------------------------- Craig D. Slater POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Robert S. Boswell, Newton W. Wilson III and Joan C. Sonnen his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K -- Annual Report for the year ended December 31, 2000 pursuant to Section 13 of the Securities Exchange Act of 1934, including specifically, but without limiting the generality of the foregoing, the power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to a Form 10-K -- Annual Report for the year ended December 31, 2000, pursuant to Section 13 of the Securities Exchange Act of 1934 or to any amendment thereto filed with the Securities and Exchange Commission and to any instrument or document filed as a part of, as an exhibit to or in connection with said Form 10-K -- Annual Report or amendment; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 2001. /s/ Michael B. Yanney ---------------------------------------- Michael B. Yanney -----END PRIVACY-ENHANCED MESSAGE-----