-----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, UV8cpJ9gkvLGRllGTUs/gZDPyJWo0Ip6jn5sI+ZMl1H3NeynPuCFw4kz87I5M5vw 0hs/Uk3PlIRC6uUe6JgJXw== 0000912057-96-005779.txt : 19960402 0000912057-96-005779.hdr.sgml : 19960402 ACCESSION NUMBER: 0000912057-96-005779 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-04597 FILM NUMBER: 96542904 BUSINESS ADDRESS: STREET 1: 2200 COLORADO STATE BANK BLDG STREET 2: 1600 BROADWAY CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038121400 10-K 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to Commission File Number: 0-4597 FOREST OIL CORPORATION (Exact name of registrant as specified in its charter) State of incorporation: New York I.R.S. Employer Identification No. 25-0484900 1600 Broadway Suite 2200 Denver, Colorado 80202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 303-812-1400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class ------------------- Common Stock, Par Value $.10 Per Share Warrants to purchase shares of Common Stock $.75 Convertible Preferred Stock, Par Value $.01 Per Share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by persons other than non-affiliates of the registrant was approximately $231,371,978 as of February 29, 1996 (based on the last sale price of such stock as quoted on the NASDAQ National Market). There were 24,527,575 shares of the registrant's Common Stock, Par Value $.10 Per Share outstanding as of February 29, 1996. Document incorporated by reference: Proxy Statement of Forest Oil Corporation relative to the Annual Meeting of Shareholders to be held on May 8, 1996, which is incorporated into Part III of this Form 10-K. TABLE OF CONTENTS
Page No. -------- PART I Item 1. Business 1 Item 2. Properties 9 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 4A. Executive Officers of Forest 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6. Selected Financial and Operating Data 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 8. Financial Statements and Supplementary Data 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31 PART III Item 10. Directors and Executive Officers of the Registrant 67 Item 11. Executive Compensation 67 Item 12. Security Ownership of Certain Beneficial Owners and Management 67 Item 13. Certain Relationships and Related Transactions 67 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 67
PART I ITEM 1. BUSINESS THE COMPANY Forest Oil Corporation and its subsidiaries (Forest or the Company) are engaged in the acquisition, exploration, development, production and marketing of natural gas and crude oil in North America. The Company was incorporated in New York in 1924, the successor to a company formed in 1916, and has been a publicly held company since 1969. The Company is active in several of the major exploration and producing areas in and offshore the United States and, following two recent acquisitions, in Canada. Forest's principal reserves and producing properties are located in the Gulf of Mexico, Texas, Oklahoma and Canada. The Company currently operates 43 offshore platforms in the Gulf and Mexico, and 1995 production from this area accounted for approximately 78% of the Company's reported historical production on an MCFE basis. (An MCF is one thousand cubic feet of natural gas. MMCF is used to designate one million cubic feet of natural gas and BCF refers to one billion cubic feet of natural gas. MCFE means thousands of cubic feet of natural gas equivalents, using a conversion ratio of one barrel of liquids to 6 MCF of natural gas. BCFE means billions of cubic feet of natural gas equivalents. With respect to liquids, the term BBL means one barrel of liquids whereas MBBLS is used to designate one thousand barrels of liquids. The term liquids is used to describe oil, condensate and natural gas liquids. The Company operates from production offices located in Lafayette, Louisiana and Denver, Colorado. In January 1996 the Company established an administrative and production office in Calgary, Alberta, Canada. Forest's corporate headquarters are located in Denver, Colorado. On December 31, 1995, Forest had 173 employees, of whom 115 were salaried and 58 were hourly. On March 20, 1996, Forest had 177 employees in the United States, of whom 119 were salaried and 58 were hourly, Canadian Forest had 51 salaried employees, and ProMark had 16 salaried employees. OPERATING STRATEGY The Company's objective is to increase value through sustained profitable growth of its oil and gas reserves and production by pursuing a combined strategy of focused acquisitions, exploration and development, while reducing operating and financial risk. In recent years, the Company has grown primarily by acquiring reserves with exploitation potential, increasing production from existing fields and participating in exploration through farmout arrangements. The Company seeks to acquire interests in properties in which it would have a significant working interest and which it can operate. From January 1, 1991 through December 31, 1995 the Company acquired approximately 281 BCFE of estimated proved reserves, located primarily in the Gulf of Mexico, Texas and western Canada. During 1995, the Company's acquisitions totaled 44.0 BCFE at an average property acquisition cost of $.61 per MCFE. These amounts represent primarily the reserves of Saxon Petroleum Inc. (Saxon), a consolidated subsidiary of the Company in which the Company purchased a 56% economic interest on December 20, 1995. Saxon is an Alberta, Canada corporation engaged in oil and gas exploration and production primarily in western Canada. On January 31, 1996 Forest acquired ATCOR Resources Ltd. for approximately $134,900,000, exclusive of acquisition costs of approximately $1,800,000. This company, which has been renamed Canadian Forest Oil Ltd. (Canadian Forest), is a Canadian corporation engaged in oil and gas exploration, production and processing in western Canada. Estimated proved reserves acquired in the Canadian Forest transaction were approximately 154 BCFE at an average property acquisition cost of $.66 per MCFE net of related deferred taxes. As part of the ATCOR acquisition, Forest separated ATCOR's natural gas marketing operation from its exploration and production business and renamed the marketing business Producers Marketing Ltd. (ProMark). In addition to marketing Canadian Forest's own gas production, ProMark provides a full range of gas marketing and management services to outside parties. On a pro forma basis, the Company had estimated proved reserves of 455 BCFE at December 31, 1995 of which approximately 73% were natural gas reserves. This represents an increase of 56% compared to estimated proved reserves of 292 BCFE at December 31, 1994, of which approximately 85% was natural gas. 1 Throughout the remainder of 1996, the Company intends to continue to pursue its strategy of acquiring additional reserves that satisfy its investment criteria and are within the limits of its capital constraints. Forest continues to evaluate potential acquisitions, as well as various types of business combinations and joint ventures. The Company's operating strategy also includes exploitation activities in the areas of reservoir management and development drilling. Reservoir management involves the effort to enhance value by a combination of reduced costs and the use of techniques such as workovers to increase hydrocarbon recovery. The Company engages in development drilling for additional reserves that offset existing production with the objective of either increasing the density in which wells are drilled or extending reservoirs. The Company believes that it can increase production from, and otherwise enhance the value of, existing fields by utilizing its technical expertise to undertake selective workovers, recompletions and development drilling. The Company participates in exploration activities through selective drilling for its own account, as well as through farmout arrangements. Farmouts enable Forest to participate in its exploration prospects without incurring additional exploration costs, although with a reduced ownership in each prospect. For further information concerning the Company's farmout activity, see Item 2. Properties. As a part of its operating strategy, the Company also conducts an ongoing disposition program of its non-strategic assets. Assets with little value or which are not consistent with the Company's ongoing operating strategy are identified for sale or trade. During 1995, the Company disposed of properties with estimated proved reserves of approximately 2.4 BCF of natural gas and 6,000 barrels of oil for total net proceeds of $8,715,000. In recent years, the Company has not been able to exploit the full potential of its acquisitions due to financial constraints resulting from its highly leveraged capital structure and low natural gas prices. During 1995, the Company sold equity securities to The Anschutz Corporation (Anschutz) for $45,000,000 and restructured $62,400,000 of indebtedness to Joint Energy Development Investments Limited Partnership, a Delaware limited partnership the general partner of which is an affiliate of Enron Corp. (JEDI). In December 1995, the Company agreed to exchange 1,680,000 shares of common stock for $22,400,000 of JEDI indebtedness and warrants to acquire Forest common stock. In January 1996, the Company completed the purchase of Canadian Forest using the proceeds of a common stock offering and approximately $8,300,000 of borrowings under its bank credit facility. Forest also established a $60,000,000 CDN credit facility secured by the oil and gas properties of Canadian Forest. As a result of these transactions, the Company has improved its financial flexibility significantly. The Company believes such improved financial flexibility should allow Forest to exploit its expanded property base more effectively. During the remainder of 1996, the Company intends to pursue its acquisition and exploitation strategy while continuing its efforts to improve its balance sheet and liquidity. The Company has also significantly increased the amount of capital expenditures it has budgeted for exploration activities. For further information concerning the Company's acquisitions and operations, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto. SALES AND MARKETS Forest's U.S. production is generally sold at the wellhead to oil and natural gas purchasing companies in the areas where it is produced. Crude oil and condensate are typically sold at prices which are based upon posted field prices. For the month of March 1996, approximately 19% of the Company's U.S. natural gas was committed to both interstate and intrastate natural gas pipeline companies, primarily under volumetric production payment agreements and long-term contracts. The remainder of the Company's U.S. natural gas was sold at the wellhead at spot market prices. The term "spot market" as used herein refers to contracts with a term of six months or less or contracts which call for a redetermination of sales prices every six months or earlier. In Canada, Canadian Forest's production is sold primarily through the ProMark Netback Pool. The Netback Pool matches major end users with providers of gas supply through arranged transportation channels and uses a netback 2 pricing mechanism to establish the wellhead price paid to producers. The Netback Pool gas sales in 1995 averaged 118 MMCF per day, of which Canadian Forest supplied approximately 40 MMCF per day or approximately 80% of its current natural gas production. In addition to operating the Netback Pool, ProMark provides two other marketing services for producers and purchasers of natural gas. ProMark manages long-term gas supply contracts for its industrial customers by providing full-service purchasing, accounting and gas nomination services for these customers on a fee-for-services basis. ProMark also buys and sells gas in its trading operation for terms as short as one day and as long as one to two years. Profits generated by trading are derived from the spread between the prices of gas purchased and sold. For much of the past decade, the markets for oil and natural gas have been volatile. The Company anticipates that such markets will continue to be volatile over the next year. Price fluctuations in the natural gas spot market have a significant impact on the Company's business because most of the Company's reserves are attributable to natural gas, most of its current production consists of natural gas and a large portion of its natural gas production is sold in the spot market. At December 31, 1995, approximately 86% of Forest's estimated proved reserves in the U.S., including volumes attributable to volumetric production payments, consisted of natural gas on an MCFE basis. During 1995, 83% of the Company's total U.S. production on the same basis consisted of natural gas. Approximately 72% of such 1995 natural gas production was sold in the spot market. On a pro forma basis at December 31, 1995, approximately 55% of Forest's estimated proved reserves in Canada consisted of natural gas on an MCFE basis. During 1995, 63% of Forest's pro forma Canadian production consisted of natural gas. In order to attempt to minimize the product price volatility to which the Company is subject, the Company, from time to time, enters into energy swap agreements and other financial arrangements with third parties to attempt to reduce the Company's exposure to anticipated fluctuations in future oil and natural gas prices. The volumetric production payments that the Company has entered into further minimize the price volatility to which the Company is subject. For further information concerning market conditions, production payments and energy swap agreements, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 5, 6 and 13 of Notes to Consolidated Financial Statements. Demand for natural gas is highly seasonal, with demand generally higher in the colder winter months and in hot summer months. As a result, the price received for spot market natural gas may vary significantly between seasonal periods. To date, the Company generally has been able to sell all of its available spot market natural gas at prevailing spot market prices; thus, the volumes sold by the Company have not fluctuated materially with seasonality. There is no assurance, however, that the Company will be able to continue to achieve this result. The Company believes that the loss of one or more of its current natural gas spot purchasers should not have a material adverse effect on the Company's business in the United States because any individual spot purchaser could be readily replaced by another spot purchaser who would pay approximately the same sales price. In Canada, the majority of Canadian Forest's natural gas production is sold under the ProMark Netback Pool to long-term buyers. The loss of one or more of such long-term buyers could have an adverse effect on Canadian Forest and ProMark. Substantially all of Forest's oil is sold under short-term contracts at prices which are based upon posted field prices. For information concerning sales to major customers, see Note 14 of Notes to Consolidated Financial Statements. COMPETITION The oil and natural gas industry is intensely competitive. Competition is particularly intense in the acquisition of prospective oil and natural gas properties and oil and gas reserves. Forest's competitive position depends on its geological, geophysical and engineering expertise, on its financial resources, its ability to develop its properties and its ability to select, acquire and develop proved reserves. Forest competes with a substantial number of other companies having larger technical staffs and greater financial and operational resources. Many such companies not only engage in the acquisition, exploration, development and production of oil and natural gas reserves, but also carry on refining operations, generate electricity and market refined products. The Company also competes with major and independent oil and gas companies in the marketing and sale of oil and gas to transporters, distributers and end users. There is also competition between the oil and natural gas industry and other industries supplying energy and fuel to industrial, commercial and individual consumers. Forest also competes with other oil 3 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, although there is no current shortage of such equipment. Finally, companies not previously investing in oil and natural gas may choose to acquire reserves to establish a firm supply or simply as an investment. Such companies will also provide competition for Forest. Forest's business is affected not only by such competition, but also by general economic developments, governmental regulations and other factors that affect its ability to market its oil and natural gas production. The prices of oil and natural gas realized by Forest are highly volatile. The price of oil is generally dependent on world supply and demand, while the price Forest receives for its natural gas is tied to the specific markets in which such gas is sold. Declines in crude oil prices or natural gas prices adversely impact Forest's activities. The Company's financial position and resources may also adversely affect the Company's competitive position. Lack of available funds or financing alternatives will prevent the Company from executing its operating strategy and from deriving the expected benefits therefrom. For further information concerning the Company's financial position, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. ProMark also faces significant competition from other gas marketers, some of whom are significantly larger in size and have greater financial resources than ProMark, Canadian Forest or the Company. REGULATION - UNITED STATES Various aspects of the Company's oil and natural gas operations are regulated by administrative agencies under statutory provisions of the states where such operations are conducted and by certain agencies of the Federal government for operations on Federal leases. The Federal Energy Regulatory Commission (FERC) regulates the transportation and sale for resale of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 (NGA) and the Natural Gas Policy Act of 1978 (NGPA). In the past, the Federal government has regulated the prices at which oil and gas could be sold. While sales by producers of natural gas, and all sales of crude oil, condensate and natural gas liquids can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Deregulation of wellhead sales in the natural gas industry began with the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act (the Decontrol Act). The Decontrol Act removed all NGA and NGPA price and nonprice controls affecting wellhead sales of natural gas effective January 1, 1993. Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, and 636-B (Order No. 636), which require interstate pipelines to provide transportation separate, or "unbundled", from the pipelines' sales of gas. Also, Order No. 636 requires pipelines to provide open-access transportation on a basis that is equal for all gas supplies. Although Order No. 636 does not directly regulate the Company's activities, the FERC has stated that it intends for Order No. 636 to foster increased competition within all phases of the natural gas industry. It is unclear what impact, if any, increased competition within the natural gas industry under Order No. 636 will have on the Company's activities. Although Order No. 636, assuming it is upheld in its entirety, could provide the Company with additional market access and more fairly applied transportation service rates, Order No. 636 could also subject the Company to more restrictive pipeline imbalance tolerances and greater penalties for violation of those tolerances. Numerous parties have filed petitions for review of Order No. 636, as well as orders in individual pipeline restructuring proceedings. Upon such judicial review, these orders may be remanded or reversed in whole or in part. With Order No. 636 subject to court review, it is difficult to predict with precision its ultimate effects. The FERC has announced its intention to re-examine certain of its transportation-related policies, including the appropriate manner in which interstate pipelines release transportation capacity under Order No. 636, and the use of market-based rates for interstate gas transmission. While any resulting FERC action would affect the Company only indirectly, the FERC's current rules and policy statement may have the effect of enhancing competition in natural gas markets by, among other things, encouraging non-producer natural gas marketers to engage in certain purchase and sale transactions. The Company cannot predict what action the FERC will take on these matters, nor can it accurately predict whether the FERC's actions will achieve the goal of increasing competition in 4 markets in which the Company's natural gas is sold. However, the Company does not believe that it will be treated materially differently than other natural gas producers and marketers with which it competes. Recently, the FERC issued a policy statement on how interstate natural gas pipelines can recover the costs of new pipeline facilities. While this policy statement affects the Company only indirectly, in its present form, the new policy should enhance competition in natural gas markets and facilitate construction of gas supply laterals. However, requests for rehearing of this policy statement are currently pending. The Company cannot predict what action the FERC will take on these requests. Commencing in October 1993, the FERC issued a series of rules (Order Nos. 561 and 561-A) establishing an indexing system under which oil pipelines will be 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. The FERC's decision in this matter is currently the subject of various petitions for judicial review. The Company is not able at this time to predict the effects of Order Nos. 561 and 561-A, if any, on the transportation costs associated with oil production from the Company's oil producing operations. The Outer Continental Shelf Lands Act (OCSLA) requires that all pipelines operating on or across the Outer Continental Shelf (the OCS) provide open-access, non-discriminatory service. Although the FERC has opted not to impose the regulations of Order No. 509, in which the FERC implemented the OCSLA, on gatherers and other non-jurisdictional entities, the FERC has retained the authority to exercise jurisdiction over those entities if necessary to permit non-discriminatory access to service or the OCS. Certain operations the Company conducts are on federal oil and gas leases, which the Minerals Management Service (MMS) administers. The MMS issues such leases through competitive bidding. These leases contain relatively standardized terms and require compliance with detailed MMS regulations and orders pursuant to the OCSLA (which are subject to change by the MMS). For offshore operations, lessees must obtain MMS approval for exploration plans and development and production plans prior to the commencement of such operations. In addition to permits required from other agencies (such as the Coast Guard, the Army Corps of Engineers and the Environmental Protection Agency), lessees must obtain a permit from the MMS prior to the commencement of drilling. The MMS has promulgated regulations requiring offshore production facilities located on the OCS to meet stringent engineering and construction specifications. The MMS proposed additional safety-related regulations concerning the design and operating procedures for OCS production platforms and pipelines. These proposed regulations were withdrawn pending further discussions among interested federal agencies. The MMS also has regulations restricting the flaring or venting of natural gas, and has recently proposed to amend such regulations to prohibit the flaring of liquid hydrocarbons and oil without prior authorization. Similarly, the MMS has promulgated other regulations governing the plugging and abandonment of wells located offshore and the removal of all production facilities. To cover the various obligations of lessees on the OCS, the MMS generally requires that lessees post substantial bonds or other acceptable assurances that such obligations will be met. The cost of such bonds or other surety can be substantial and there is no assurance that the Company can continue to obtain bonds or other surety in all cases. In addition, the MMS is conducting an inquiry into certain contract agreements from which producers on MMS leases have received settlement proceeds that are royalty bearing and the extent to which producers have paid the appropriate royalties on those proceeds. The Company believes that this inquiry will not have a material impact on its financial condition, liquidity or results of operations. The MMS has recently issued a notice of proposed rulemaking in which it proposes to amend its regulations governing the calculation of royalties and the valuation of natural gas produced from federal leases. The principal feature in the amendments, as proposed, would establish an alternative market-index based method to calculate royalties on certain natural gas production sold to affiliates or pursuant to non-arm's-length sales contracts. The MMS has proposed this rulemaking to facilitate royalty valuation in light of changes in the gas marketing environment. The Company cannot predict what action the MMS will take on these matters, nor can it predict at this stage of the rulemaking proceeding how the Company might be affected by amendments to the regulations. 5 Additional proposals and proceedings that might affect the oil and gas industry are pending before the FERC and the courts. The Company cannot predict when or whether any such proposals may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by the FERC will continue indefinitely. Notwithstanding the foregoing, the Company does not anticipate that compliance with existing federal, state and local laws, rules and regulations will have a material or significantly adverse effect upon the capital expenditures, earnings or competitive position of the Company or its subsidiaries. No material portion of Forest's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Federal government. OIL SPILL FINANCIAL RESPONSIBILITY REQUIREMENTS - UNITED STATES In August 1993, the MMS published an advance notice of its intention to adopt a rule under the Oil Pollution Act of 1990 (OPA 90) that would require owners and operations of oil and gas facilities located on or adjacent to waters of the United States to establish $150,000,000 in financial responsibility to cover oil spill related liabilities. Compliance with the proposed rule could be financially burdensome for many small oil and gas companies, and in June 1995, the U.S. House of Representatives approved a bill that would amend OPA 90 to reduce the level of financial responsibility to $35,000,000. The Clinton Administration has expressed its support for the pending legislation, but the U.S. Senate has not yet taken any action on the bill approved by the House of Representatives. The Company cannot predict whether Congress will reduce the level of financial responsibility required under OPA 90 nor can it predict the final form of any financial responsibility rule that might be adopted, but any such action has the potential to result in the imposition of substantial additional annual costs on the Company or otherwise materially adversely affect the Company. The impact of the rule should not be any more adverse to the Company than it will be to other similarly situated or less capitalized owners or operators in the Gulf of Mexico and other affected regions. The MMS has indicated that it will not move forward with the adoption of the rule until the United States Congress has had an opportunity to act on the pending amendments to OPA 90. REGULATION - CANADA The oil and natural gas industry in Canada is subject to extensive controls and regulations imposed by various levels of government. It is not expected that any of these controls or regulations will affect the operations of the Company in a manner materially different than they would affect other oil and gas companies of similar size. In Canada, producers of oil negotiate sales contracts directly with oil purchasers, with the result that the market determines the price of oil. The price depends in part on oil quality, prices of competing fuels, distance to market and the value of refined products. Oil exports may be made pursuant to export contracts with terms not exceeding one year in the case of light crude, and not exceeding two years in the case of heavy crude, provided that an order approving any such export has been obtained from the National Energy Board (NEB). Any oil export to be made pursuant to a contract of longer duration requires an exporter to obtain an export license from the NEB and the issue of such a license requires the approval of the Canadian federal government. In Canada, the price of natural gas sold in interprovincial and international trade is determined by negotiation between buyers and sellers. Natural gas exported from Canada is subject to regulation by the Government of Canada through the NEB. Producers and exporters are free to negotiate prices and other terms with purchasers, provided that the export contracts must continue to meet certain criteria prescribed by the NEB. As is the case with oil, natural gas exports for a term of less than two years must be made pursuant to an NEB order, or, in the case of exports for a longer duration, pursuant to an NEB license and Canadian federal government 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. 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 6 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, (ii) impose an export price higher than the domestic price, and (iii) disrupt normal channels of supply. All three countries are prohibited from imposing minimum export or import price requirements. NAFTA contemplates clearer disciplines on regulators to ensure fair implementation of any regulatory changes and to minimize disruption of contractual arrangements, which is important for Canadian natural gas exports. In addition to federal regulation, each province has legislation and regulations which govern land tenure, royalties, production rates, environmental protection and other matters. The royalty regime is a significant factor in the profitability of oil and natural gas production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the mineral owner and the lessee. Crown royalties are determined by government regulation and are generally calculated as a percentage of the value of the gross production, and the rate of royalties payable generally depends in part on prescribed reference prices, well productivity, geographical location, field discovery date and the type or quality of the petroleum product produced. From time to time the governments of Canada, Alberta, British Columbia and Saskatchewan have established incentive programs which have included royalty rate deductions, royalty holidays and tax credits for the purpose of encouraging oil and natural gas exploration or enhanced recovery projects. In Alberta, a producer of oil or natural gas is entitled to a credit against the royalties payable to the Crown by virtue of the ARTC (Alberta royalty tax credit) program. The ARTC program is based on a price sensitive formula, and the ARTC rate varies between 75%, at prices for oil below $100 per cubic meter, and 25%, at prices above $210 per cubic meter. The ARTC rate is applied to a maximum of $2,000,000 of Alberta Crown royalties payable for each producer or associated group of producers. Crown royalties on production from producing properties acquired from corporations claiming maximum entitlement to ARTC will generally not be eligible for ARTC. The rate is established quarterly based on the average "par price", as determined by the Alberta Department of Energy for the previous quarterly period. Canadian Forest is not eligible for any ARTC credits on its existing properties. Oil and natural gas royalty holidays and reductions for specific wells reduce the amount of Crown royalties paid by the Company to the provincial governments. The ARTC program provides a rebate on Crown royalties paid in respect of eligible producing properties. OPERATING HAZARDS AND ENVIRONMENTAL MATTERS The oil and gas business involves a variety of operating risks, including the risk of fire, explosions, blow-outs, pipe failure, casing collapse, abnormally pressured formations and environmental hazards such as oil spills, gas leaks, ruptures and discharges of toxic gases, the occurrence of any of which could result in substantial losses to the Company due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. In addition, the Company currently operates offshore and is subject to the additional hazards of marine operations, such as capsizing, collision and adverse weather and sea conditions. Such hazards may hinder or delay drilling, development and on-line production operations. Extensive federal, state, provincial and local laws govern oil and natural gas operations regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Numerous governmental departments issue rules and regulations to implement and enforce such laws which are often difficult and costly to comply with and which carry substantial penalties for failure to comply. Some laws, rules and regulations relating to protection of the environment may, in certain circumstances, impose "strict liability" for environmental contamination, rendering a person liable for environmental damages and cleanup costs without regard to negligence or fault on the part of such person. Other laws, rules and regulations may restrict the rate of oil and natural gas production below the rate that would otherwise exist. The regulatory burden on the oil and natural gas industry increases its cost of doing business and consequently affects its profitability. These laws, rules and regulations affect the operations of the Company. Compliance with environmental requirements generally could have a material adverse effect upon the capital expenditures, earnings or competitive position of Forest and 7 its subsidiaries. The Company believes that it is in substantial compliance with current applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on the Company. Nevertheless, changes in environmental law have the potential to adversely affect the Company's operations. For instance, at least two separate courts have recently ruled that certain wastes associated with the production of crude oil may be classified as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (commonly called Superfund) and thus the Company could become subject to the burdensome cleanup and liability standards established under the federal Superfund program if significant concentrations of such wastes were determined to be present at the Company's properties or to have been produced as a result of the Company's operations. Alternately, pending amendments to Superfund presently under consideration by the U.S. Congress could relax many of the burdensome cleanup and liability standards established under the Statute. 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. Although the Company maintains insurance against some, but not all, of the risks described above, including insuring the costs of clean-up operations, public liability and physical damage, there is no assurance that such insurance will be adequate to cover all such costs or that such insurance will continue to be available in the future or that such insurance will be available at premium levels that justify its purchase. The occurrence of a significant event not fully insured or indemnified against could have a material adverse effect on the Company's financial condition and operations. The Company has established guidelines to be followed to comply with environmental laws, rules and regulations. The Company has designated a compliance officer whose responsibility is to monitor regulatory requirements and their impacts on the Company and to implement appropriate compliance procedures. The Company also employs an environmental manager whose responsibilities include causing Forest's operations to be carried out in accordance with applicable environmental guidelines and implementing adequate safety precautions. Although the Company maintains pollution insurance against the costs of clean-up operations, public liability and physical damage, there is no assurance that such insurance will be adequate to cover all such costs or that such insurance will continue to be available in the future. OTHER FOREIGN OPERATIONS In 1992, the Company sold substantially all of its former Canadian operations to CanEagle Resources Corporation (CanEagle). In June 1994, CanEagle sold a significant portion of its oil and gas properties in Canada to a third party. In conjunction with this transaction, the Company exchanged its investment in CanEagle for shares of preferred stock of a newly formed entity, Archean Energy, Ltd. (Archean). In connection with the Saxon transaction, the Company transferred its Archean preferred stock to Saxon. 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. 8 ITEM 2. PROPERTIES Forest's principal reserves and producing properties are oil and gas properties located in the Gulf of Mexico, Texas, Oklahoma and western Canada. RESERVES Information regarding the Company's proved and proved developed oil and gas reserves and the standardized measure of discounted future net cash flows and changes therein is included in Note 16 of Notes to Consolidated Financial Statements. Since January 1, 1995, Forest has not filed any oil or natural gas reserve estimates or included any such estimates in reports to any Federal or foreign governmental authority or agency, other than the Securities and Exchange Commission (SEC), the MMS and the Department of Energy (DOE). The reserve estimate report filed with the MMS related to Forest's Gulf of Mexico reserves and there were no differences between the reserve estimates included in the MMS report, the SEC report, the DOE report and those included herein, except for production and additions and deletions due to the difference in the "as of" dates of such reserve estimates. PRODUCTION The following table shows net liquids and natural gas production for Forest and its subsidiaries on a historical basis for the years ended December 31, 1995, 1994 and 1993 and on a pro forma basis including Saxon and Canadian Forest for the year ended 1995:
Net Natural Gas and Liquids Production (1)(2) --------------------------------------------- Pro forma 1995 1995 (3) 1994 (4) 1993 ----------- ---------- ---------- ------- United States: Natural Gas (MMCF) 33,342 33,342 48,048 41,114 Liquids (MBBLS) 1,173 1,173 1,543 1,493 Canada: Natural Gas (MMCF) 18,428 -- -- -- Liquids (MBBLS) 1,828 -- -- --
(1) Includes amounts delivered pursuant to volumetric production payments. See Note 6 of Notes to Consolidated Financial Statements. (2) Volumes reported for natural gas include immaterial amounts of sulfur production on the basis that one long ton of sulfur is equivalent to 15 MCF of natural gas. Liquids volumes include both oil and condensate and natural gas liquids. (3) Does not include any production relating to the acquisition of Saxon on December 20, 1995 as the amounts involved are not significant. (4) Effective January 1, 1994 the Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method. See Note 1 of Notes to Consolidated Financial Statements. 9 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 in the United States on a historical basis for the years ended December 31, 1995, 1994 and 1993 for Forest and its subsidiaries and on a pro forma basis including Saxon and Canadian Forest for the year ended 1995:
Canada United States ----------- -------------------------------- Pro forma 1995 1995 1994 1993 ----------- -------- -------- -------- Average Sales Prices: Natural Gas Production under long-term fixed price contracts (MMCF) (1) (3) 9,414 16,656 19,065 Average contract sales price (per MCF) $ 1.75 1.78 1.65 Production sold on the spot market (MMCF) (3) 23,928 31,392 22,049 Spot sales price received (per MCF) $ 1.79 1.90 2.21 Effects of energy swaps (per MCF) (2) .17 .06 (.13) ------- ------- -------- Average spot sales price (per MCF) $ 1.96 1.96 2.08 Total production (MMCF) 18,428 33,342 48,048 41,114 Average sales price (per MCF) $ 1.16 1.90 1.90 1.88 Liquids: Oil and condensate Total production (MBBLS) 1,450 1,121 1,482 1,464 Sales price received (per BBL) $ 15.44 16.36 14.97 16.25 Effects of energy swaps (per BBL) (2) -- (.50) (.14) .58 ------- ------- ------- -------- Average sales price (per BBL) $ 15.44 15.86 14.83 16.83 Natural Gas Liquids Total production (MBBLS) 378 52 61 29 Average sales price (per BBL) $ 8.76 15.81 14.79 24.02 Total liquids Total production (MBBLS) 1,828 1,173 1,543 1,493 Average sales price (per BBL) $ 14.05 15.86 14.83 16.97 Average production cost (per MCFE) (4) $ .51 .56 .39 .39
- --------------------- (1) Production under long-term fixed price contracts includes scheduled deliveries under volumetric production payments, net of royalties. For further information concerning volumes and prices recorded under volumetric production payments, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 6 of Notes to Consolidated Financial Statements. (2) Energy swaps were entered into to hedge the price of spot market volumes against price fluctuation. Hedged natural gas volumes were 10,146 MMCF, 12,184 MMCF and 8,057 MMCF for the years ended December 31, 1995, 1994 and 1993, respectively. Hedged oil and condensate volumes were 498,000 BBLS, 370,000 BBLS and 720,000 BBLS for the years ended December 31, 1995, 1994 and 1993, respectively. (3) Pro forma data concerning volumes sold under long-term fixed price contracts versus volumes sold on the spot market is not available. (4) 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. 10 PRODUCTIVE WELLS The following summarizes total gross and net productive wells of the Company and its subsidiaries on a historical basis, including the wells owned by Saxon, at December 31, 1995 and on a pro forma basis including Canadian Forest for the year ended December 31, 1995:
Productive Wells (1) ------------------------- United States Canada ------------- ------ HISTORICAL Gross (2) Gas 290 99 Oil 170 510 ----- ----- Totals (3) 460 609 ----- ----- ----- ----- Net (4) Gas 93.3 16.4 Oil 116.3 95.8 ----- ----- Totals 209.6 112.2 ----- ----- ----- ----- PRO FORMA Gross (2) Gas 290 383 Oil 170 1,036 ----- ----- Totals (3) 460 1,419 ----- ----- ----- ----- Net (4) Gas 93.3 109.6 Oil 116.3 208.4 ----- ----- Totals 209.6 318.0 ----- ----- ----- -----
(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 32 dual completions in the United States on a historical and pro forma basis and 3 dual completions on a pro forma basis 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. DEVELOPED AND UNDEVELOPED ACREAGE Forest and its subsidiaries held acreage on a historical basis, including the acreage held by Saxon, as set forth below at December 31, 1995 and 1994 and on a pro forma basis including Canadian Forest at December 31, 1995. A majority of the developed acreage is subject to mortgage liens securing either the bank indebtedness or nonrecourse secured debt of the Company and its subsidiaries. A portion of the developed acreage is also subject to production payments. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 5 and 6 of Notes to Consolidated Financial Statements. 11
Developed Acreage (1) Undeveloped Acreage (2) --------------------- ----------------------- Gross (3) Net (4) Gross (3) Net (4) --------- ------- --------- ------- United States: Louisiana Offshore 138,636 62,265 63,245 28,306 Oklahoma 63,015 21,661 8,142 1,456 Texas Onshore 122,117 47,452 14,473 9,844 Texas Offshore 39,622 29,483 11,520 8,640 Wyoming 8,477 4,484 54,204 24,367 Other 25,553 10,999 3,610 1,577 ------- ------- --------- ------- 397,420 176,344 155,194 74,190 Canada 99,060 35,271 17,160 8,816 ------- ------- --------- ------- Total acreage at December 31, 1995 496,480 211,615 172,354 83,006 ------- ------- --------- ------- ------- ------- --------- ------- Total acreage at December 31, 1994 465,045 204,071 219,730 155,563 ------- ------- --------- ------- ------- ------- --------- ------- Pro forma acreage at December 31, 1995 802,521 313,308 1,008,475 316,989 ------- ------- --------- ------- ------- ------- --------- -------
(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. During 1995, the Company's gross and net developed acreage increased approximately 7% and 4%, respectively, primarily as a result of the Saxon acquisition, offset in part by the sale of developed acreage as well as lease expirations. The Company's gross and net undeveloped acreage decreased approximately 22% and 47%, respectively, primarily due to lease expirations, offset partially by the acquisition of Saxon. Approximately 26% of the Company's total net undeveloped acreage is under leases that have terms expiring in 1996, if not held by production, and another approximately 7% of net undeveloped acreage will expire in 1997 if not also held by production. 12 DRILLING ACTIVITY Forest and its subsidiaries owned interests in net exploratory and net development wells for the years ended December 31, 1995, 1994 and 1993 as set forth below. This information does not include wells drilled under farmout agreements, nor does it include any data with respect to wells drilled by Saxon or Canadian Forest.
United States ------------------------ 1995 1994 1993 ---- ---- ---- Net Exploratory Wells: (1) Dry (2) 1.3 2.0 1.2 Productive (3) .3 1.3 .3 --- --- --- 1.6 3.3 1.5 --- --- --- --- --- --- Net Development Wells: (1) Dry (2) -- -- -- Productive (3) .6 2.1 3.0 --- --- --- .6 2.1 3.0 --- --- --- --- --- ---
(1) 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. (2) 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. (3) Productive wells are producing wells and wells capable of production, including wells that are shut-in. FARMOUT AGREEMENTS Under a farmout agreement, outside parties undertake exploration activities using prospects owned by Forest. This enables the Company to participate in the exploration prospects without incurring additional capital costs, although with a substantially reduced ownership interest in each prospect. In 1995, two development wells and 14 exploratory wells were drilled under farmout agreements. The two development wells were productive. Six of the exploratory wells were productive, of which three were subsequently sold; seven were dry holes; and one is in the process of being drilled at year-end. PRESENT ACTIVITIES At December 31, 1995, Forest and its subsidiaries had two exploratory wells that were in the process of being drilled. One of these two wells was determined to be productive in January, 1996 and the other is currently being evaluated. DELIVERY COMMITMENTS At December 31, 1995 Forest and its subsidiaries were obligated to deliver, or to make cash settlement with respect to, approximately 8.0 BCF of natural gas and 87,000 barrels of oil under the terms of volumetric production payments. The delivery commitments cover approximately 14% and 4% of the estimated net proved reserves of natural gas and oil, respectively, attributable to the subject properties. The production payments are nonrecourse to other properties owned by the Company. The Company is further obligated to deliver approximately .8 BCF of natural gas under existing long-term contracts. Canadian Forest markets approximately 100 MMCF/day under medium- and long-term gas sales contracts to a number of Canadian and United States resale markets. Canadian Forest, on behalf of ProMark, has currently contracted with 23 Canadian producers to purchase a quantity of gas which, when aggregated with gas produced by Canadian Forest, constitutes the Netback Pool which is sufficient to serve the requirements of all the resale markets. For further information concerning the Company's volumetric production payment agreements, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 6 and 16 of Notes to Consolidated Financial Statements. 13 ITEM 3. LEGAL PROCEEDINGS Royalty owners have filed two separate class action lawsuits against the Company in the State District Court of Caddo County, Oklahoma. In each case the plaintiff has alleged unjust enrichment, breach of fiduciary duty, constructive fraud and breach of contract. The claims in both suits are based on the allegation that the Company underpaid royalties on the consideration received pursuant to settlement agreements with ONEOK, Inc. in 1990 and 1992. In MODRALL V. FOREST OIL CORPORATION, Case No. CJ-95-67, filed on March 24, 1995, the Court, on September 13, 1995, certified a class comprised of the royalty and overriding royalty owners in the three wells involved in the 1992 ONEOK, Inc. settlement. No class has been certified as yet in MERCO OF OKLAHOMA, INC. V. FOREST OIL CORPORATION, Case No. CJ-95-230, which suit was filed on September 27, 1995. This suit involves the 1990 ONEOK, Inc. settlement. The plaintiffs in both suits seek actual damages in excess of $10,000, punitive damages in excess of $10,000, an accounting, interest and costs. There has been no specific determination of the amount in controversy in either case. The plaintiffs allege in both cases that they are entitled to share in all value received by the Company under the aforesaid settlements, including proceeds not attributable to actual gas production. The Company believes that it was not required to pay a royalty on such proceeds, and therefore intends to vigorously resist these claims. The Company entered into a Settlement Agreement and Release with El Paso Natural Gas Company ("El Paso"), effective May 15, 1987, which was later modified by a Partial Termination of Settlement Agreement and Release and Gas Purchase Agreement, effective January 1, 1989. These agreements settled the parties' disputes concerning take-or-pay deficiencies under eight gas purchase contracts covering 16 wells located in Washita County, Oklahoma. The Company received a demand letter dated November 22, 1995, from the same attorney who represents Modrall and Merco, on behalf of a royalty owner in one of the wells covered by the El Paso settlements. A class action petition was filed January 19, 1996 in WRIGHT v. FOREST OIL CORPORATION, et al., Case No. CJ-96-6 in the State District Court of Washita County, Oklahoma. Like the plaintiffs in the MODRALL and MERCO cases, the plaintiff in this case contends that Forest underpaid royalties on the consideration it received under the El Paso settlement. He has asserted claims for breach of contract, unjust enrichment, breach of fiduciary duty, constructive fraud and bad faith breach of contract, and seeks an accounting and an unspecified amount of actual and punitive damages, interest and costs. The Company, in the ordinary course of business, is a party to various other legal actions. In the opinion of management, none of these actions, or those discussed above, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, liquidity or results of operations. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 4A. EXECUTIVE OFFICERS OF FOREST The following information with respect to the executive officers of Forest is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Years with Name (A) Age Forest Office (B) -------- --- ---------- ---------- William L. Dorn* 47 24 Chairman of the Board and Chairman of the Executive Committee since July 1991 and Chief Executive Officer from February 1990 until December 1995. Chairman of the Nominating Committee since July 1995. Member of the Executive Committee since August 1988. President from February 1990 until November 1993. Robert S. Boswell* 46 10 President since November 1993 and Chief Executive Office since December 1995. Vice President from May 1991 until November 1993 and Chief Financial Officer since May 1991. Financial Vice President from September 1989 until May 1991. Member of the Executive Committee since July 1991. Director of Franklin Supply Company Ltd. and Saxon Petroleum Inc. David H. Keyte 39 8 Vice President and Chief Financial Officer since December 1995. Vice President and Chief Accounting Officer from December 1993 until December 1995. Prior thereto Corporate Controller since January 1989. Chairman of the Company's Employee Benefits Committee. Director of Saxon Petroleum, Inc. Bulent A. Berilgen 47 11 Vice President of Operations since December 1993. Prior thereto Vice President - Engineering and Development since January 1992. Prior thereto Regional Reservoir Engineer. Director of Saxon Petroleum Inc.
15
Years with Name (A) Age Forest Office (B) -------- --- ---------- ---------- Forest D. Dorn 41 18 Vice President since February 1991 and General Business Manager since December 1993. Prior thereto General Manager - Operations since January 1992. Prior thereto Assistant Division Manager of the Southern Division. V. Bruce Thompson 48 1 Vice President and General Counsel since August 1994. Vice President - Legal of Mid-America Dairymen, Inc. from November 1993 to August 1994. Chief of Staff for Oklahoma Congressman James M. Imhofe from February 1990 to November 1993. Kenton M. Scroggs 43 12 Vice President since December 1993 and Treasurer since May 1988. Member of the Company's Employee Benefits Committee. Daniel L. McNamara 50 24 Secretary and Corporate Counsel since January 1991. Member of the Company's Employee Benefits Committee. Joan C. Sonnen 42 6 Controller since December 1993. Prior thereto Director of Financial Accounting and Reporting since April 1991 and Manager of Financial Systems and Reporting since July 1989.
- ------------------------- *Also a Director (A) William L. Dorn and Forest D. Dorn are brothers. (B) The term of office of each officer is one year from the date of his or her election immediately following the last annual meeting of shareholders and until the officer's respective successor has been elected and qualified or until his or her earlier death, resignation or removal from office whichever occurs first. Each of the named persons has held the office indicated since the last annual meeting of shareholders, except as otherwise indicated. 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK Forest Oil Corporation has one class of common equity securities outstanding, its Common Stock, par value $.10 per share (Common Stock). On January 5, 1996, the Company's shareholders approved a reverse stock split of the Common Stock. The reverse stock split resulted in the reclassification of each five shares of Common Stock outstanding into one share. On February 29, 1996, 24,527,575 shares of Common Stock were held by 1,854 holders of record. Forest's Common Stock is traded on the Nasdaq National Market. The high and low sales prices of the Common Stock for each quarterly period of the years presented as reported by the Nasdaq National Market are listed in the chart below. All of the following quotations have been adjusted to reflect the 5 to 1 reverse stock split of the Common Stock that occurred on January 8, 1996. There were no dividends on Common Stock in 1994, 1995 or in the first quarter of 1996.
High Low -------- -------- 1994 ---- First Quarter $23-3/4 $17-3/16 Second Quarter 22-13/16 17-3/16 Third Quarter 22-3/16 16-9/16 Fourth Quarter 17-3/16 10-5/8 1995 ---- First Quarter $11-7/8 $ 7-1/2 Second Quarter 11-7/8 7-1/2 Third Quarter 14-11/16 8-1/8 Fourth Quarter 16-1/4 11-1/4 1996 ---- First Quarter (through February 29) $16 $11-1/4
On February 29, 1996, the last reported sales price of the Common Stock as quoted on the Nasdaq National Market was $11.25 per share. PUBLIC WARRANTS The Company has outstanding 1,244,715 warrants to purchase shares of its Common Stock (the Public Warrants). Each Public Warrant entitles the holder to purchase one-fifth share of Common Stock at a price of $3.00, is non-callable and expires on October 1, 1996. On February 29, 1996 the Public Warrants were held by 75 holders of record. 17 The Public Warrants are traded on the Nasdaq National System. The high and low sales prices of the Public Warrants for each quarterly period of the years presented as reported by the Nasdaq National Market are listed in the chart below.
High Low -------- ------- 1994 ---- First Quarter $2-3/4 $1-7/8 Second Quarter 2-1/2 1-3/4 Third Quarter 2-1/8 1-5/8 Fourth Quarter 1-5/8 1/2 1995 ---- First Quarter $ 5/8 $ 3/8 Second Quarter 1/2 5/16 Third Quarter 27/32 5/16 Fourth Quarter 15/16 9/16 1996 ---- First Quarter (through February 29) $15/16 $ 1/2
On February 29, 1996, the last reported sales price of the Public Warrants as quoted on the Nasdaq National Market was $.50 per Warrant. $.75 CONVERTIBLE PREFERRED STOCK As of February 29, 1996, 2,877,673 shares of the Company's $.75 Convertible Preferred Stock were held by 74 holders of record. The $.75 Convertible Preferred Stock is traded on the Nasdaq National Market. The high and low sales prices of the $.75 Convertible Preferred Stock for each quarterly period of the years presented as reported by the Nasdaq National Market are listed in the chart below.
Cash Stock Dividends Dividends High Low Paid (1) Paid (1) -------- ------- ----------- --------------- 1994 - ---- First Quarter $17 $13-1/2 $ .1875 -- Second Quarter 16-1/2 13-1/4 .1875 -- Third Quarter 16 12-1/2 .1875 -- Fourth Quarter 13 8-3/4 .1875 -- 1995 - ---- First Quarter $ 9-1/8 $ 6-1/2 $ .1875 -- Second Quarter 8-3/4 7 -- .018939 shares Third Quarter 11-9/32 7-1/4 -- .022409 shares Fourth Quarter 11-1/2 8-7/8 -- .014980 shares 1996 - ---- First Quarter (through February 29) $12 $ 9-1/4 -- .013605 shares
(1) In 1994 the dividends on the $.75 Convertible Preferred Stock were paid in cash. On February 1, 1995, a cash dividend of $.1875 was paid to holders of record on January 10, 1995. Thereafter, each dividend was paid in shares of Common Stock. Amounts shown as dividends paid for such periods represent the fractional number of shares of Common Stock payable on each share of outstanding $.75 Convertible Preferred Stock. On February 22, 1996, the Board of Directors declared a dividend payable in shares of Common Stock on May 1, 1996 to holders of record of the $.75 Convertible Preferred Stock on April 10, 1996. The number of shares of Common Stock to be issued per share of the $.75 Convertible Preferred Stock will be determined in accordance with the formula for determining dividends payable. 18 On February 29, 1996, the last reported sales price of the $.75 Convertible Preferred Stock as quoted on the Nasdaq National Market was $9.75 per share. DIVIDEND RESTRICTIONS Subject to the prior right of the holders of Forest's $.75 Convertible Preferred Stock and the Second Series Preferred Stock, the only restrictions on its present or future ability to pay dividends are (i) the provisions of the New York Business Corporation Law (NYBCL), (ii) certain restrictive provisions in the Indenture executed in connection with Forest's 11 1/4% Senior Subordinated Notes due September 1, 2003, and (iii) the Company's Amended and Restated Credit Agreement dated August 31, 1995 with The Chase Manhattan Bank (National Association), as agent, under which the Company is restricted in amounts it may pay as dividends (other than dividends payable in common stock). Under the dividend restrictions in the Credit Agreement, as of March 15, 1996 the Company was not prohibited from paying cash dividends on its Common Stock or its $.75 Convertible Preferred Stock. There is no assurance that Forest will pay any dividends. For further information on Forest's ability to pay dividends on its Common Stock and $.75 Convertible Preferred Stock, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 5, 8, and 9 of Notes to Consolidated Financial Statements. For further information regarding the Company's equity securities and related stockholder matters, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto. 19 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA The following table sets forth selected data regarding the Company on a historical basis as of and for each of the years in the five-year period ended December 31, 1995 and on a pro forma basis for the year ended December 31, 1995 giving effect to the Saxon and Canadian Forest acquisitions. This data should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto.
Years Ended December 31, Pro forma ----------------------------------------------------- 1995 (1) 1995 1994 (2) 1993 1992 (3) 1991 --------- ------- ---------- ------- ---------- ------- (In Thousands Except per Share Amounts and Volumes) FINANCIAL DATA Revenue $ 269,781 82,456 115,947 105,148 113,186 69,897 --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Earnings (loss) before income taxes, cumulative effects of changes in accounting principles and extraordinary items $ (7,768) (18,003) (67,844) (10,705) 11,286 (52,262) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary items $ (14,117) (17,996) (67,853) (9,355) 7,298 (34,850) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Earnings (loss) before extraordinary items $ (14,117) (17,996) (81,843) (10,478) 7,298 (34,850) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Net earnings (loss) $ (14,117) (17,996) (81,843) (21,213) 7,298 (25,348) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Weighted average number of common shares outstanding 22,301 7,360 5,619 4,399 2,755 2,499 --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Net earnings (loss) attributable to common stock $ (16,277) (20,156) (84,004) (23,463) 4,950 (30,557) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Primary earnings (loss) per share: (4) Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary items $ (.73) (2.74) (12.46) (2.64) 1.80 (16.03) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Earnings (loss) before extraordinary items $ (.73) (2.74) (14.95) (2.90) 1.80 (16.03) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Net earnings (loss) attributable to common stock $ (.73) (2.74) (14.95) (5.34) 1.80 (12.23) --------- ------- ------- ------- ------- ------- --------- ------- ------- ------- ------- ------- Total assets $ 517,990 321,043 324,832 426,755 378,532 296,189 Long-term obligations $ 237,650 236,155 271,128 288,588 250,672 203,136 Shareholders' equity $ 180,241 44,297 6,086 88,156 59,881 54,840 OPERATING DATA Annual production (5): Gas (MMCF) 51,770 33,342 48,048 41,114 29,174 23,877 Liquids (MBBLS) 3,001 1,173 1,543 1,493 1,450 847 Average price received (5): Gas (per MCF) $ 1.64 1.90 1.90 1.88 1.70 1.84 Liquids (per Barrel) $ 14.76 15.86 14.83 16.97 18.14 25.31 Capital expenditures $ 77,368 52,744 42,544 170,821 106,627 35,664 Proved Reserves (5) (6): Gas (MMCF) 330,166 238,128 246,996 273,382 194,655 193,471 Liquids (MBBLS) 20,788 10,541 7,532 8,198 7,560 5,315 Standardized measure of discounted future net cash flows relating to proved oil and gas reserves (6) $ 333,676 256,917 207,549 262,176 190,971 166,454 Total discounted future net cash flows relating to proved oil and gas reserves, including amounts attributable to volumetric production payments (6) $ 342,152 265,393 230,149 299,053 227,009 188,069
(1) The pro forma financial and operating data as of December 31, 1995 gives effect to the public offering of Common Stock and the Canadian Forest acquisition as if they occurred on that date and the pro forma financial and operating data for the year ended December 31, 1995 assumes the acquisitions of Saxon and Canadian Forest occurred as of January 1, 1995. See Notes 2 and 9 of Notes to Consolidated Financial Statements. (2) Effective January 1, 1994 the Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method. See Note 1 of Notes to Consolidated Financial Statements. (3) Financial data for the year ended December 31, 1992 include the effects of a gas contract settlement which increased total revenue by $37,541,000 and net earnings by $24,043,000 or $8.73 per share. The average price received for natural gas for the year ended December 31, 1992 excludes the effects of the settlement. (4) Fully diluted earnings (loss) per share was the same as primary earnings (loss) per share in all years except 1992. In 1992, fully diluted earnings per share was $1.45. (5) Includes amounts attributable to required deliveries under volumetric production payments. See Notes 6 and 16 of Notes to Consolidated Financial Statements. (6) The 1995 and pro forma 1995 amounts include 100% of the reserves owned by Saxon, a consolidated subsidiary in which the Company holds a 56% economic interest. See Note 2 of Notes to Consolidated Financial Statements. 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. RESULTS OF OPERATIONS NET EARNINGS (LOSS). The net loss for 1995 was $17,996,000 compared to a net loss of $81,843,000 in 1994. The 1995 loss was primarily due to decreased oil and natural gas volumes and lower natural gas prices, offset by $4,263,000 of income associated with the resolution of a bankruptcy claim. The net loss for 1994 was $81,843,000 compared to a net loss of $21,213,000 in 1993. The 1994 loss includes a $58,000,000 writedown of the book value of the Company's oil and gas properties due to a ceiling test limitation and a charge of $13,990,000 relating to the change in the method of accounting for oil and gas sales from the sales method to the entitlements method. See "Changes in Accounting". REVENUE. Total revenue decreased 29% to $82,456,000 in 1995 from $115,947,000 in 1994, and increased 10% in 1994 from $105,148,000 in 1993. Oil and gas sales decreased to $82,275,000 from $114,541,000, or by approximately 28% in 1995 compared to 1994. Oil and gas sales in 1995 includes $4,263,000 of income associated with the resolution of a bankruptcy claim. In 1995, natural gas and oil production volumes were down 31% and 24%, respectively, compared to 1994. These decreases result primarily from limited capital expenditures in 1994 and 1995 that did not allow the Company to replace existing production through acquisitions and drilling. The Company expects this trend to reverse in 1996 as a result of the Saxon and Canadian Forest acquisitions coupled with planned increases in its domestic capital investment program. The average sales price for natural gas in 1995 decreased 7% compared to 1994, exclusive of the effects of the income associated with the resolution of the bankruptcy claim, which increased the average sales price for natural gas by $.13 per Mcf. The average sales price for oil in 1995 increased 7% compared to 1994. Oil and gas sales increased to $114,541,000 from $102,883,000, or by approximately 11%, in 1994 compared to 1993 due primarily to increased natural gas production from properties acquired throughout 1993 and the effects of the change in method of accounting for oil and gas sales, partially offset by normal production declines. The change in method of accounting increased earnings from operations (oil and gas sales less oil and gas production expenses) by $3,584,000 in 1994. In 1994, natural gas production volumes increased 17% compared to 1993 while oil production volumes were 3% higher. The increase in revenue attributable to increased production was partially offset by a 13% decrease in the average sales price for oil. The average sales price for natural gas in 1994 did not differ significantly from the 1993 price. 21 The production volumes and average sales prices for the years ended December 31, 1995, 1994 and 1993 for Forest and its subsidiaries were as follows:
Years Ended December 31, ---------------------------------- 1995 1994 1993 ------- ------- ------- NATURAL GAS Production under long-term fixed price contracts (MMCF) (1) 9,414 16,656 19,065 Average contract sales price (per MCF) $ 1.75 1.78 1.65 Production sold on the spot market (MMCF) 23,928 31,392 22,049 Spot sales price received (per MCF) $ 1.79 1.90 2.21 Effects of energy swaps (per MCF) (2) .17 .06 (.13) ------- ------ ------ Average spot sales price (per MCF) $ 1.96 1.96 2.08 Total production (MMCF) 33,342 48,048 41,114 Average sales price (per MCF) $ 1.90 1.90 1.88 LIQUIDS Oil and condensate: Total production (MBBLS) 1,121 1,482 1,464 Sales price received (per BBL) $ 16.36 14.97 16.25 Effects of energy swaps (per BBL) (2) (.50) (.14) .58 ------- ------ ------ Average sales price (per BBL) $ 15.86 14.83 16.83 Natural gas liquids: Total production (MBBLS) 52 61 29 Average sales price (per BBL) $ 15.81 14.79 24.02 Total liquids production (MBBLS) 1,173 1,543 1,493 Average sales price (per BBL) $ 15.86 14.83 16.97
- ----------------- (1) Production under long-term fixed price contracts includes scheduled deliveries under volumetric production payments, net of royalties. For further information concerning volumes and prices recorded under volumetric production payments, see Notes 6 and 16 of Notes to Consolidated Financial Statements. (2) Energy swaps were entered into to hedge the price of spot market volumes against price fluctuation. Hedged volumes were 10,146 MMCF, 12,184 MMCF and 8,057 MMCF for the years ended December 31, 1995, 1994 and 1993, respectively. Hedged oil and condensate volumes were 498,000 BBLS, 370,000 BBLS and 720,000 BBLS for the years ended December 31, 1995, 1994 and 1993. Natural gas delivered pursuant to volumetric production payment agreements and other long-term fixed price contracts represented approximately 28% of total production in 1995 versus 35% in 1994 and 46% in 1993. Miscellaneous net revenue was $181,000 in 1995. Miscellaneous net revenue of $1,406,000 in 1994 included income from the sale of miscellaneous pipeline systems and equipment and the reversal of an accounts receivable reserve, partially offset by a reserve for settlement of a royalty dispute and a payment of deferred maintenance costs of a real estate complex formerly used for general business purposes. Miscellaneous net revenue of $2,265,000 in 1993 included $1,380,000 of interest income on short-term investments and an adjustment to reduce accrued severance taxes based on discussions with the applicable state taxing authorities. OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased slightly to $22,463,000 in 1995 from $22,384,000 in 1994. On an MCFE basis, production expense increased to $.56 per MCFE in 1995 from $.39 per MCFE in 1994. The increased cost per MCFE is directly attributable to fixed components of oil and gas production expense being allocated over a smaller production base. The Company expects production expense to 22 decrease in 1996, on a per unit basis, as a result of the Saxon and Canadian Forest acquisitions and increased levels of capital investment. Oil and gas production expense increased 15% to $22,384,000 in 1994 compared to $19,540,000 in 1993 due primarily to increased natural gas production as a result of property acquisitions throughout 1993, partially offset by a decrease in workover expenses and a general decrease in expenses due to the sale of properties. In 1994 and 1993, production expense was approximately $.39 on an MCFE basis. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased 19% to $9,081,000 in 1995 compared to $11,166,000 in 1994 due primarily to a reduction in the size of the Company's workforce on March 1, 1995. General and administrative expense decreased 7% to $11,166,000 in 1994 compared to $12,003,000 in 1993. Decreases in salaries, wages and burden from the termination of executives and middle level managers and increases in production operation credits were partially offset by increases in insurance and office and storage rental expenses. The capitalization rate remained relatively constant from 1993 to 1995. Total overhead costs, including amounts related to exploration and development activities, were $15,857,000 in 1995, $18,719,000 in 1994 and $19,561,000 in 1993. Total overhead costs were approximately 15% lower in 1995 than in 1994. The Company's salaried workforce in the United States was 115 at December 31, 1995 compared to 143 at December 31, 1994. The decreases in total overhead costs and personnel were due primarily to a reduction in the size of the Company's workforce effective March 1, 1995. Excluding the severance and employee relocation costs in 1993, which are described below, total overhead costs were approximately 8% higher in 1994 than in 1993. This increase is primarily due to an increase in storage rentals and higher insurance expense attributable to a larger asset base, partially offset by a decrease in salaries, wages and burden from the termination of executives and middle level managers. Severance and employee relocation costs of approximately $2,300,000 in 1993 resulted from the termination of 10 executives and middle level managers and a loss incurred on the sale of an employee's former residence in accordance with the Company's relocation policy. The following table summarizes the total overhead costs incurred during the periods:
Years Ended December 31, --------------------------- 1995 1994 1993 ------- ------- ------- (In Thousands) Overhead costs capitalized $ 6,776 7,553 7,558 General and administrative costs expensed 9,081 11,166 12,003 ------- ------- ------- Total overhead costs $15,857 18,719 19,561(1) ------- ------- ------- ------- ------- -------
(1) Includes approximately $2,300,000 of severance and employee relocation costs. INTEREST EXPENSE. Interest expense of $25,323,000 in 1995 decreased $1,450,000 or 5% compared to 1994 due primarily to lower effective interest rates related to the nonrecourse secured loan and the dollar denominated production payment. Interest expense of $26,773,000 in 1994 increased $3,044,000 or 13% compared to 1993 due to higher loan balances as a result of borrowings for capital expenditures. DEPRECIATION AND DEPLETION EXPENSE. Depreciation and depletion expense decreased 33% to $43,592,000 in 1995 from $65,468,000 in 1994 due to the decrease in production, as well as a decrease in the depletion rate per unit of production. The depletion rate decreased to $1.06 per MCFE for U.S. production in 1995 compared to $1.13 for U.S. production in 1994 due to writedowns of the Company's oil and gas properties taken in the third and fourth quarters of 1994. Depreciation and depletion expense increased 8% to $65,468,000 in 1994 from $60,581,000 in 1993 due to increased production in the 1994 period as a result of property acquisitions. The depletion rate was $1.19 for U.S. production in 1993. At December 31, 1995, the Company had undeveloped properties with a cost basis of approximately $28,380,000 which were excluded from depletion compared to $30,441,000 at December 31, 1994 and $41,216,000 at December 31, 1993. The decrease from 1993 to 1994 and 1995 is attributable to exploration and development work, as well as lease expirations and property sales. 23 IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company was not required to record a writedown of the carrying value of its oil and gas properties in 1995 or 1993. The Company recorded a writedown of its oil and gas properties of $58,000,000 in 1994 due primarily to a decrease in spot market prices for natural gas. Additional writedowns of the full cost pool may be required if prices decrease, undeveloped property values decrease, estimated proved reserve volumes are revised downward or costs incurred in exploration, development, or acquisition activities exceed the discounted future net cash flows from the additional reserves, if any. The average Gulf Coast spot price received by the Company for natural gas increased from $2.31 per MCF at December 31, 1995 to $2.83 per MCF at March 1, 1996. The West Texas Intermediate price for crude oil was $17.50 per barrel at both December 31, 1995 and March 1, 1996. ACCOUNTING POLICIES. The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of related reserves. 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. Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. The Company believes that the entitlements method is preferable because it allows for recognition of revenue based on the Company's actual share of jointly owned production and provides a better matching of revenue and related expenses. The cumulative effect of the change for the periods through December 31, 1993, was a charge of $13,990,000. The effect of this change on 1994 was an increase in earnings from operations of $3,584,000 and an increase in production volumes of 1,555,000 MCF. There were no related income tax effects in 1994. Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (SFAS No. 106) required the Company to accrue expected costs of providing postretirement benefits to employees and the employees' beneficiaries and covered dependents. The Company adopted the provisions of SFAS No. 106 in the first quarter of 1993. The estimated accumulated postretirement benefit obligation as of January 1, 1993 was approximately $4,822,000. This amount, reduced by applicable income tax benefits, was charged to operations in the first quarter of 1993 as the cumulative effect of a change in accounting principle. The annual net postretirement benefit cost (included in total overhead costs) was approximately $504,000 for 1995, $510,000 for 1994 and $483,000 for 1993. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109), required the Company to adopt the liability method of accounting for income taxes. The Company adopted such method on a prospective basis as of January 1, 1993. The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 resulted in a reduction of the net amount of deferred income taxes recorded as of December 31, 1992 of approximately $2,060,000. This amount was credited to operations in the first quarter of 1993 as the cumulative effect of a change in accounting principle. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. Oil and gas properties accounted for under the full cost method of accounting are excluded from the scope of SFAS No. 121, but will continue to be subject to the ceiling test limitation. SFAS No. 121 requires that impairment losses be recorded on other long-lived assets used in operations when indicators of impairment are present and either the undiscounted future cash flows estimated to be generated by those assets or the fair market value are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt SFAS No. 121 effective January 1, 1996. The effect of such adoption is not expected to be material. Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," (SFAS No. 123) was issued by the Financial Accounting Standards Board in October 1995. SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans as well as transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. The Company will include the disclosures required by SFAS No. 123 in the notes to future financial statements. LIQUIDITY AND CAPITAL RESOURCES During 1995, the Company took various steps and committed to various actions to improve its liquidity and capital resources. In early 1995, in response to market conditions, the Company reduced its general and administrative expenditures through a workforce reduction effective March 1, 1995. As a result, total overhead for 1995 decreased by approximately $2,862,000 compared to 1994 or by approximately 15%. In addition, the Company reduced its budgeted capital expenditures during the first six months of 1995 to those required to maintain its producing oil and gas properties as well as certain essential development, drilling and other activities. In July 1995, the Company received $45,000,000 of equity capital from Anschutz and restructured the JEDI loan. As a result, the Company was able to resume its capital expenditure program and to increase its levels of capital spending during the last six months of 1995. 24 The Company completed two acquisitions of Canadian oil and gas companies, Saxon in December 1995 and Canadian Forest in January 1996. For a description of these transactions, see Item 1. Business "Operating Strategy." The Saxon acquisition was financed using Forest Common Stock, cash and the transfer to Saxon of shares of preferred stock of Archean Energy Ltd. The Canadian Forest acquisition was financed through a public offering of common stock and borrowings under the Company's Credit Facility. The Company has historically addressed its long-term liquidity needs through the issuance of debt and equity securities, when market conditions permit, and through the use of nonrecourse production-based financing. On January 31, 1996, the Company issued 13,200,000 shares of Common Stock for $11.00 per share in a public offering. Of this amount, 1,060,000 shares were sold by Saxon and 12,140,000 were sold by Forest. The net proceeds to Forest from the issuance of the shares totalled approximately $125,600,000 after deducting issuance costs and underwriting fees and were used, along with an additional approximately $8,300,000 drawn from the Company's Credit Facility, to complete the purchase of Canadian Forest. The pro forma effect of the acquisitions and the public offering was to increase total assets to $517,990,000 compared to $321,043,000 at December 31, 1995; to increase shareholders' equity to $180,241,000 compared to $44,297,000 at December 31, 1995; and to reduce the Company's debt-to-capitalization ratio to 53% compared to 98% at December 31, 1994. As a result of the above, Forest's financial position and liquidity have improved considerably. The Company expects to be able to meet its 1996 capital expenditure financing requirements using cash flows generated by operations and borrowings under existing lines of credit. However, there can be no assurance that the Company will have access to sufficient capital to meet its capital requirements. The planned levels of capital expenditures could be reduced if the Company experiences lower than anticipated net cash provided by operations or other liquidity needs or could be increased if the Company experiences increased cash flow. The prices the Company receives for its future oil and natural gas production will significantly impact future operating cash flows. No prediction can be made as to the prices the Company will receive for its future oil and gas production. Many of the factors which may affect the Company's future operating performance and long-term liquidity are beyond the Company's control, including, but not limited to, oil and natural gas prices, governmental actions and taxes, the availability and attractiveness of properties for acquisition, the adequacy and attractiveness of financing and operational results. The Company continues to examine alternative sources of long-term capital, including bank borrowings or the issuance of debt instruments, the sale of production payments or other nonrecourse financing, the sale of common stock, preferred stock or other equity securities of the Company, the issuance of net profits interests, sales of non-strategic properties, prospects and technical information, or joint venture financing. Availability of these sources of capital and, therefore, the Company's ability to execute its operating strategy will depend upon a number of factors, some of which are beyond the control of the Company. CASH FLOW. Historically, one of the Company's primary sources of capital has been funds provided by operations. During 1995, the Company's operating cash flows and working capital were adversely affected by a significant decline in production. 25 The following summary table reflects comparative cash flows for the Company for the periods ended December 31, 1995, 1994 and 1993. Funds provided by operations consists of net cash provided (used) by operating activities exclusive of adjustments for working capital items, proceeds from volumetric production payments and amortization of deferred revenue. This information is being presented in accordance with industry practice and is not intended to be a substitute for cash provided by operating activities, a measure of performance prepared in accordance with generally accepted accounting principles, and should not be relied upon as such.
Years Ended December 31, ------------------------------- 1995 1994 1993 -------- -------- -------- (In Thousands) Funds provided by operations $ 28,899 60,987 52,667 Net cash provided (used) by operating activities (3,062) 42,546 41,722 Net cash used by investing activities (17,219) (32,307) (170,134) Net cash provided (used) by financing activities 20,698 (14,231) 71,886
Lower production volumes coupled with decreased prices for natural gas resulted in a 53% decrease in funds provided by operations to $28,899,000 in 1995 from $60,987,000 in 1994. The Company experienced a net use of cash for operating activities of $3,062,000 in 1995 compared to $42,546,000 of net cash provided by operating activities in the corresponding prior year, also attributable to the lower production volumes and decreased prices. The Company used $17,219,000 for investing activities in 1995 compared to $32,307,000 in the prior year due to lower direct capital expenditures, offset in part by lower proceeds from property sales. Cash provided by financing activities of $20,698,000 in 1995 included the net proceeds from the issuance of stock and warrants to Anschutz, partially offset by repayments of the Company's Credit Facility and a decrease in other liabilities. In 1994, the Company used cash for financing activities of $14,231,000, primarily consisting of the redemption of subordinated debentures and a decrease in other liabilities, offset by borrowings under the Company's Credit Facility. HEDGING PROGRAM. In addition to the volumes of natural gas and oil dedicated to volumetric production payments, the Company has also used energy swaps and other financial agreements to hedge against the effects of fluctuations in the sales prices for oil and natural gas. In a typical swap agreement, the Company receives the difference between a fixed price per unit of production and a price based on an agreed upon third-party index if the index price is lower. If the index price is higher, the Company pays the difference. The Company's current swaps are settled on a monthly basis. At December 31, 1995, the Company had natural gas swaps and collars (including those of Saxon) for an aggregate of approximately 35.0 BBTU (billion British Thermal Units) per day of natural gas during 1996 at fixed prices and floors ranging from $1.03 per MMBTU (million British Thermal Units) on an Alberta Energy Company "C" (AECO "C") basis to $2.48 PER MMBTU on a New York Mercantile Exchange (NYMEX) basis and an aggregate of approximately 27.4 BBTU per day of natural gas during 1997 at fixed prices and floors ranging from $1.03 (AECO "C" basis) to $2.54 (NYMEX basis) per MMBTU. At December 31, 1995 the Company had oil swaps for an aggregate of 927 barrels per day of oil during 1996 at fixed prices ranging from $16.70 to $17.90 (NYMEX basis). The Company currently has no material oil swaps in place for 1997. For further information on the Company's outstanding energy swaps, see Note 13 of Notes to Consolidated Financial Statements. 26 CAPITAL EXPENDITURES. The Company's expenditures for property acquisition, exploration and development for the past three years, were as follows:
Years Ended December 31, --------------------------------- 1995 1994 1993 ------- ------- ------- (In Thousands) Property acquisition costs (1): Proved properties $26,487 9,553 121,882 Undeveloped properties 320 209 23,034 ------- ------ ------- 26,807 9,762 144,916 Exploration costs: Direct costs 11,528 15,229 4,923 Overhead capitalized 1,211 464 510 ------- ------ ------- 12,739 15,693 5,433 Development costs: Direct costs 7,633 10,000 13,424 Overhead capitalized 5,565 7,089 7,048 ------- ------ ------- 13,198 17,089 20,472 ------- ------ ------- $52,744 42,544 170,821 ------- ------ ------- ------- ------ -------
(1) 1995 amounts consist primarily of the allocation of purchase price to the oil and gas properties acquired in the purchase of Saxon. In 1995, the Company's property acquisition expenditures of $26,807,000 resulted in proved reserve additions of an estimated 17.6 BCF of natural gas and 4,397,000 barrels of oil, as measured at the closing dates of the acquisitions for financial accounting purposes. In 1994, the Company's property acquisition expenditures of $9,762,000 resulted in proved reserve additions of an estimated 8.2 BCF of natural gas and 17,000 barrels of oil, as measured at the closing dates of the acquisitions for financial accounting purposes. In 1993, the Company's property acquisition expenditures of $144,916,000 resulted in proved reserve additions of an estimated 94.7 BCF of natural gas and 1.7 million barrels of oil, as measured at the closing dates, as well as eight exploitation prospects and three exploratory offshore blocks. The Company's 1996 budgeted expenditures for exploration and development are approximately $20,500,000 and $41,500,000, respectively, including capitalized overhead of $7,500,000. During 1996, the Company intends to continue a strategy of acquiring reserves that meet its investment criteria; however, no assurance can be given that the Company can locate or finance any property acquisitions. If adequate sources of capital are not available to the Company in 1996, the amount invested in exploration, development and reserve acquisitions will be required to be reduced significantly. 27 BANK CREDIT FACILITIES. The Company has a secured credit facility (the Credit Facility) with The Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the Credit Facility as amended, the Company may borrow up to $40,000,000 for working capital and/or general corporate purposes. The borrowing base is subject to formal redeterminations semi-annually, but may be changed at the banks' discretion at any time. The Credit Facility is secured by a lien on, and a security interest in, a majority of the Company's proved oil and gas properties and related assets (subject to prior security interests granted to holders of volumetric production payment agreements), a pledge of accounts receivable, material contracts and the stock of material subsidiaries. The maturity date of the Credit Facility is July 1, 1998. Under the terms of the Credit Facility, the Company is subject to certain covenants and financial tests, including restrictions or requirements with respect to working capital, cash flow, additional debt, liens, asset sales, investments, mergers, cash dividends and reporting responsibilities. At December 31, 1995 the outstanding balance under this facility was $23,800,000. The Company has also used the facility for a $1,500,000 letter of credit. On February 8, 1996 a newly-formed Canadian subsidiary of Forest entered into a credit agreement (the Canadian Credit Facility) with The Chase Manhattan Bank of Canada for the benefit of Canadian Forest and ProMark. The initial borrowing base under the Canadian Credit Facility is $60,000,000 CDN. The borrowing base is subject to formal redeterminations semi-annually, but may be changed by the bank at its discretion at any time. The Canadian Credit Facility has a three-year term and is indirectly secured by substantially all the assets of Canadian Forest. Funds drawn under the Canadian Credit Facility can be used for general corporate purposes. Under the terms of the Canadian Credit Facility, the three Canadian subsidiaries are subject to certain covenants and financial tests, including restrictions or requirements with respect to working capital, cash flow, additional debt, liens, asset sales, investments, mergers, cash dividends and reporting responsibilities. In addition to the credit facilities described above, Saxon has a demand revolving operating loan and a demand revolving production loan with borrowing bases of $2,000,000 CDN and $20,000,000 CDN, respectively. The loans are subject to semi-annual review and have demand features; however, repayments are not required provided that borrowings are not in excess of the borrowing base and Saxon complies with other existing covenants. At December 31, 1995 there were outstanding borrowings of $929,000 CDN and $14,000,000 CDN under the operating loan and the production loan, respectively. Saxon also had an outstanding bridge loan at this date which was repaid in full using the proceeds of the sale of the Forest Common Stock held by Saxon. At February 29, 1996, the amount outstanding under the Credit Facility was $8,300,000, the amount outstanding under the Canadian Credit Facility was $44,680,000 CDN, and the amounts outstanding under the Saxon operating loan and production loan were $1,267,000 CDN and $7,000,000 CDN, respectively. Management believes the Company and Saxon will have adequate sources of short-term liquidity to meet working capital needs, fund capital expenditures at budgeted levels, and meet current debt service obligations. OTHER FINANCING. Under the terms of volumetric production payments, the Company is required to deliver the scheduled volumes from the subject properties or to make a cash payment for volumes produced but not delivered, in combination not to exceed a specified percentage of monthly production. If production levels are not sufficient to meet scheduled delivery commitments, the Company must account for and make up such shortages, at market-based prices, from future production. Amounts received for volumetric production payments are recorded as deferred revenue, which is amortized as sales are recorded based upon the scheduled deliveries under the production payment agreements. As of December 31, 1995, the volumes remaining to be delivered were approximately 8.0 BCF of natural gas and 87,000 barrels of oil, and the related deferred revenue was $15,137,000. Under the terms of a nonrecourse secured loan from JEDI, the Company is required to make payments based on the net proceeds, as defined, from certain subject properties. The outstanding loan balance as of December 31, 1995 was $40,322,000. Properties to which approximately 19% of the Company's estimated proved reserves are attributable, on an MCFE equivalent basis, are dedicated to repayment of the nonrecourse secured loan. 28 Under the terms of a production payment obligation, the Company must make a monthly cash payment based on net proceeds from the subject properties. This obligation has been recorded at a discount to reflect a market rate of interest. At December 31, 1995 the remaining principal amount was $20,701,000 and the recorded liability was $16,218,000. Properties to which approximately 6% of the Company's estimated proved reserves are attributable, on an MCFE basis, are dedicated to this production payment financing. For further information on the Company's volumetric production payments, nonrecourse secured loan, and production payment obligation, see Notes 5 and 6 of Notes to Consolidated Financial Statements. ANSCHUTZ AND JEDI TRANSACTIONS. During 1995, following receipt of shareholder approval, the Company consummated transactions with Anschutz and with JEDI. Pursuant to a purchase agreement between the Company and Anschutz, Anschutz purchased 3,760,000 shares of the Company's Common Stock and shares of a new series of preferred stock that are convertible into 1,240,000 additional shares of Common Stock for a total consideration of $45,000,000. In addition, Anschutz received the A Warrant, which entitles it to purchase 3,888,888 shares of the Company's Common Stock for $10.50 per share. The A Warrant expires on July 27, 1998. Anschutz also received from JEDI an option to purchase from JEDI up to 2,250,000 shares of Common Stock that JEDI had the right to acquire from the Company upon exercise of the B Warrant referred to below (the Anschutz Option). The Anschutz Option expires on July 27, 1998. On July 27, 1995, Forest and JEDI restructured JEDI's existing loan which had a principal balance of approximately $62,368,000 before unamortized discount of $4,984,000. As a part of the restructuring, the existing JEDI loan balance was divided into two tranches: a $40,000,000 tranche, which bears interest at the rate of 12.5% per annum and is due and payable in full on December 31, 2000; and an approximately $22,400,000 tranche, which did not bear interest and was due and payable in full on December 31, 2002. In consideration, JEDI received the B Warrant, which entitled it to purchase 2,250,000 shares of the Company's Common Stock for $10.00 per share. JEDI also granted the Anschutz Option to Anschutz, pursuant to which Anschutz was entitled to purchase from JEDI up to 2,250,000 shares at a purchase price per share equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. JEDI was to satisfy its obligations under the Anschutz Option by exercising the B Warrant. As a result of the loan restructuring and the issuance of the B Warrant, the Company reduced the recorded amount of the related liability to approximately $45,493,000 and annual interest expense by approximately $2,000,000. The Company also agreed to use the proceeds from the exercise of the A Warrant to pay principal and interest on the $40,000,000 tranche of the JEDI loan. In December 1995, JEDI entered into an agreement to exchange the $22,400,000 tranche and the B Warrant for 1,680,000 shares of Common Stock (the JEDI Exchange). As a result of the JEDI Exchange, the Company expects that non-cash interest expense will be reduced by an additional $1,500,000 per year. The JEDI Exchange also provided for other changes to the JEDI loan agreement that will have the effect of increasing the Company's flexibility with respect to the development of the properties securing the JEDI indebtedness. 29 Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under the Anschutz Option. Under the Anschutz Option, the Company is now obligated to issue shares directly to Anschutz that previously would have been issued to JEDI pursuant to the B Warrant. Upon the exercise of the Anschutz Option, instead of the B Warrant price of $10.00 per share, the Company will receive an amount equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. The Company is permitted to use proceeds from the exercise of the Anschutz Option for any corporate purpose. For further information on the Anschutz and JEDI transactions, see Note 3 of Notes to Consolidated Financial Statements. 30 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. 31 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, 1995 and 1994, 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, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Forest Oil Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. As discussed in Notes 7 and 10 of Notes to Consolidated Financial Statements, the Company adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993. KPMG PEAT MARWICK LLP Denver, Colorado February 20, 1996 32 FOREST OIL CORPORATION CONSOLIDATED BALANCE SHEETS
PRO FORMA 1995 (NOTE 2) DECEMBER 31, (Unaudited) 1995 1994 ------------- ------- ------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 3,287 3,287 2,869 Accounts receivable 35,763 17,395 20,418 Other current assets 4,612 2,557 2,231 -------- ------- ------- Total current assets 43,662 23,239 25,518 Net property and equipment, at cost (Note 5) 429,584 277,599 276,609 Investment in affiliate (Note 4) 11,301 11,301 11,652 Other assets 33,443 8,904 11,053 -------- ------- ------- $517,990 321,043 324,832 -------- ------- ------- -------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft $ 2,055 2,055 4,445 Current portion of long-term debt (Note 5) 2,263 2,263 1,636 Current portion of gas balancing liability 4,700 4,700 5,735 Accounts payable 37,561 17,456 26,557 Accrued interest 4,219 4,029 4,318 Other current liabilities 1,917 1,917 4,927 -------- ------- ------- Total current liabilities 52,715 32,420 47,618 Commitments and contingencies (Notes 10, 12 and 13) Long-term debt (Notes 3 and 5) 192,848 193,879 207,054 Gas balancing liability 3,841 3,841 8,525 Other liabilities 25,824 23,298 19,641 Deferred revenue (Note 6) 15,137 15,137 35,908 Deferred income taxes 38,502 -- -- Minority interest (Note 2) 8,882 8,171 -- Shareholders' equity (Notes 2, 3, 5, 8 and 9): Preferred stock 24,359 24,359 15,845 Common stock 2,280 1,066 566 Capital surplus 366,431 241,241 192,337 Common shares to be issued in debt restructuring 6,073 6,073 -- Accumulated deficit (217,495) (217,495) (199,499) Foreign currency translation (1,407) (1,407) (1,337) Treasury stock, at cost -- (9,540) (1,826) -------- ------- ------- Total shareholders' equity 180,241 44,297 6,086 -------- ------- ------- $517,990 321,043 324,832 -------- ------- ------- -------- ------- -------
See accompanying Notes to Consolidated Financial Statements. 33 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 1994 1993 -------- -------- --------- (In Thousands Except Per Share Amounts) Revenue: Oil and gas sales: Gas $ 63,347 91,309 77,249 Oil and condensate 18,602 22,874 25,341 Products and other 326 358 293 -------- ------- -------- 82,275 114,541 102,883 Miscellaneous, net 181 1,406 2,265 -------- ------- -------- Total revenue 82,456 115,947 105,148 Expenses: Oil and gas production 22,463 22,384 19,540 General and administrative 9,081 11,166 12,003 Interest 25,323 26,773 23,729 Depreciation and depletion 43,592 65,468 60,581 Provision for impairment of oil and gas properties -- 58,000 -- -------- ------- -------- Total expenses 100,459 183,791 115,853 -------- ------- -------- Loss before income taxes, cumulative effects of changes in accounting principles and extraordinary item (18,003) (67,844) (10,705) Income tax expense (benefit) (Note 7): Current (7) 9 254 Deferred -- -- (1,604) -------- ------- -------- (7) 9 (1,350) -------- ------- -------- Loss before cumulative effects of changes in accounting principles and extraordinary item (17,996) (67,853) (9,355) Cumulative effects of changes in accounting principles: Oil and gas sales (Note 1) -- (13,990) -- Postretirement benefits, net of income tax benefit of $1,639,000 (Note 10) -- -- (3,183) Income taxes (Note 7) -- -- 2,060 -------- ------- -------- -- (13,990) (1,123) -------- ------- -------- Loss before extraordinary item (17,996) (81,843) (10,478) Extraordinary item - loss on extinguishment of debt, net of income tax benefit of $4,652,000 (Note 5) -- -- (10,735) -------- ------- -------- Net loss $(17,996) (81,843) (21,213) -------- ------- -------- -------- ------- -------- Weighted average number of common shares outstanding 7,360 5,619 4,399 -------- ------- -------- -------- ------- -------- Net loss attributable to common stock $(20,156) (84,004) (23,463) -------- ------- -------- -------- ------- -------- Pro forma amounts assuming the change in accounting for oil and gas sales is applied retroactively: Loss before cumulative effects of changes in accounting principles and extraordinary item $ (3,962) -------- -------- Net loss $(15,820) -------- --------
(continued on following page) See accompanying Notes to Consolidated Financial Statements. 34 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
YEARS ENDED DECEMBER 31, 1995 1994 1993 -------- -------- --------- (In Thousands Except Per Share Amounts) Primary and fully diluted loss per common share: Loss before cumulative effects of changes in accounting principles and extraordinary item $ (2.74) (12.46) (2.64) Cumulative effects of changes in accounting principles -- (2.49) (.26) -------- ------- -------- Loss before extraordinary item (2.74) (14.95) (2.90) Extraordinary item - loss on extinguishment of debt -- -- (2.44) -------- ------- -------- Net loss attributable to common stock $ (2.74) (14.95) (5.34) -------- ------- -------- -------- ------- -------- Pro forma amounts assuming the change in accounting for oil and gas sales is applied retroactively: Primary and fully diluted loss per common share: Loss before cumulative effects of changes in accounting principles and extraordinary item $ (1.41) -------- -------- Net loss attributable to common stock $ (4.11) -------- --------
See accompanying Notes to Consolidated Financial Statements. 35 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON COMMON SHARES TO BE STOCK AND ISSUED ACCUMU- FOREIGN PREFERRED CLASS B CAPITAL IN DEBT LATED CURRENCY TREASURY STOCK STOCK SURPLUS RESTRUCTURING DEFICIT TRANSLATION STOCK --------- --------- ------- ------------- --------- ----------- -------- (In Thousands) Balance December 31, 1992 $ 17,214 300 146,592 -- (96,443) (427) (7,355) Net loss -- -- -- (21,213) -- -- Issuance of common stock, net of offering costs (Note 9) -- 222 51,284 -- -- -- -- $.75 Convertible Preferred Stock dividends paid in common stock (Note 8) -- 13 (13) -- -- -- -- Conversion of $.75 Convertible Preferred Stock to common stock (Note 8) (1,369) 17 1,352 -- -- -- -- Reclassification of Class B to common stock (Note 9) -- 7 (7) -- -- -- -- Exercise of employee stock options (Note 9) -- 3 393 -- -- -- -- Common stock issued and treasury stock contributed to the Retirement Savings Plan and other (Note 10) -- 3 (586) -- -- -- 1,565 Unfunded pension liability (Note 10) -- -- (3,038) -- -- -- -- Foreign currency translation -- -- -- -- -- (358) -- -------- ----- ------- ----- -------- ------- ------ Balance December 31, 1993 15,845 565 195,977 -- (117,656) (785) (5,790) Net loss -- -- -- -- (81,843) -- -- Exercise of employee stock options (Note 9) -- 1 104 -- -- -- -- $.75 Convertible Preferred Stock dividends paid in cash (Note 8) -- -- (2,161) -- -- -- -- Treasury stock contributed to the Retirement Savings Plan and other (Note 10) -- -- (1,583) -- -- -- 3,964 Foreign currency translation -- -- -- -- -- (552) -- -------- ----- ------- ----- -------- ------- ------ Balance December 31, 1994 15,845 566 192,337 -- (199,499) (1,337) (1,826) Net loss -- -- -- -- (17,996) -- -- Issuance of common stock, net of offering costs (Notes 3 and 9) -- 376 23,856 -- -- -- -- Issuance of Second Series Convertible Preferred Stock (Notes 3 and 8) 8,518 -- -- -- -- -- -- Issuance of warrants (Notes 3 and 9) -- -- 20,427 -- -- -- -- Common stock issued in acquisition (Notes 2 and 9) -- 106 9,434 -- -- -- (9,540) Common stock issued and treasury stock contributed to the Retirement Savings Plan (Note 10) -- 2 (1,425) -- -- -- 1,826 $.75 Convertible Preferred Stock dividends paid in cash (Note 8) -- -- (540) -- -- -- -- $.75 Convertible Preferred Stock dividends paid in common stock (Note 8) -- 16 (16) -- -- -- -- Conversion of $.75 Convertible Preferred Stock to common stock (Note 8) (4) -- 4 -- -- -- -- Common shares to be issued in debt restructuring (Note 3) -- -- -- 6,073 -- -- -- Unfunded pension liability (Note 10) -- -- (2,836) -- -- -- -- Foreign currency translation -- -- -- -- -- (70) -- -------- ----- ------- ----- -------- ------- ------ Balance December 31, 1995 $ 24,359 1,066 241,241 6,073 (217,495) (1,407) (9,540) -------- ----- ------- ----- -------- ------- ------ -------- ----- ------- ----- -------- ------- ------
See accompanying Notes to Consolidated Financial Statements. 36 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 1994 1993 -------- ------- -------- (In Thousands) Cash flows from operating activities: Loss before cumulative effects of changes in accounting principles and extraordinary item $(17,996) (67,853) (9,355) Adjustments to reconcile loss before cumulative effects of changes in accounting principles and extraordinary item to net cash provided (used) by operating activities: Depreciation and depletion 43,592 65,468 60,581 Provision for impairment of oil and gas properties -- 58,000 -- Deferred Federal income tax benefit -- -- (1,604) Other, net 3,303 5,372 3,045 Decrease in accounts receivable 4,285 4,839 2,264 (Increase) decrease in other current assets (152) 1,078 375 Increase (decrease) in accounts payable (11,458) 4,021 (12,668) Increase (decrease) in accrued interest and other current liabilities (3,865) 2,941 (1,078) Proceeds from volumetric production payments -- 4,353 40,468 Amortization of deferred revenue (20,771) (35,673) (40,306) -------- ------- -------- Net cash provided (used) by operating activities (3,062) 42,546 41,722 Cash flows from investing activities: Capital expenditures for property and equipment (27,098) (42,780) (171,166) Cash paid for acquisition of subsidiary (1,121) -- -- Proceeds of sales of property and equipment, net 8,715 12,941 2,997 Decrease (increase) in other assets, net 2,285 (2,468) (1,965) -------- ------- -------- Net cash used by investing activities (17,219) (32,307) (170,134) Cash flows from financing activities: Proceeds from bank borrowings 82,600 31,500 25,000 Repayments of bank borrowings (91,800) (23,500) -- Proceeds from nonrecourse secured loan -- 1,400 57,400 Repayments of nonrecourse secured loan (1,143) -- -- Repayments of production payment obligation (2,316) (2,771) (5,980) Issuance of senior subordinated notes, net of offering costs -- -- 95,827 Redemptions and repurchases of subordinated debentures and secured notes -- (7,171) (148,918) Proceeds from capital stock and warrants issued, net of issuance costs 41,060 -- 51,506 Payment of preferred stock dividends (540) (2,161) -- Debt issuance costs (491) (772) (1,336) Increase (decrease) in cash overdraft (2,390) 551 (1,347) Decrease in other liabilities, net (4,282) (11,307) (266) -------- ------- -------- Net cash provided (used) by financing activities 20,698 (14,231) 71,886 Effect of exchange rate changes on cash 1 (88) (12) -------- ------- -------- Net increase (decrease) in cash and cash equivalents 418 (4,080) (56,538) Cash and cash equivalents at beginning of year 2,869 6,949 63,487 -------- ------- -------- Cash and cash equivalents at end of year $ 3,287 2,869 6,949 -------- ------- -------- -------- ------- -------- Cash paid during the year for: Interest $ 22,138 23,989 23,123 -------- ------- -------- -------- ------- -------- Income taxes $ -- 9 452 -------- ------- -------- -------- ------- --------
See accompanying Notes to Consolidated Financial Statements. 37 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - ------------------------------------------------------------------------------- BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION - Forest Oil Corporation is engaged in the acquisition, exploration, development, production and marketing of natural gas and crude oil in North America. The Company was incorporated in New York in 1924, the successor to a company formed in 1916, and has been publicly held since 1969. The Company is active in several of the major exploration and producing areas in and offshore the United States and, following two recent acquisitions, in Canada. The consolidated financial statements include the accounts of Forest Oil Corporation and its subsidiaries (Forest or the Company). Significant intercompany balances and transactions are eliminated. In the course of preparing the consolidated financial statements, management makes various assumptions and estimates to determine the reported amounts of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts estimated. Unless otherwise indicated, all share amounts, share prices and per share amounts have been adjusted to give effect to a 5-to-1 reverse stock split that was effective on January 8, 1996. CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company considers all debt instruments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting for oil and gas properties. During 1995, 1994 and 1993, the Company's oil and gas operations were conducted in the United States. All costs incurred in the acquisition, exploration and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration and development activities) are capitalized. Capitalized costs are depleted using the units of production method. A reserve is provided for estimated future costs of site restoration, dismantlement and abandonment activities as a component of depletion. Unusually significant investments in unproved properties, including related capitalized interest costs, are not depleted pending the determination of the existence of proved reserves. As of December 31, 1995, 1994 and 1993, there were undeveloped property costs of $28,380,000, $30,441,000 and $41,216,000, respectively, in the United States which were not being depleted. Of the undeveloped costs not being depleted at December 31, 1995, approximately 20% were incurred in 1995, 4% in 1994, 71% in 1993 and 5% in 1992. Depletion per unit of production was determined based on conversion to common units of measure using one barrel of oil as an equivalent to six thousand cubic feet (MCF) of natural gas. Depletion per unit of production (MCFE) for the years ended December 31, 1995, 1994 and 1993 was $1.06, $1.13 and $1.19, respectively. Pursuant to full cost accounting rules, capitalized costs less related accumulated depletion and deferred income taxes may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. As a result of this limitation on capitalized costs, the accompanying financial statements include a provision for impairment of oil and gas property costs of $58,000,000 in 1994. There was no impairment of oil and gas property costs in 1995 or 1993. Gain or loss is recognized only on the sale of oil and gas properties involving significant reserves. Buildings, transportation and other equipment are depreciated on the straight-line method based upon estimated useful lives of the assets ranging from five to forty-five years. 38 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): - ------------------------------------------------------------------------------- Net property and equipment consists of the following:
1995 1994 ---- ---- (In Thousands) Oil and gas properties $1,216,027 1,171,887 Buildings, transportation and other equipment 10,502 12,649 ---------- --------- 1,226,529 1,184,536 Less accumulated depreciation, depletion and valuation allowance 948,930 907,927 ---------- --------- $ 277,599 276,609 ---------- --------- ---------- ---------
OIL AND GAS SALES - The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of related reserves. 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. Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. The Company believes that the entitlements method is preferable because it allows for recognition of revenue based on the Company's actual share of jointly owned production and provides a better matching of revenue and related expenses. The cumulative effect of the change for the periods through December 31, 1993 was a charge of $13,990,000. The effect of this change on 1994 was an increase in earnings from operations of $3,584,000 and an increase in production volumes of 1,555,000 MCF. There were no related income tax effects in 1994. The pro forma amounts shown on the consolidated statements of operations have been adjusted for the effect of the retroactive application of the change, including the related income tax effects. As of December 31, 1995 the Company had produced approximately 5 BCF more than its entitled share of production. The estimated value of this imbalance of approximately $8,541,000 is included in the accompanying consolidated balance sheet as a short-term liability of $4,700,000 and a long-term liability of $3,841,000. HEDGING TRANSACTIONS - In order to minimize exposure to fluctuations in oil and natural gas prices, the Company hedges the price of future oil and natural gas production by entering into certain contracts and financial arrangements. Gains and losses related to these hedging transactions are recognized as adjustments to revenue recorded for the related production. Costs associated with the purchase of certain hedge instruments are deferred and amortized against revenue related to hedged production. INCOME TAXES - The adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993 changed the Company's method of accounting for income taxes from the deferred method to an asset and liability method. Previously, the Company the tax effects of 39 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): - ------------------------------------------------------------------------------- timing differences between financial reporting and taxable income. The asset and liability method 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 - Assets and liabilities related to Canadian investments are generally translated at current exchange rates, and related translation adjustments are reported as a component of shareholders' equity. Income statement accounts are translated at the average rates during the period. EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stock by the weighted average number of common shares and common share equivalents outstanding during each period, excluding treasury shares. Net earnings (loss) attributable to common stock represents net earnings (loss) less preferred stock dividend requirements of $2,160,000 in 1995, $2,161,000 in 1994 and $2,250,000 in 1993. Common share equivalents include, when applicable, dilutive stock options and warrants using the treasury stock method. Fully diluted earnings (loss) per share is computed assuming, in addition to the above, (i) that convertible debentures were converted at the beginning of each period or date of issuance, if later, with earnings being increased for interest expense, net of taxes, that would not have been incurred had conversion taken place, (ii) that convertible preferred stock was converted at the beginning of each period or date of issuance, if later, and (iii) any additional dilutive effect of stock options and warrants. The effects of these assumptions were anti-dilutive in 1995, 1994 and 1993. RECLASSIFICATIONS - Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform to the 1995 financial statement presentation. (2) ACQUISITIONS: - ------------------------------------------------------------------------------- In May and December, 1993, the Company purchased interests in properties from Atlantic Richfield Company (ARCO) for approximately $60,862,000. In conjunction with the ARCO acquisitions, the Company sold volumetric production payments from certain of the ARCO properties for approximately $40,468,000 (net of fees). In December 1993, the Company purchased interests in offshore properties for approximately $24,050,000 and interests in properties in south Texas for approximately $59,458,000. In conjunction with these acquisitions, the Company entered into a nonrecourse secured loan agreement for $51,600,000. The Company's results of operations include the effects of the first ARCO acquisition since May 1, 1993, the offshore properties and the second ARCO acquisition since December 1, 1993 and the south Texas properties since January 1, 1994. During 1994, the Company completed acquisitions totaling $9,762,000, including additional interests in properties acquired in 1993. In order to finance one of the acquisitions, the Company sold a volumetric production payment for approximately $4,353,000 (net of fees). During 1995, the Company completed acquisitions totaling $26,807,000. The most significant of these was the purchase on December 20, 1995 of a 56% economic (49% voting) interest in Saxon Petroleum Inc. (Saxon) for approximately $26,000,000. In the transaction, Forest received from Saxon 32,000,000 voting common shares, 12,300,000 nonvoting common shares, 15,500,000 convertible preferred shares and warrants to purchase 5,300,000 common shares. In exchange, Forest transferred to Saxon its preferred shares of Archean Energy, Ltd., issued to Saxon 1,060,000 common shares of Forest and paid Saxon $1,500,000 CDN. The Forest common shares held by Saxon were recorded as treasury stock on Forest's consolidated balance sheet at December 31, 1995. In January 1996, Saxon sold these shares in a public offering of Forest common stock and used the proceeds to reduce its bank debt. 40 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (2) ACQUISITIONS (CONTINUED): - ------------------------------------------------------------------------------- Saxon is a Canadian exploration and production company with headquarters in Calgary, Alberta and operations concentrated in western Alberta. Saxon had estimated proved reserves at December 31, 1995 of 16.2 BCF of natural gas and 4.3 million barrels of oil. The consolidated balance sheet of Forest includes the accounts of Saxon at December 31, 1995. The Company has not recorded any production or results of operations of Saxon for the period from December 20 to December 31, 1995 as the results of operations for such period are not significant. On January 31, 1996 the Company completed the acquisition of ATCOR Resources Ltd. of Calgary, Alberta for approximately $134,900,000, exclusive of acquisition costs of approximately $1,800,000. The purchase was funded by the net proceeds of a common stock offering and approximately $8,300,000 drawn under the Company's bank credit facility. The exploration and production business of ATCOR was renamed Canadian Forest Oil Ltd. (Canadian Forest). Canadian Forest's principal reserves and producing properties are located in Alberta and British Columbia. At December 31, 1995 Canadian Forest had estimated proved reserves of 92.0 BCF of natural gas and 10.2 million barrels of oil. As part of the Canadian Forest acquisition, Forest also acquired ATCOR's natural gas marketing business which was renamed Producers Marketing Ltd. (ProMark). The pro forma consolidated balance sheet at December 31, 1995 gives effect to the public offering of common stock and the Canadian Forest acquisition as if both had occurred on that date. The following pro forma consolidated statement of operations information assumes that the common stock offering and the acquisitions of Saxon and Canadian Forest occurred as of January 1, 1995:
Pro Forma Year Ended December 31, 1995 -------------------- (In Thousands Except Per Share Amounts) Revenue: Oil and gas sales $ 129,778 Marketing and processing 139,815 Miscellaneous, net 188 ---------- Total revenue $ 269,781 ---------- ---------- Loss before income taxes, cumulative effect of changes in accounting principles and extraordinary item $ (7,768) ---------- ---------- Net loss $ (14,117) ---------- ---------- Primary and fully diluted loss per share $ (.73) ---------- ----------
(3) ANSCHUTZ AND JEDI TRANSACTIONS: - ------------------------------------------------------------------------------- During 1995, following receipt of shareholder approval, the Company consummated transactions with The Anschutz Corporation (Anschutz) and with Joint Energy Development Investments Limited Partnership (JEDI), a Delaware limited partnership the general partner of which is an affiliate of Enron Corp (Enron). Pursuant to a purchase agreement between the Company and Anschutz, Anschutz purchased 3,760,000 shares of the Company's common stock and 620,000 shares of a new series of preferred stock that are convertible into 1,240,000 additional shares of common 41 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (3) ANSCHUTZ AND JEDI TRANSACTIONS (CONTINUED): - ------------------------------------------------------------------------------- stock for a total consideration of $45,000,000. The preferred stock has a liquidation preference of $18.00 per share and receives dividends ratably with the common stock. In addition, Anschutz received a warrant that entitles it to purchase 3,888,888 shares of the Company's common stock for $10.50 per share (the A Warrant). The A Warrant expires July 27, 1998. The Anschutz investment was made in two closings. At the first closing, which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The loan carried interest at 8% per annum. The loan was nonrecourse to the Company and was secured by oil and gas properties owned by the Company, the preferred stock of Archean Energy Ltd., and a cash collateral account with an initial balance of $2,000,000. At the second closing, which occurred in July 1995, Anschutz converted the loan into 1,100,000 shares of common stock and purchased an additional 2,660,000 shares of common stock, the convertible preferred stock and the A Warrant for $35,100,000. At the second closing, Anschutz also received from JEDI an option to purchase from JEDI up to 2,250,000 shares of common stock that JEDI had the right to acquire from the Company upon exercise of the B Warrant referred to below (the Anschutz Option). The Anschutz Option terminates on July 27, 1998. The Company has entered into a shareholders agreement with Anschutz pursuant to which Anschutz agreed to certain voting, acquisition, and transfer limitations regarding shares of common stock for five years after the second closing. At the second closing on July 27, 1995, Forest and JEDI restructured JEDI's existing loan which had a principal balance of approximately $62,368,000 before unamortized discount of $4,984,000. As a part of the restructuring, the existing JEDI loan balance was divided into two tranches: a $40,000,000 tranche, which bears interest at the rate of 12.5% per annum and is due and payable in full on December 31, 2000; and an approximately $22,400,000 tranche, which did not bear interest and was due and payable in full on December 31, 2002. JEDI also relinquished the net profits interest that it held in certain properties of the Company. In consideration, JEDI received a warrant (the B Warrant) that entitled it to purchase 2,250,000 shares of the Company's common stock for $10.00 per share. Also at the second closing, JEDI granted the Anschutz Option to Anschutz, pursuant to which Anschutz was entitled to purchase from JEDI up to 2,250,000 shares of the Company's common stock at a purchase price per share equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. JEDI was to satisfy its obligations under the Anschutz Option by exercising the B Warrant. As a result of the loan restructuring and the issuance of the B Warrant, the Company reduced the recorded amount of the related liability to approximately $45,493,000. The Company also agreed to use the proceeds from the exercise of the A Warrant to pay principal and interest on the $40,000,000 tranche of the JEDI loan. In December 1995, JEDI exchanged the $22,400,000 tranche and the B Warrant for 1,680,000 shares of common stock (the JEDI Exchange). Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under the Anschutz Option. Under the Anschutz Option, the Company is now obligated to issue shares directly to Anschutz that previously would have been issued to JEDI pursuant to the B Warrant. Upon the exercise of the Anschutz Option, instead of the original B Warrant price of $10.00 per share, the Company will receive an amount per share equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. The Company is permitted to use proceeds from the exercise of the Anschutz Option for any corporate purpose. Pursuant to the JEDI Exchange, JEDI entered into a shareholders agreement with the Company that limits JEDI's right to vote its shares of common stock and, except in certain circumstances, to transfer its shares before July 27, 1998. 42 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (4) INVESTMENT IN AFFILIATE: - ------------------------------------------------------------------------------- In 1992, the Company sold its Canadian assets and related operations to CanEagle Resources Corporation (CanEagle) for approximately $51,250,000 in Canadian funds ($41,000,000 U.S.). In the transaction, the Company received cash of approximately $28,000,000 CDN ($22,400,000 U.S.), net of expenses, and provided financing in the aggregate principal amount of $22,000,000 CDN ($17,600,000 U.S.). On June 24, 1994, CanEagle sold a significant portion of its oil and gas properties to a third party. In conjunction with this transaction, the Company received $6,124,000 CDN ($4,400,000 U.S.) and exchanged its investment in CanEagle for shares of preferred stock of a newly formed entity, Archean Energy, Ltd. (Archean). The Company accounted for the proceeds from the 1992 and 1994 transactions as reductions in the carrying value of its investment in CanEagle. The preferred shares of Archean were recorded at an amount equal to the remaining carrying value of the Company's investment in CanEagle. The Company accounted for its investment in Archean (and CanEagle prior to June 24, 1994) in a manner analagous to equity accounting. Losses were recognized to the extent that losses were attributable to the Company's interest. Earnings were recognized only if realization was assured. Under this method, no earnings or losses were recognized in 1995, 1994 or 1993. In December, 1995, in connection with the Saxon acquisition, the Company transferred its Archean preferred stock to Saxon. In consolidation, the Company is accounting for the investment in Archean at its historical carrying value. (5) LONG-TERM DEBT: - ------------------------------------------------------------------------------- Long-term debt at December 31 for the years presented consists of the following:
1995 1994 ---- ---- Credit facility $ 23,800 33,000 Saxon credit facilities 16,437 - Nonrecourse secured loan 40,322 57,840 Production payment obligation 16,218 18,534 11-1/4% Senior Subordinated Notes 99,365 99,316 -------- ------- 196,142 208,690 Less current portion (2,263) (1,636) -------- ------- Long-term debt $193,879 207,054 -------- ------- -------- -------
CREDIT FACILITY: The Company has a secured credit facility (the Credit Facility) with The Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the Credit Facility, as amended, the Company may borrow up to $40,000,000 for working capital and/or general corporate purposes. Advances under this facility bear interest at rates ranging from the banks' prime rate plus 1/4% to prime plus 1% or, alternately, Eurodollar prime plus 1 1/2% to prime plus 2 1/4%, depending on amounts outstanding under the Credit Facility. The borrowing base is subject to formal redeterminations semi-annually, but may be changed at the banks' discretion at any time. 43 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (5) LONG-TERM DEBT (CONTINUED): - ------------------------------------------------------------------------------- The Credit Facility is secured by a lien on, and a security interest in, a majority of the Company's domestic proved oil and gas properties and related assets (subject to prior security interests granted to holders of volumetric production payment agreements), a pledge of accounts receivable, material contracts and the stock of material subsidiaries. The maturity date of the Credit Facility is July 1, 1998. Under the terms of the Credit Facility, the Company is subject to certain covenants and financial tests, including restrictions or requirements with respect to working capital, cash flow, additional debt, liens, asset sales, investments, mergers, cash dividends on capital stock and reporting responsibilities. At December 31, 1995, notes payable of $23,800,000 were outstanding under the Credit Facility with interest at rates ranging from 7.38% to 9.0% per annum. The Company has also used the Credit Facility for a $1,500,000 letter of credit. SAXON CREDIT FACILITIES At December 31, 1995, Saxon has credit facilities with Canadian banks which include a demand revolving operating loan, a demand revolving production loan and a bridge loan. The operating loan facility has a borrowing base of $2,000,000 CDN. Advances made under this facility bear interest at the bank prime rate and are secured by a fixed and floating charge debenture and a general assignment of book debts. The loan is subject to semi-annual review and has a demand feature; however, repayments are not required provided that borrowings are not in excess of the borrowing base and Saxon complies with other existing covenants. At December 31, 1995 the amount outstanding under the operating loan facility was $929,000 CDN and the interest rate was 8 1/4%. The production loan facility has a borrowing base of $20,000,000 CDN. Advances made under this facility bear interest at the bank prime rate or the bankers acceptance rate plus a stamping fee at the option of the Company and are secured by a fixed and floating charge debenture and a general assignment of book debts. The loan is subject to semi-annual review and has a demand feature; however, repayments are not required provided that borrowings are not in excess of the borrowing base and Saxon complies with other existing covenants. At December 31, 1995 the amount outstanding under the production loan facility was $14,000,000 CDN and the interest rate was 8 1/2%. The bridge loan of $7,500,000 CDN outstanding at December 31, 1995 was a term loan due December 18, 1996. The loan bore interest at the bank prime rate plus 1 1/2% (9% at December 31, 1995) and was secured by Saxon's marketable securities, including its shares of Forest common stock. On January 31, 1996, using proceeds from the sale of its Forest common stock, Saxon repaid the bridge loan and reduced the balance outstanding under the production loan. CANADIAN CREDIT FACILITY On February 8, 1996 a newly-formed Canadian subsidiary of Forest entered into a credit agreement (the Canadian Credit Facility) with The Chase Manhattan Bank of Canada for the benefit of Canadian Forest and ProMark. The initial borrowing base under the Canadian Credit Facility is $60,000,000 CDN. The borrowing base is subject to formal redeterminations semi-annually, but may be changed by the bank at its discretion at any time. The Canadian Credit Facility has a three-year term and is indirectly secured by substantially all the assets of Canadian Forest. Under the terms of the Canadian Credit Facility, the three Canadian subsidiaries are subject to certain covenants and financial tests including restrictions or requirements with respect to working capital, cash flow, additional debt, liens, asset sales, investments, mergers, cash dividends and reporting responsibilities. 44 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (5) LONG-TERM DEBT (CONTINUED): - ------------------------------------------------------------------------------- NONRECOURSE SECURED LOANS: On December 30, 1993, the Company entered into a nonrecourse secured loan agreement with JEDI. The terms of the JEDI loan were restructured in 1995 as described in Note 3. Under the terms of the restructured JEDI loan, the Company is required to make payments based on the net proceeds, as defined, from certain subject properties. Payments under the JEDI loan are due monthly and are equal to 90% of total net operating income from the secured properties, reduced by 80% of allowable capital expenditures, as defined. Under the restructured loan, the Company is required to pay interest at 12.5% per annum on the outstanding loan balance. Payments are applied first to interest and then to principal. Principal payments will be applied to reduce the outstanding balance as will the proceeds, if any, from the exercise of the A Warrant. The outstanding loan balance as of December 31, 1995, was $40,322,000. The Company's current estimate, based on expected production and prices and budgeted capital expenditure levels, is that the liability will increase by approximately $4,018,000 in 1996 and $812,000 in 1997, and that the liability will decrease by approximately $10,756,000 in 1998, $12,314,000 in 1999, and $13,772,000 in 2000. Properties to which approximately 19% of the Company's estimated proved reserves are attributable, on an MCFE equivalent basis, are dedicated to repayment of the JEDI loan. PRODUCTION PAYMENT OBLIGATION: The dollar-denominated production payment was entered into in 1992 to finance property acquisitions. The original amount of the dollar-denominated production payment was $37,550,000, which was recorded as a liability of $28,805,000 after a discount to reflect a market rate of interest of 15.5%. At December 31, 1995 the remaining principal amount was $20,701,000 and the recorded liability was $16,218,000. Under the terms of this production payment, the Company must make a monthly cash payment which is the greater of a base amount or 85% of net proceeds from the subject properties, as defined, except that the amount required to be paid in any given month shall not exceed 100% of the net proceeds from the subject properties. The Company retains a management fee equal to 10% of sales from the properties, which is deducted in the calculation of net proceeds. The Company's current estimate, based on expected production and prices, budgeted capital expenditure levels and expected discount amortization, is that 1996 payments will reduce the recorded liability by approximately $1,942,000, which amount is included in current liabilities, and by approximately $1,931,000 in 1997, $1,002,000 in 1998, $3,824,000 in 1999 and $3,235,000 in 2000. Properties to which approximately 6% of the Company's estimated proved reserves are attributable, on an MCFE basis, are dedicated to this production payment financing. 11-1/4% SENIOR SUBORDINAtED NOTES: On September 8, 1993 the Company completed a public offering of $100,000,000 aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1, 2003. The Senior Subordinated Notes were issued at a price of 99.259% yielding 11.375% to the holders. The Company used the net proceeds from the sale of the Senior Subordinated Notes of approximately $95,827,000, together with approximately $19,400,000 of available cash, to redeem all of its outstanding Senior Secured Notes and long-term subordinated debentures. The redemptions resulted in a loss of $15,387,000 which was recorded as an extraordinary loss of $10,735,000 (net of income tax benefit of $4,652,000). The Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on or after September 1, 1998 initially at a redemption price of 105.688%, plus accrued interest to the date of redemption, declining at the rate of 1.896% per year to September 9, 2000 and at 100% thereafter. In addition, the Company may, at its option, redeem prior to September 1, 1996 up to 30% of the initially outstanding principal amount of the Notes at 110% of the principal amount thereof, plus accrued interest to the date of redemption, with the net proceeds of any future public offering of its common stock. 45 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (5) LONG-TERM DEBT (CONTINUED): - ------------------------------------------------------------------------------- Under the terms of the Senior Subordinated Notes, the Company must meet certain tests before it is able to pay cash dividends (other than dividends on the Company's $.75 Convertible Preferred Stock) or make other restricted payments, incur additional indebtedness, engage in transactions with its affiliates, incur liens and engage in certain sale and leaseback arrangements. The terms of the Senior Secured Notes also limit the Company's ability to undertake a consolidation, merger or transfer of all or substantially all of its assets. In addition, the Company is, subject to certain conditions, obligated to offer to repurchase Senior Subordinated Notes at par value plus accrued and unpaid interest to the date of repurchase, with the net cash proceeds of certain sales or dispositions of assets. Upon a change in control, as defined, the Company will be required to make an offer to purchase the Senior Subordinated Notes at 101% of the principal amount thereof, plus accrued interest to the date of purchase. (6) DEFERRED REVENUE: - ------------------------------------------------------------------------------- From April 1991 through May 1993, the Company entered into four volumetric production payments with entities affiliated with Enron for net proceeds of $121,498,000. Under the terms of these production payments, the Company was required to deliver 70.1 BCF of natural gas and 770,000 barrels of oil over periods ranging from three to six years. Effective November 1, 1993, the four separate volumetric payment financings described above between the Company and Enron were consolidated into one production payment. The delivery schedules from the previously separate production payments were not adjusted; however, delivery shortfalls on any property can now be made up from excess production from any other property which is dedicated to the production payment obligation. The consolidation also provided that certain acreage previously committed to the production payments was released and can be developed by the Company unburdened by the delivery obligations of the production payment. In connection with the purchase of interests in properties from ARCO in December 1993, a volumetric production payment from certain of the ARCO properties was sold to Enron for net proceeds of $13,207,000. This production payment covered approximately 7.3 BCF of natural gas to be delivered over 8 years. In July 1994, the Company purchased additional interests in the properties acquired from ARCO in December 1993. In connection with this transaction, a volumetric production payment was sold to Enron for net proceeds of $4,353,000. This production payment covered approximately 2.7 BCF of natural gas to be delivered over 8 years. The Company is required to deliver the scheduled volumes from the subject properties or to make a cash payment for volumes produced but not delivered, in combination not to exceed a specified percentage of monthly production. If production levels are not sufficient to meet scheduled delivery commitments, the Company must account for and make up such shortages, at market-based prices, from future production. The Company is responsible for royalties and for production costs associated with operating the properties subject to the production payment agreements. The Company may grant liens on properties subject to the production payment agreements, but it must notify prospective lienholders that their rights are subject to the prior rights of the production payment owner. Amounts received under the production payments were recorded as deferred revenue. Volumes associated with amortization of deferred revenue for the years ended December 31, 1995, 1994 and 1993 were as follows:
Net sales volume attributable to production Volumes delivered (1) payment deliveries (2) --------------------- -------------------------- Natural Natural Gas Oil Gas Oil (MMCF) (MBBLS) (MMCF) (MBBLS) ------- ------- ------- ------- 1995 11,045 173 9,120 145 1994 19,985 218 16,005 182 1993 23,392 221 18,731 185 (1) Amounts settled in cash in lieu of volumes were $1,276,000, $1,611,381 and $3,138,628 for the years ended December 31, 1995, 1994, and 1993, respectively. (2) Represents volumes required to be delivered to Enron affiliates net of estimated royalty volumes.
46 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (6) DEFERRED REVENUE (CONTINUED): - ------------------------------------------------------------------------------- Future amortization of deferred revenue, based on the scheduled deliveries under the production payment agreements, is as follows:
Net sales volumes Volumes required to be attributable to production delivered to Enron payment deliveries (1) ---------------------- -------------------------- Annual Natural Gas Oil Natural Gas Oil Amortization (MMCF) (MBBLS) (MMCF) (MBBLS) ------------ ----------- ------- ----------- ------- (In Thousands) 1996 $ 7,546 3,721 87 2,895 74 1997 2,439 1,410 - 1,097 - 1998 1,592 892 - 694 - Thereafter 3,560 1,994 - 1,552 - ------- ----- -- ----- -- $15,137 8,017 87 6,238 74 ------- ----- -- ----- -- ------- ----- -- ----- -- (1) Represents volumes required to be delivered to Enron net of estimated royalty volumes.
(7) INCOME TAXES: - ------------------------------------------------------------------------------- The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109) on a prospective basis effective January 1, 1993. The cumulative effect of this change in accounting for income taxes of $2,060,000 was determined as of January 1, 1993 and was reported separately in the consolidated statement of operations for the year ended December 31, 1993. The income tax expense (benefit) is different from amounts computed by applying the statutory Federal income tax rate for the following reasons:
1995 1994 1993 ---- ---- ---- (In Thousands) Tax benefit at 35% of loss before income taxes, cumulative effects of changes in accounting principles and extraordinary item $(6,367) (23,749) (3,747) Change in the balance of the valuation allowance for deferred tax assets attributable to loss before income taxes, cumulative effects of changes in accounting principles and extraordinary item 5,732 23,220 2,034 Expiration of tax carryforwards 535 455 318 Other 93 83 45 ------- ------- ------ Total income tax expense (benefit) $ (7) 9 (1,350) ------- ------- ------ ------- ------- ------
Deferred income taxes generally result from recognizing income and expenses at different times for financial and tax reporting. These differences result in part from 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. 47 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (7) INCOME TAXES (CONTINUED): The components of the net deferred tax liability at December 31, 1995 and 1994 are as follows:
1994 1995 -------- -------- (In Thousands) Deferred tax assets: Allowance for doubtful accounts $ 283 308 Accrual for retirement benefits 1,229 1,447 Accrual for medical benefits 2,216 2,037 Accrual for sales recorded on the entitlements method 2,990 3,642 Net operating loss carryforward 39,204 21,976 Depletion carryforward 6,958 6,958 Investment tax credit carryforward 3,219 3,674 Alternative minimum tax credit carryforward 2,206 2,206 Other 375 455 -------- ------- Total gross deferred tax assets 58,680 42,703 Less valuation allowance (46,524) (40,792) -------- ------- Net deferred tax assets 12,156 1,911 Deferred tax liabilities: Oil and gas properties, due to full cost method of accounting (12,156) (1,911) -------- ------- Net deferred tax liability $ -- -- -------- ------- -------- -------
The net change in the total valuation allowance for the year ended December 31, 1995 was an increase of $5,732,000. The Alternative Minimum Tax (AMT) credit carryforward available to reduce future Federal regular taxes aggregated $2,206,000 at December 31, 1995. This amount may be carried forward indefinitely. Regular and AMT net operating loss carryforwards at December 31, 1995 were $112,015,000 and $109,779,000, respectively, and will expire in the years indicated below: Regular AMT -------- ------- (In Thousands) 2000 $ 2,665 4,143 2005 8,307 -- 2008 28,999 31,800 2009 22,817 22,964 2010 49,227 50,872 -------- ------- $112,015 109,779 -------- ------- -------- ------- 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 Federal income taxes aggregated $3,219,000 at December 31, 1995 and expire at various dates through the year 2001. Percentage depletion carryforwards available to reduce future Federal taxable income aggregated $19,879,000 at December 31, 1995. This amount may be carried forward indefinitely. 48 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (7) INCOME TAXES (CONTINUED): The availability of some of these tax attributes to reduce current and future taxable income of the Company is subject to various limitations under the Internal Revenue Code. In particular, the Company's ability to utilize such tax attributes could be limited due to the occurrence of an "ownership change" within the meaning of Section 382 of the Internal Revenue Code resulting from the Anschutz transaction in 1995. Under the general provisions of Section 382 of the Code, the Company's net operating loss carryforwards will be subject to an annual limitation as to their use of approximately $5,700,000. Even though the Company is limited in its ability to use the net operating loss carryovers under these provisions of Section 382, it may be entitled to use these net operating loss carryovers to offset (a) gains recognized in the five years following the ownership change on the disposition of certain assets, to the extent that the value of the assets disposed of exceeds their tax basis on the date of the ownership change or (b) any item of income which is properly taken into account in the five years following the ownership change but which is attributable to periods before the ownership change ("built-in gain"). The ability of the Company to use these net operating loss carryovers to offset built-in gain first requires that the Company have total built-in gains at the time of the ownership change which are greater than a threshold amount. In addition, the use of these net operating loss carryforwards to offset built-in gain cannot exceed the amount of the total built-in gain. The Company has not finalized its calculation of the amount of built-in gains at the date of the ownership change, but estimates that its ability to fully utilize its net operating loss carryforwards may be limited by these provisions. Due to limitations in the Internal Revenue Code, other than the Section 382 limitations discussed above, the Company believes it is unlikely that it will be able to use any significant portion of its investment tax credit carryforwards before they expire. (8) PREFERRED STOCK: $.75 CONVERTIBLE PREFERRED STOCK: The Company has 10,000,000 shares of $.75 Convertible Preferred Stock authorized, par value $.01 per share, of which there were 2,880,173 shares outstanding at December 31, 1995 and 2,880,973 shares outstanding at December 31, 1994, with an aggregate liquidation preference of $28,801,730 at December 31, 1995 and $28,809,730 at December 31, 1994. This stock is convertible at any time, at the option of the holder, at the rate of .7 shares of common stock for each share of $.75 Convertible Preferred Stock, subject to adjustment upon occurrence of certain events. During 1995, 800 shares of $.75 Convertible Preferred Stock were converted into 560 shares of common stock; there were no conversions in 1994; and during 1993, 248,817 shares of $.75 Convertible Preferred Stock were converted into 174,172 shares of common stock. The $.75 Convertible Preferred Stock is redeemable, in whole or in part, at the option of the Company, at any time after the earlier of (i) July 1, 1996 or (ii) the date on which the last reported sales price of the common stock will have been $37.50 or higher for at least 20 of the prior 30 trading days, at a redemption price of $10.17 per share during the twelve-month period which began July 1, 1995 and declining to $10.00 per share at July 1, 1996 and thereafter, including accumulated and unpaid dividends. Cumulative annual dividends of $.75 per share are payable quarterly, in arrears, on the first day of February, May, August and November, when and as declared. Until December 31, 1993, the Company was required to pay such dividends in shares of common stock. After such date, dividends may be paid in cash or, at the Company's election, in shares of common stock or in a combination of cash and common stock. However, the Company was prohibited from paying cash dividends on its $.75 Convertible Preferred Stock after the February 1, 1995 dividend due to restrictions contained in the Credit Facility with its lending banks. Common stock delivered in payment of dividends is valued for dividend payment purposes at between 75% and 90%, depending on trading volume, of the average last reported sales price of the common stock during a specified period prior to the record date for the dividend payment. During any period in which dividends on preferred stock are in arrears, no dividends or distributions, except for dividends paid in shares of common stock, may be paid or declared on the common stock, nor may any shares of common stock be acquired by the Company. 49 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (8) PREFERRED STOCK (CONTINUED): SECOND SERIES PREFERRED STOCK: The Company has 620,000 shares of Second Series Preferred Stock authorized, par value $.01 per share, of which there were 620,000 shares outstanding at December 31, 1995, with an aggregate liquidation preference of $11,160,000 at December 31, 1995. Each share of Second Series Preferred Stock (1) is convertible into 2 shares of common stock, which conversion may be made from time to time on or before July 27, 2000, but which in any event shall be made on July 27, 2000, (2) has no right to vote, (3) has the right to receive dividends on the dates and in the form that dividends are payable on the common stock, in each case in an amount equal to the amount of such dividend payable on the number of shares of common stock into which such share of Second Series Preferred Stock shall be convertible immediately preceding the record date for the determination of the shareholders entitled to receive such dividend, and (4) has the right, upon any liquidation, dissolution or winding up of the Company, before any distribution is made on any shares of common stock, to be paid the amount of $18.00 and, after there shall have been paid to each share of common stock the amount of $9.00, has the right to receive distributions on the dates and in the form that distributions are payable on the common stock, in each case in an amount equal to the amount of such distributions payable on the number of shares of common stock into which such share of Second Series Preferred Stock is convertible (assuming for such purpose that such conversion were possible) immediately preceding the record date for the determination of the shareholders entitled to receive such distribution. The rights of the holders of the Second Series Preferred Stock to receive dividends are junior and subordinate to the rights of the holders of the $.75 Convertible Preferred Stock to the same extent that the rights of the holders of the common stock are subordinate in right to receive dividends to the rights of the holders of the $.75 Convertible Preferred Stock to receive dividends, and the rights of the holders of the Second Series Preferred Stock rank pari passu with the Company's $.75 Convertible Preferred Stock as to liquidation preference. (9) COMMON STOCK: COMMON STOCK: The Company has 200,000,000 shares of common stock authorized, par value $.10 per share. On January 5, 1996 a 5-to-1 reverse stock split was approved by the Company's shareholders. The reverse split became effective on January 8, 1996. Unless otherwise indicated, all share amounts have been adjusted to give effect to the 5-to-1 reverse stock split. There were 10,660,291 and 5,659,042 shares of common stock issued at December 31, 1995 and 1994, respectively, with 1,060,000 and 21,188 shares held by the Company as treasury shares at December 31, 1995 and 1994, respectively. The common stock is entitled to one vote per share. Prior to May 1993 the Company also had Class B stock which had superior voting rights to the Company's common stock, had limited transferability and was not traded in any public market but was convertible at any time into shares of common stock on a share-for-share basis. The Company's Restated Certificate of Incorporation was amended on May 12, 1993 to reclassify each share of Class B stock into 1.1 shares of common stock. On January 31, 1996, 13,200,000 shares of common stock were sold for $11.00 per share in a public offering. Of this amount 1,060,000 shares were sold by Saxon and 12,140,000 were sold by Forest. The net proceeds to Forest from the issuance of shares totalled approximately $125,600,000 after deducting issuance costs and underwriting fees. On June 15, 1993, the Company issued 2,216,000 shares of common stock for $25.00 per share in a public offering. The net proceeds from the issuance of the shares totalled approximately $51,506,000 after deducting issuance costs and underwriting fees. In October 1993, the Board of Directors adopted a shareholders' rights plan (the Plan) and entered into the Rights Agreement. The Company paid a dividend distribution of one Preferred Share Purchase Right (the Rights) on each outstanding share of the Company's common stock. The Rights are exercisable only if a person or group acquires 20% or more of the Company's common stock or announces a tender offer which would result in ownership by a person or group of 20% or more of the common stock. Each Right initially entitles each shareholder to buy 1/100th of a share of a new series of Preferred Stock at an exercise price of $30.00, subject to adjustment upon certain occurrences. Each 1/100th of a share of such new Preferred Stock that can be purchased upon exercise of a Right has economic terms designed to approximate the value of one share of common stock. The Rights will expire on October 29, 2003, unless extended or terminated earlier. In connection with the Anschutz transaction, the Company amended the Rights Agreement to exempt from the provisions of the Rights Agreement shares of common stock acquired by Anschutz and JEDI in the Anschutz and JEDI transactions (including shares later acquired pursuant to the conversion of the Second Series Preferred Stock or the exercise of the A Warrant or the Anschutz option. The amendment to the Rights Agreement did not exempt other shares of common stock acquired by Anschutz or JEDI from the provisions of the Rights Agreement. 50 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (9) COMMON STOCK (continued): WARRANTS: The Company has outstanding 1,244,715 warrants to purchase shares of its common stock (the Public Warrants). Each Public Warrant entitles the holder to purchase one-fifth share of common stock at a price of $3.00, is non-callable and expires on October 1, 1996. The Company has outstanding the A Warrant that is held by Anschutz. The A Warrant entitles the holder to purchase 3,888,888 shares of common stock at a price of $10.50 per share and expires on July 27, 1998. In December 1995, the Company assumed JEDI's obligations under an option to purchase 2,250,000 shares of Common Stock (the Anschutz Option). Upon the exercise of the Anschutz Option, the Company will receive an amount per share equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. The Anschutz Option expires on July 27, 1998. STOCK OPTIONS: In March 1992, the Company adopted the 1992 Stock Option Plan under which non-qualified stock options may be granted to key employees and non-employee directors. The aggregate number of shares of common stock which the Company may issue under options granted pursuant to this plan may not exceed 10% of the total number of shares outstanding or issuable at the date of grant pursuant to outstanding rights, warrants, convertible or exchangeable securities or other options. The exercise price of an option may not be less than 85% of the fair market value of one share of the Company's common stock on the date of grant. The options vest 20% on the date of grant and an additional 20% on each grant anniversary date thereafter. A summary of stock option activity related to the Plan is as follows:
Option Price Shares Per Share -------- ------------- Options outstanding at December 31, 1992 348,000 $ 15.00 Granted 305,000 25.00 Exercised (26,400) 15.00 Cancelled or surrendered (15,800) 15.00 ------- ------------ Options outstanding at December 31, 1993 610,800 $15.00-25.00 Granted 62,000 25.00 Exercised (7,000) 15.00 Cancelled or surrendered (7,000) 25.00 ------- ------------ Options outstanding at December 31, 1994 658,800 $15.00-25.00 GRANTED -- -- EXERCISED -- -- CANCELLED OR SURRENDERED (30,800) -- ------- ------------ OPTIONS OUTSTANDING AT DECEMBER 31, 1995 628,000 $15.00-25.00 ------- ------------ ------- ------------ OPTIONS EXERCISABLE AT DECEMBER 31, 1995 461,200 $15.00-25.00 ------- ------------ ------- ------------
On February 1, 1996 the Company offered option holders employed by the Company the opportunity to surrender their existing options exercisable at $15.00 to $25.00 per share in exchange for options exercisable at $11.25 per share. Pursuant to this offer, options to purchase 491,800 shares of common stock at $15.00 to $25.00 per share were cancelled and options to purchase 474,400 shares at $11.25 per share were granted. Concurrently, the Company granted certain employees additional options to purchase 99,000 shares at $11.25 per share. 51 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (10) EMPLOYEE BENEFITS: PENSION PLANS: The Company has a qualified defined benefit pension plan (Pension Plan). The Pension Plan has been curtailed and all benefit accruals were suspended effective May 31, 1991. The benefits under the Pension Plan are based on years of service and the employee's average compensation during the highest consecutive sixty-month period in the fifteen years prior to retirement. No contribution was made to the Plan in 1995, 1994 or 1993. The following table sets forth the Pension Plan's funded status and amounts recognized in the Company's consolidated financial statements at December 31:
1995 1994 -------- ------- (In Thousands) Actuarial present value of accumulated benefit obligation (all benefits are vested) $(27,485) (23,953) -------- ------- -------- ------- Projected benefit obligation for service rendered to date $(27,485) (23,953) Plan assets at fair market value, consisting primarily of listed stocks, bonds and other fixed income obligations 24,270 23,443 -------- ------- Unfunded pension liability (3,215) (510) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 4,133 1,468 -------- ------- Pension asset recognized in the balance sheet $ 918 958 -------- ------- -------- -------
For 1995, the discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25% and the expected long-term rate of return on assets was 9%. For 1994 the discount rate used in determining the actuarial present value of the projected benefit obligation was 9% and the expected long-term rate of return on assets was 9%. For 1993, the discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% and the expected long-term rate of return on assets was 9%. The components of net pension expense (benefit) for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 ------- ------ ------ (In Thousands) Net pension expense (benefit) included the following components: Interest cost on projected benefit obligation $ 2,049 1,976 2,039 Actual return on plan assets (3,243) (245) (3,534) Net amortization and deferral 1,234 (1,955) 1,441 ------- ------ ------ Net pension expense (benefit) $ 40 (224) (54) ------- ------ ------ ------- ------ ------
The Company has a non-qualified unfunded supplementary retirement plan that provides certain officers with defined retirement benefits in excess of qualified plan limits imposed by Federal tax law. Benefit accruals under this plan were suspended effective May 31, 1991 in connection with suspension of benefit accruals under the Pension Plan. At December 31, 1995 the projected benefit obligation under this plan totaled $639,000, which amount is included in other liabilities in the accompanying balance sheet. The projected benefit obligation is determined using the same discount rate as is used for calculations for the Pension Plan. 52 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (10) EMPLOYEE BENEFITS (CONTINUED): In 1993 as a result of the change in the discount rate for the Pension Plan and the supplementary retirement plan, the Company recorded a liability of $3,038,000, representing the unfunded pension liability, and a corresponding decrease in capital surplus. As a result of the increase in the discount rate for the Pension Plan and the supplementary retirement plan in 1994, the Company reduced the liability representing the unfunded pension liability by approximately $1,570,000, with a corresponding increase in capital surplus. As a result of the decrease in the discount rate for the Pension Plan and the supplementary retirement plan in 1995, the Company increased the liability representing the pension liability by approximately $2,836,000, with a corresponding decrease in capital surplus. RETIREMENT SAVINGS PLAN: The Company sponsors a qualified tax deferred savings plan in accordance with the provisions of Section 401(k) of the Internal Revenue Code. Employees may defer up to 10% of their compensation, subject to certain limitations. The Company matches the employee contributions up to 5% of employee compensation. In the first six months of 1995 and in 1994 and 1993, Company contributions were made using treasury stock. In the last six months of 1995, Company contributions were made by issuing authorized but unissued shares. The expense associated with the Company's contribution was $423,000 in 1995, $516,000 in 1994 and $367,000 in 1993. Effective January 1, 1992 the plan was amended to include profit-sharing contributions by the Company. In 1995 and 1994, the Company did not make any profit sharing contributions. The Company's profit-sharing contributions were made using common stock valued at $276,000 in 1993. ANNUAL INCENTIVE PLAN: The Forest Oil Corporation Annual Incentive Plan (the Incentive Plan), which became effective January 1, 1992, permitted participating employees to earn annual bonus awards payable in cash or in shares of the Company's Common Stock, generally based in part upon the Company attaining certain levels of performance. In 1995 and 1994, no bonuses were awarded. In 1993, the Company accrued bonuses of $426,000 under the Incentive Plan. Amounts awarded are disbursed in equal annual installments over the succeeding three-year period. This plan was terminated effective January 1, 1996. EXECUTIVE RETIREMENT AGREEMENTS: The Company entered into agreements in December 1990 (the Agreements) with certain former executives and directors (the Retirees) whereby each executive retired from the employ of the Company as of December 28, 1990. Pursuant to the terms of the Agreements, the Retirees are entitled to receive supplemental retirement payments from the Company in addition to the amounts to which they are entitled under the Company's retirement plan. In addition, the Retirees and their spouses are entitled to lifetime coverage under the Company's group medical and dental plans, tax and other financial services, and payments by the Company in connection with certain club membership dues. The Retirees also continued to participate in the Company's royalty bonus program until December 31, 1995. The Company has also agreed to maintain certain life insurance policies in effect at December 1990, for the benefit of each of the Retirees. The Company's obligation to one retiree under a revised retirement agreement is payable in Common Stock or cash, at the Company's option, in May of each year from 1993 through 1996 at approximately $190,000 per year with the balance of $149,000 payable in May 1997. The Agreements for the other six Retirees provide for supplemental retirement payments totalling approximately $970,000 per year through 1998 and approximately $770,000 per year in 1999 and 2000. The $3,617,000 present value of the amounts due under the agreements, discounted at 13%, is included in other current and long-term liabilities. 53 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (10) EMPLOYEE BENEFITS (CONTINUED): LIFE INSURANCE: The Company provides life insurance benefits for certain key employees and retirees under split dollar life insurance plans. The premiums paid for the life insurance policies were $921,000, $916,000 and $861,000 in 1995, 1994 and 1993, respectively, including $831,000, $831,000 and $766,000 paid 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. POSTRETIREMENT BENEFITS: The Company accrues expected costs of providing postretirement benefits to employees, their beneficiaries and covered dependents in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (SFAS No. 106). The Company adopted the provisions of SFAS No. 106 in the first quarter of 1993. The estimated accumulated postretirement benefit obligation as of January 1, 1993 was approximately $4,822,000. This amount, reduced by applicable income tax benefits, was charged to operations in the first quarter of 1993 as the cumulative effect of a change in accounting principle. The following table sets forth the status of the postretirement benefit plan and the amounts recognized in the Company's consolidated financial statements at December 31: 1995 1994 ------ ----- (In Thousands) Retired participants $4,803 4,427 Active participants fully eligible for benefits 201 156 Other active participants 1,026 873 ------ ----- Accumulated postretirement benefit obligation (APBO) 6,030 5,456 Plan assets at fair market value -- -- ------ ----- APBO in excess of plan assets 6,030 5,456 Unrecognized loss (595) (330) ------ ----- Accrued postretirement benefit liability $5,435 5,126 ------ ----- ------ ----- The discount rates used in determining the actuarial present value of the APBO at December 31, 1995, 1994 and 1993 were 7.25%, 9% and 7.5%, respectively. The components of postretirement benefit expense for the years ended December 31, 1995, 1994 and 1993 are as follows: 1995 1994 1993 ---- ---- ---- (In Thousands) Service cost $ 83 103 86 Interest cost on APBO 421 407 397 ---- ---- ---- Postretirement benefit cost $504 510 483 ---- ---- ---- ---- ---- ---- 54 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 For 1995, a 1% increase in health care cost trends would have increased the APBO by $793,000 and the service interest costs by $62,000. (11) RELATED PARTY TRANSACTIONS: Prior to 1995, the Company used a real estate complex (the Complex) owned directly or indirectly by certain stockholders and members of the Board of Directors for Company-sponsored seminars, the accommodation of business guests, the housing of personnel attending corporate meetings and for other general business purposes. In 1994, in connection with the Company's termination of usage, the Company paid $662,000 on account of the business use of such property, and an additional $300,000 as a partial reimbursement of deferred maintenance costs. The Company incurred expenses for its use of the Complex of $635,000 in 1993. John F. Dorn resigned as an executive officer and director of the Company in 1993. The Company agreed to pay Mr. Dorn his salary at the time of his resignation through September 30, 1996. In addition, the Company provided certain other benefits and services to Mr. Dorn. The present value of the severance package was estimated at $500,000, which amount was recorded as an expense and a liability at December 31, 1993. In March 1994, the Company sold certain non-strategic oil and gas properties to an entity controlled by Mr. Dorn and another former executive officer of the Company for net proceeds, after costs of sale and purchase price adjustments, of $3,661,000. The Company established the sales price based upon an opinion from an independent third party. (12) COMMITMENTS AND CONTINGENCIES: Future rental payments for office facilities and equipment under the remaining terms of noncancelable leases are $1,154,000, $962,000, $953,000, $985,000 and $851,000 for the years ending December 31, 1996 through 2000, respectively. These amounts include future rentals payable by Saxon. Net rental payments applicable to exploration and development activities and capitalized in the oil and gas property accounts aggregated $972,000 in 1995, $851,000 in 1994 and $688,000 in 1993. Net rental payments charged to expense amounted to $3,529,000 in 1995, $3,512,000 in 1994 and $3,098,000 in 1993. Rental payments include the short-term lease of vehicles. None of the leases are accounted for as capital leases. 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. (13) FINANCIAL INSTRUMENTS: The Company is exposed to off-balance-sheet risks associated with energy swap agreements arising from movements in the prices of oil and natural gas and from the unlikely event of non-performance by the counterparty to the swap agreements. In order to hedge against the effects of declines in oil and natural gas prices, the Company enters into energy swap agreements with third parties and accounts for the agreements as hedges based on analogy to the criteria set forth in Statement of Financial Accounting Standards No. 80, "Accounting for Futures Contracts". In a typical swap agreement, the Company receives the difference between a fixed price per unit of production and a price based on an agreed-upon third party index if the index price is lower. If the index price is higher, the Company pays the difference. The Company's current swaps are settled on a monthly basis. For the years ended December 31, 1995, 1994 and 1993, the Company's gains (losses) under its swap agreements were $3,536,000, $1,810,000 and $(2,050,000) respectively. 55 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (13) FINANCIAL INSTRUMENTS (Continued): The following table indicates outstanding energy swaps of the Company at December 31, 1995:
Product Volume Fixed Price Duration ----------- ------------------------- ----------------- ----------- Natural Gas 194 to 7,091 MMBTU/day $2.1875 to $2.535 1/96 -12/99 Natural Gas 10,000 MMBTU/day $2.00 to $2.37 1/96 -12/97 Natural Gas 100 to 300 MMBTU/day $2.1855 to $3.003 1/96 -12/02 Natural Gas 5,000 to 10,000 MMBTU/day $1.90 to $2.0225 1/96 -12/96 Natural Gas 5,000 MMBTU/day $1.9225 4/96 -12/96 Natural Gas 1,500 to 2,000 MMBTU/day $1.0282 (1) 1/96 -6/98 Oil 661 BBLS/day $16.70 1/96 -4/96 Oil 659 BBLS/day $17.75 1/96 -6/96 Oil 332 BBLS/day $17.90 5/96 -12/96 Oil 325 BBLS/day $16.7345 1/96 -6/96
________________________ (1) Based on Alberta Energy Company "C" (AECO "C") basis. All other swaps are settled on the basis of New York Mercantile Exchange (NYMEX) prices. 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, 1995: CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE: The carrying amount of these instruments approximates fair value due to their short maturity. NONRECOURSE SECURED LOAN: The fair value of the Company's nonrecourse secured loan has been estimated as approximately $43,147,000 by discounting the projected future cash payments required under the agreement by 10.5%. PRODUCTION PAYMENT OBLIGATION: The fair value of the Company's production payment obligation has been estimated as approximately $15,188,000 by discounting the projected future cash payments required under the agreement by 10.5%. SENIOR SUBORDINATED NOTES: The fair value of the Company's 11 1/4% Senior Subordinated Notes was approximately $104,000,000, based upon quoted market prices of the Notes. ENERGY SWAP AGREEMENTS: The fair value of the Company's energy swap agreements was approximately $1,007,000, based upon the estimated net amount the Company would have to pay to terminate the agreements. 56 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (14) MAJOR CUSTOMERS: The Company's sales of oil and natural gas to individual customers which exceeded 10% of the Company's total sales (exclusive of the effects of energy swaps and hedges) were: 1995 1994 1993 ---- ---- ---- (In Thousands) Enron Affiliates (A) $30,916 58,805 63,075 Chevron USA Production Company 11,893 12,829 -- (A) The amount shown for Enron Affiliates includes oil and natural gas sales to Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation, Cactus Funding Corporation, Cactus Hydrocarbon III Limited Partnership, Enron Gas Services Corporation and Enron Reserve Acquisition. Approximately $17,217,000, $29,046,000 and $32,702,000 represent sales recorded for deliveries under volumetric production payments in the years ended December 31, 1995, 1994 and 1993, respectively. (15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- ------- ------- ------- (In Thousands Except Per Share Amounts) 1995 - ---- REVENUE $ 22,361 20,550 17,617 21,928 -------- ------ ------- ------- -------- ------ ------- ------- EARNINGS FROM OPERATIONS $ 14,900 12,740 10,177 12,914 -------- ------ ------- ------- -------- ------ ------- ------- NET LOSS $ (3,144) (4,815) (6,574) (3,463) -------- ------ ------- ------- -------- ------ ------- ------- NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (3,684) (5,355) (7,114) (4,003) -------- ------ ------- ------- -------- ------ ------- ------- PRIMARY AND FULLY DILUTED LOSS PER SHARE $ (.65) (.94) (.84) (.42) -------- ------ ------- ------- -------- ------ ------- ------- 1994 - ---- Revenue $ 32,543 32,977 28,207 22,220 -------- ------ ------- ------- -------- ------ ------- ------- Earnings from operations $ 24,241 23,600 19,387 13,763 -------- ------ ------- ------- -------- ------ ------- ------- Income (loss) before cumulative effects of changes in accounting principles and extraordinary item $ 236 (265) (32,873) (34,951) -------- ------ ------- ------- -------- ------ ------- ------- Net loss $(13,754) (265) (32,873) (34,951) -------- ------ ------- ------- -------- ------ ------- ------- Net loss attributable to common stock $(14,294) (805) (33,414) (35,491) -------- ------ ------- ------- -------- ------ ------- ------- Primary and fully diluted loss per share before cumulative effects of changes in accounting principles and extraordinary item $ (.05) (.14) (5.94) (6.30) -------- ------ ------- ------- -------- ------ ------- ------- Primary and fully diluted loss per share $ (2.55) (.14) (5.94) (6.30) -------- ------ ------- ------- -------- ------ ------- -------
57 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) 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," (SFAS No. 69), except as noted. (A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES - The following costs were incurred in oil and gas exploration and development activities during the years ended December 31, 1995, 1994 and 1993:
UNITED STATES CANADA TOTAL -------- ------ ------- (In Thousands) 1995 - ---- Property acquisition costs (undeveloped leases and proved properties) $ 844 25,963(1) 26,807 Exploration costs 12,739 - 12,739 Development costs 13,198 - 13,198 -------- ------ ------- Total $ 26,781 25,963 52,744 -------- ------ ------- -------- ------ ------- 1994 - ---- Property acquisition costs (undeveloped leases and proved properties) $ 9,762 - 9,762 Exploration costs 15,693 - 15,693 Development costs 17,089 - 17,089 -------- ------ ------- Total $ 42,544 - 42,544 -------- ------ ------- -------- ------ ------- 1993 - ---- Property acquisition costs (undeveloped leases and proved properties) $144,916 - 144,916 Exploration costs 5,433 - 5,433 Development costs 20,472 - 20,472 -------- ------ ------- Total $170,821 - 170,821 -------- ------ ------- -------- ------ -------
(1) Consists of the allocation of purchase price to the oil and gas properties acquired in the purchase of Saxon. (B) AGGREGATE CAPITALIZED COSTS - The aggregate capitalized costs relating to oil and gas activities were incurred as of the dates indicated:
DECEMBER 31, 1995 1994 1993 ---------- ------------ --------- (In Thousands) Costs related to proved properties $1,169,636 1,109,158 1,066,855 Costs related to unproved properties: Costs subject to depletion 18,011 32,288 32,585 Costs not subject to depletion 28,380 30,441 41,216 ---------- ------------ --------- 1,216,027 1,171,887 1,140,656 Less accumulated depletion and valuation allowance 941,482 895,335 778,226 ---------- ------------ --------- $ 274,545 276,552 362,430 ---------- ------------ --------- ---------- ------------ ---------
58 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES - Results of operations from producing activities for 1995, 1994 and 1993 are presented below.
1995 1994 1993 ------- ------- ------- (In Thousands) Oil and gas sales $82,275 114,541 102,883 Production expense 22,463 22,384 19,540 Depletion expense 42,973 64,883 59,759 Provision for impairment of oil and gas properties - 58,000 - ------- -------- ------- 65,436 145,267 79,299 ------- -------- ------- Results of operations from producing activities $16,839 (30,726) 23,584 ------- -------- ------- ------- -------- -------
59 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (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 1993, 1994 and 1995 follows. The Canadian reserves at December 31, 1995 represent 100% of the reserves owned by Saxon, a consolidated subsidiary in which the Company holds a 56% economic interest. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions; i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangement, including energy swap agreements (see Note 13), but not on escalations based on future conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved mechanisms of primary recovery are included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. The Company's presentation of estimated proved oil and gas reserves excludes, for each of the years presented, those quantities attributable to future deliveries required under volumetric production payments. In order to calculate such amounts, the Company has assumed that deliveries under volumetric production payments are made as scheduled at expected BTU factors, and that delivery commitments are satisfied through delivery of actual volumes as opposed to cash settlements. The Company has also presented, as additional information, proved oil and gas reserves including quantities attributable to future deliveries required under volumetric production payments. The Company believes that this information is informative to readers of its financial statements as the related oil and gas property costs and deferred revenue are included on the Company's balance sheets for each of the years presented. This additional information is not presented in accordance with SFAS No. 69; however, the Company believes this additional information is useful in assessing its reserve acquisitions and financial position on a comprehensive basis. 60 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - --------------------------------------------------------------------------------
LIQUIDS GAS --------------------------- ---------------------------- (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL ------ ------ ------ ------- ------- ------- Balance at December 31, 1992 6,973 - 6,973 164,421 - 164,421 Revisions of previous estimates 507 - 507 17,874 - 17,874 Extensions and discoveries 201 - 201 8,395 - 8,395 Production (1,308) - (1,308) (22,383) - (22,383) Sales of reserves in place (280) - (280) (18,941) - (18,941) Purchases of reserves in place 1,704 - 1,704 94,730 - 94,730 ------ ------ ------ ------- ------- ------- Balance at December 31, 1993 7,797 - 7,797 244,096 - 244,096 Additional disclosures: Volumes attributable to volumetric production payments 401 - 401 29,286 - 29,286 ------ ------ ------ ------- ------- ------- Balance at December 31, 1993, including volumes attributable to volumetric production payments 8,198 - 8,198 273,382 - 273,382 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------- ------- ------- Balance at December 31, 1993 7,797 - 7,797 244,096 - 244,096 Revisions of previous estimates 989 - 989 7,848 - 7,848 Extensions and discoveries 41 - 41 9,894 - 9,894 Production (1,361) - (1,361) (32,043) - (32,043) Sales of reserves in place (170) - (170) (6,377) - (6,377) Purchases of reserves in place 17 - 17 8,220 - 8,220 ------ ------ ------ ------- ------- ------- Balance at December 31, 1994 7,313 - 7,313 231,638 - 231,638 Additional disclosures: Volumes attributable to volumetric production payments 219 - 219 15,358 - 15,358 ------ ------ ------ ------- ------- ------- Balance at December 31, 1994, including volumes attributable to volumetric production payments 7,532 - 7,532 246,996 - 246,996 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------- ------- ------- Balance at December 31, 1994 7,313 - 7,313 231,638 - 231,638 REVISIONS OF PREVIOUS ESTIMATES (227) - (227) 2,398 - 2,398 EXTENSIONS AND DISCOVERIES 18 - 18 6,861 - 6,861 PRODUCTION (1,028) - (1,028) (24,222) - (24,222) SALES OF RESERVES IN PLACE (6) - (6) (2,438) - (2,438) PURCHASES OF RESERVES IN PLACE 59 4,338 4,397 1,435 16,218 17,653 ------ ------ ------ ------- ------- ------- BALANCE AT DECEMBER 31, 1995 6,129 4,338 10,467 215,672 16,218 231,890 ADDITIONAL DISCLOSURES: VOLUMES ATTRIBUTABLE TO VOLUMETRIC PRODUCTION PAYMENTS 74 - 74 6,238 - 6,238 ------ ------ ------ ------- ------- ------- BALANCE AT DECEMBER 31, 1995, INCLUDING VOLUMES ATTRIBUTABLE TO VOLUMETRIC PRODUCTION PAYMENTS 6,203 4,338 10,541 221,910 16,218 238,128 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------- ------- ------- PRO FORMA RESERVES, INCLUDING VOLUMES ATTRIBUTABLE TO VOLUMETRIC PRODUCTION PAYMENTS, AFTER GIVING EFFECT TO THE CANADIAN FOREST ACQUISITION (SEE NOTE 2) 6,203 14,585 20,788 221,910 108,256 330,166 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------- ------- -------
Purchases of reserves in place represent volumes recorded on the closing dates of the acquisitions for financial accounting purposes. The revisions of previous estimates for natural gas in 1994 include 5,833 MMCF for an adjustment related to the change in accounting for oil and gas sales from the sales method to the entitlements method. 61 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (D) ESTIMATED PROVED OIL AND GAS RESERVES (CONTINUED)
OIL AND CONDENSATE GAS --------------------------- ---------------------------- (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL ------ ------ ----- ------- ------ ------- Proved developed reserves at: December 31, 1992 5,831 - 5,831 146,048 - 146,048 December 31, 1993 6,377 - 6,377 187,534 - 187,534 December 31, 1994 6,775 - 6,775 179,574 - 179,574 DECEMBER 31, 1995 5,678 3,188 8,866 156,471 14,184 170,655 Pro forma proved developed reserves after giving effect to the Canadian Forest acquisition (see Note 2) 5,678 13,435 19,113 156,471 106,222 262,693
The Company's proved developed reserves, including amounts attributable to volumetric production payments, are shown below. This disclosure is presented as additional information and is not intended to represent required disclosure pursuant to SFAS No. 69.
OIL AND CONDENSATE GAS --------------------------- ---------------------------- (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL ------ ------ ----- ------- ------ ------- Proved developed reserves, including amounts attributable to volumetric production payments at: December 31, 1992 6,418 - 6,418 176,282 - 176,282 December 31, 1993 6,778 - 6,778 216,820 - 216,820 December 31, 1994 6,994 - 6,994 194,932 - 194,932 DECEMBER 31, 1995 5,752 3,188 8,940 162,709 14,184 176,893 Pro forma proved developed reserves, including amounts attributable to volumetric production payments after giving effect to the Canadian Forest acquisition (see Note 2) 5,752 13,435 19,187 162,709 106,222 268,931
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - Future oil and gas sales and production and development costs have been estimated using prices and costs in effect at the end of the years indicated, except in those instances where the sale of oil and natural gas is covered by contracts, energy swap agreements or volumetric production payments. At December 31, 1995, Canadian disclosures represents 100% of amounts attributable to the reserves owned by Saxon, a consolidated subsidiary in which the Company holds a 56% economic interest. All of the estimated reserves at December 31, 1994 and 1993 were in the United States. In the case of contracts, the applicable contract prices, including fixed and determinable escalations, were used for the duration of the contract. Thereafter, the current spot price was used. Future oil and gas sales also include the estimated effects of existing energy swap agreements as discussed in Note 13. 62 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED) Future income tax expenses are estimated using the statutory tax rate of 35%. Estimates for future general and administrative and interest expenses 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. The Company's presentation of the standardized measure of discounted future net cash flows and changes therein excludes, for each of the years presented, amounts attributable to future deliveries required under volumetric production payments. In order to calculate such amounts, the Company has assumed that deliveries under volumetric production payments are made as scheduled, that production costs corresponding to the volumes delivered are incurred by the Company at average rates for the properties subject to the production payments, and that delivery commitments are satisfied through delivery of actual volumes as opposed to cash settlements. The Company has also presented, as additional information, the standardized measure of discounted future net cash flows and changes therein including amounts attributable to future deliveries required under volumetric production payments. The Company believes that this information is informative to readers of its financial statements because the related oil and gas property costs and deferred revenue are shown on the Company's balance sheets for each of the years presented. This additional information is not required to be presented in accordance with SFAS No. 69; however, the Company believes this additional information is useful in assessing its reserve acquisitions and financial position on a comprehensive basis.
DECEMBER 31, 1995 ----------------------------------- UNITED STATES CANADA TOTAL --------- ------- -------- (In Thousands) Future oil and gas sales $ 554,609 93,021 647,630 Future production and development costs (195,399) (43,060) (238,459) --------- ------- -------- Future net revenue 359,210 49,961 409,171 10% annual discount for estimated timing of cash flows (122,528) (19,108) (141,636) --------- ------- -------- Present value of future net cash flows before income taxes 236,682 30,853 267,535 Present value of future income tax expense (8,855) (1,763) (10,618) --------- ------- -------- Standardized measure of discounted future net cash flows 227,827 29,090 256,917 Additional disclosures: Amounts attributable to volumetric production payments 8,476 - 8,476 --------- ------- -------- Total discounted future net cash flows, including amounts attributable to volumetric production payments $ 236,303 29,090 265,393 --------- ------- -------- --------- ------- -------- Pro forma standardized measure of discounted future net cash flows, including amounts attributable to volumetric production payments, after giving effect to the Canadian Forest acquisition (see Note 2) $ 236,303 105,849 342,152 --------- ------- -------- --------- ------- --------
63 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED) Undiscounted future income tax expense was $22,316,000 in the United States and $2,924,000 in Canada at December 31, 1995.
DECEMBER 31, ----------------------- 1994 1993 --------- -------- (In Thousands) Future oil and gas sales $ 502,186 662,265 Future production and development costs (193,376) (240,145) --------- -------- Future net revenue 308,810 422,120 10% annual discount for estimated timing of cash flows (100,480) (138,917) --------- -------- Present value of future net cash flows before income taxes 208,330 283,203 Present value of future income tax expense (781) (21,027) --------- -------- Standardized measure of discounted future net cash flows 207,549 262,176 Additional disclosures: Amounts attributable to volumetric production payments 22,600 36,877 --------- -------- Total discounted future net cash flows, including amounts attributable to volumetric production payments $ 230,149 299,053 --------- -------- --------- --------
Undiscounted future income tax expense was $1,348,000 at December 31, 1994 and $35,028,000 at December 31, 1993. 64 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED) CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES - An analysis of the changes in the standardized measure of discounted future net cash flows during each of the last three years is as follows. At December 31, 1995, Canadian disclosures represent amounts attributable to 100% of the reserves owned by Saxon, a consolidated subsidiary in which the Company holds a 56% economic interest. All of the estimated reserves at December 31, 1994 and 1993 were in the United States.
United States Canada Total -------- ------- ------- 1995 - ---- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year $207,549 - 207,549 Changes resulting from: Sales of oil and gas, net of production costs (48,090) - (48,090) Net changes in prices and future production costs 43,991 - 43,991 Net changes in future development costs (3,392) - (3,392) Extensions, discoveries and improved recovery 7,231 - 7,231 Previously estimated development costs incurred during the period 7,633 - 7,633 Revisions of previous quantity estimates 127 - 127 Sales of reserves in place (3,114) - (3,114) Purchases of reserves in place 865 30,853 31,718 Accretion of discount on reserves at beginning of year before income taxes 23,102 - 23,102 Net change in income taxes (8,075) (1,763) (9,838) -------- ------- ------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year 227,827 29,090 256,917 Additional disclosures: Amounts attributable to volumetric production payments 8,476 - 8,476 -------- ------- ------- Total discounted future net cash flows relating to proved oil and gas reserves, including amounts attributable to volumetric production payments, at end of year $236,303 29,090 265,393 -------- ------- ------- -------- ------- ------- Proforma standardized measure of discounted future net cash flows, including amounts attributable to volumetric production payments, after giving effect to the Canadian Forest acquisition (see Note 2) $236,303 105,849 342,152 -------- ------- ------- -------- ------- -------
65 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
1994 1993 -------- ------- (In Thousands) Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year $262,176 190,971 Changes resulting from: Sales of oil and gas, net of production costs (69,607) (59,572) Net changes in prices and future production costs (80,526) (22,010) Net changes in future development costs 7,432 (18,724) Extensions, discoveries and improved recovery 10,817 15,322 Previously estimated development costs incurred during the period 10,000 13,424 Revisions of previous quantity estimates 16,840 25,262 Sales of reserves in place (10,630) (28,802) Purchases of reserves in place 8,467 127,418 Accretion of discount on reserves at beginning of year before income taxes 32,334 24,558 Net change in income taxes 20,246 (5,671) -------- ------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year 207,549 262,176 Additional disclosures: Amounts attributable to volumetric production payments 22,600 36,877 -------- ------- Total discounted future net cash flows relating to proved oil and gas reserves, including amounts attributable to volumetric production payments, at end of year $230,149 299,053 -------- ------- -------- -------
66 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 on May 8, 1996, 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, 1995 and 1994 3. Consolidated Statements of Operations - Years ended December 31, 1995, 1994 and 1993 4. Consolidated Statements of Shareholders' Equity - Years ended December 31, 1995, 1994 and 1993 5. Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 6. Notes to Consolidated Financial Statements - Years ended December 31, 1995, 1994 and 1993 (2) Financial Statement Schedules All schedules have been omitted because the information is either not required or is set forth in the financial statements or the notes thereto. (3) Exhibits - Forest shall, upon written request to Daniel L. McNamara, Corporate Secretary of Forest, addressed to Forest Oil Corporation, 1600 Broadway, Suite 2200, Denver, CO 80202, provide copies of each of the following Exhibits: Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of Incorporation dated as of July 20, 1995, incorporated herein by reference to Exhibit 3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 3(i)(b) Certificate of Amendment of Restated Certificate of Incorporation dated as of July 26, 1995, incorporated herein by reference to Exhibit 3(i)(b) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 3(i)(c) Certificate of Amendment of the Restated Certificate of Incorporation dated as of January 5, 1996, incorporated herein by reference to Exhibit 3(i)(c) to Forest Oil Corporation's Registration Statement on Form S-2 (File No. 33-64949). 67 Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990, Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of July 30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992, Amendment No. 5 to By-Laws dated as of March 18, 1993 and Amendment No. 6 to By-Laws dated as of September 14, 1993, incorporated herein by reference to Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993, incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994, incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 3(ii)(c) Amendment No. 9 to By-Laws dated as of May 15, 1995, incorporated herein by reference to Exhibit 3(ii)(c) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995, incorporated herein by reference to Exhibit 3(ii)(d) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation and Shawmut Bank, Connecticut, (National Association), incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). *Exhibit 4.2 First Supplemental Indenture dated as of February 8, 1996 among Forest Oil Corporation, 611852 Saskatchewan Ltd. and Fleet National Bank of Connecticut (formerly known as Shawmut Bank, Connecticut, National Association, which was formerly known as The Connecticut Bank). Exhibit 4.3 Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership dated as of December 28, 1993, incorporated herein by reference to Exhibit 4.1 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.4 First Amendment dated as of December 28, 1993 to the Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 4.5 Second Amendment dated as of July 27, 1995 to the Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated by reference to Exhibit 99.4 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). *Exhibit 4.6 Third Amendment dated January 24, 1996 to the Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership. Exhibit 4.7 Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated as of December 28, 1993 by and between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). 68 Exhibit 4.8 First Amendment dated as of June 15, 1994 to the Deed of Trust, Assignment of Production, Security Agreement and Financing Statement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.4 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 4.9 Second Amendment effective as of July 27, 1995 to Deed of Trust, Assignment of Production, Security Agreement and Financing Statement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 99.9 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 4.10 Act of Mortgage, Assignment of Production, Security Agreement and Financing Statement dated as of December 28, 1993 between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.3 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.11 Amended and Restated Credit Agreement dated as of August 31, 1995 between Forest Oil Corporation and Subsidiaries, Borrower and Subsidiary Guarantors and the Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1995 (File No. 0-4597). Exhibit 4.12 Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated as of December 1, 1993, incorporated herein by reference to Exhibit 4.6 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993. Exhibit 4.13 Amendment No. 1 dated as of June 3, 1994 to the Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including Hydrocarbons) and Fixture Filing dated as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.9 of Form 10-K for Forest Oil Corporation for the year ended December 31, 1994 (File No. 0-4597). *Exhibit 4.14 Amendment No. 2 dated as of August 31, 1995 to the Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including Hydrocarbons) and Fixture Filing dated as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent. Exhibit 4.15 Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including Hydrocarbons) and Fixture Filing dated as of June 3, 1994 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.9 of Form 10-K for Forest Oil Corporation for the year ended December 31, 1994 (File No. 0-4597). *Exhibit 4.16 Amendment No. 1 dated as of August 31, 1995 to Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated June 3, 1994. Exhibit 4.17 Warrant Agreement dated as of December 3, 1991 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as Warrant Agent (including Form of Warrant), incorporated herein by reference to Exhibit 4.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 4.18 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). 69 Exhibit 4.19 Amendment No. 1 dated as of July 27, 1995 to Rights Agreement dated as of October 14, 1993 between Forest Oil Corporation and Mellon Securities Trust Company, incorporated herein by reference to Exhibit 99.5 of Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 10.1 Description of Employee Overriding Royalty Bonuses, incorporated herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.3 Form of non-qualified Executive Deferred Compensation Agreement, incorporated herein by reference to Exhibit 10.3 to Form 10-Q for Forest Oil Corporation for the years ended December 31, 1990 (File No. 0-4597). Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to Exhibit 10.5, incorporated herein by reference to Exhibit 10.11 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1992 (File No. 0-4597). Exhibit 10.9 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 10.10 Shareholders Agreement dated as of July 27, 1995 between Forest Oil Corporation and The Anschutz Corporation incorporated by reference to Exhibit 99.7 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 10.11 Tranche A Warrant to Purchase 3,888,888 shares of Common Stock issued to The Anschutz Corporation dated July 27, 1995 incorporated by reference to Exhibit 99.6 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). *Exhibit 10.12 Shareholders Agreement dated as of January 24, 1996 between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership. *Exhibit 10.13 Option dated July 27, 1995 from Joint Energy Development Investments Limited Partnership to The Anschutz Corporation. *Exhibit 10.14 Assumption of Option dated January 24, 1996 between Forest Oil Corporation and The Anschutz Corporation. *Exhibit 11 Computation of Earnings Per Share of Common Stock. Forest Oil Corporation and Subsidiaries. 70 *Exhibit 21.1 List of Subsidiaries of the Registrant. *Exhibit 23 Consent of KPMG Peat Marwick LLP. *Exhibit 24 Powers of Attorney of the following Officers and Directors: Philip F. Anschutz, Robert S. Boswell, Richard J. Callahan, Dale F. Dorn, William L. Dorn, David H. Keyte, James H. Lee, Craig D. Slater, Joan C. Sonnen, Drake S. Tempest, Michael B. Yanney. *Exhibit 27 Financial Data Schedule - ------------------- * filed herewith. (b) Reports on Form 8-K The following reports on Form 8-K were filed by Forest during the last quarter of 1995:
Date of Report Item Reported Financial Statements Filed - -------------- ------------- -------------------------- October 11, 1995 Item 5 None December 12, 1995 Item 5 None December 20, 1995 Item 5 None December 29, 1995 Item 5 None
71 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 29, 1996 By: /s/ Daniel L. McNamara ------------------------------ Daniel L. McNamara Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- Robert S. Boswell* President and Chief Executive Officer March 29, 1996 (Robert S. Boswell) (Principal Executive Officer) David H. Keyte* Vice President and Chief Financial Officer March 29, 1996 (David H. Keyte) (Principal Financial Officer) Joan C. Sonnen* Controller (Joan C. Sonnen) (Chief Accounting Officer) March 29, 1996 Directors of the Registrant March 29, 1996 Philip F. Anschutz* (Philip F. Anschutz) Robert S. Boswell* (Robert S. Boswell) Richard J. Callahan* (Richard J. Callahan) Dale F. Dorn* (Dale F. Dorn) William L. Dorn* (William L. Dorn) James H. Lee* (James H. Lee) Craig D. Slater* (Craig D. Slater) Drake S. Tempest* (Drake S. Tempest)
72
Signatures Title Date ---------- ----- ---- Directors of the Registrant March 29, 1996 Michael B. Yanney* (Michael B. Yanney) *By /s/ Daniel L. McNamara March 29, 1996 --------------------------- Daniel L. McNamara (as attorney-in-fact for each of the persons indicated)
73 EX-4.2 2 EXHIBIT 4.2 EXHIBIT 4.2 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE is dated as of February 8, 1996 among FOREST OIL CORPORATION, a New York corporation as Issuer (the "Company"), 611852 Saskatchewan Ltd., a Saskatchewan, Canada corporation (the "Guarantor"), and Fleet National Bank of Connecticut (formerly known as Shawmut Bank Connecticut, National Association, which was formerly known as The Connecticut National Bank), a national banking association, as trustee (the "Trustee"). RECITALS WHEREAS, the Company and the Trustee entered into an Indenture, dated as of September 8, 1993 (the "Indenture"), pursuant to which the Company issued $100,000,000 in principal amount of 11 1/4% Senior Subordinated Notes due 2003 (the "Securities") (capitalized terms used herein without definition shall have the respective meanings ascribed to them in the Indenture); and WHEREAS, Section 11.03 of the Indenture provides that any Person that was not a Subsidiary Guarantor on the date of the Indenture may become a Guarantor by executing and delivering to the Trustee, among other things, a supplemental indenture in form and substance satisfactory to the Trustee; WHEREAS, Section 9.01 of the Indenture provides, among other things, that the Company and the Subsidiary Guarantors when authorized by a Board Resolution of their respective Boards of Directors, and the Trustee, may amend or supplement the Indenture without notice to or consent of any Holder to make any change that would provide any additional benefit or rights to the Holders or that does not adversely affect the rights of any Holders; WHEREAS, the Company, the Guarantor and the Trustee desire to supplement the Indenture to include the Guarantor as a Subsidiary Guarantor under the Indenture, and the Guarantor has agreed to guarantee the Securities pursuant to Article Eleven of the Indenture; WHEREAS, all acts and things prescribed by the Indenture, by corporate action of the Company, the Guarantor and the Trustee necessary to make this First Supplemental Indenture a valid instrument legally binding on the Company, the Guarantor and the Trustee, in accordance with its terms, have been duly done and performed. NOW, THEREFORE, to comply with the provisions of the Indenture and in consideration of the above premises, the Company, the Guarantor and the Trustee covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities as follows: ARTICLE 1 SECTION 1.01 This First Supplemental Indenture is supplemental to the Indenture and does and shall be deemed to form a part of, and shall be construed in connection with and as part of, the Indenture for any and all purposes, including but not limited to, discharge of the Indenture as provided in Article 8 of the Indenture. SECTION 1.02. Subject to the provisions of Article Eleven of the Indenture, the Guarantor agrees that it will duly and punctually perform and observe all of the covenants and conditions in the Indenture to be performed by a Subsidiary Guarantor as if the Guarantor had been an original Subsidiary Guarantor of the Securities. Any Guarantee endorsed on any Security delivered after the date of this First Supplemental Indenture in substitution or exchange for any outstanding Security as provided in the Indenture shall be executed and delivered by the Guarantor and such Guarantee on each such Security shall constitute an obligation of the Guarantor; PROVIDED, HOWEVER, that each Guarantee hereunder shall be effective without such notation. SECTION 1.03. This First Supplemental Indenture shall become effective immediately upon its execution and delivery by each of the Company, the Guarantor and the Trustee. ARTICLE 2 SECTION 2.01. Except as specifically modified herein, the Indenture, the Securities and the Guarantees are in all respects ratified and confirmed and shall remain in full force and effect in accordance with their terms. SECTION 2.02. Except as otherwise expressly provided herein, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this First Supplemental Indenture. This First Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions set forth in the Indenture with the same force and effect as if those terms and conditions were repeated at length herein and made applicable to the Trustee with respect hereto. SECTION 2.03. The laws of New York shall govern this First Supplemental Indenture without regard to principles of conflicts of law. The Trustee, the Company and the Guarantor agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this First Supplemental Indenture. SECTION 2.04. The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of such executed copies together shall represent the same agreement. SECTION 2.05. The recitals to this First Supplemental Indenture shall not be construed as representations of the Trustee and the Trustee makes no representation as to the accuracy of such recitals. SECTION 2.06. The Trustee enters into this Supplemental Indenture in its capacity as Trustee under the Indenture and in reliance on an Opinion of Counsel and an Officers' Certificate. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused the First Supplemental Indenture to be duly executed, all as of the date first written above. FOREST OIL CORPORATION as the Company By: /s/ Kenton M. Scroggs -------------------------------- Title: Vice President & Treasurer -------------------------------- 611852 SASKATCHEWAN LTD. as Guarantor By: /s/ Kenton M. Scroggs -------------------------------- Title: Vice President & Treasurer -------------------------------- FLEET NATIONAL BANK OF CONNECTICUT, as Trustee By: -------------------------------- Title: -------------------------------- EX-4.6 3 EXHIBIT 4.6 EXHIBIT 4.6 THIRD AMENDMENT TO LOAN AGREEMENT This Third Amendment to Loan Agreement (this "Amendment") is made and entered into as of January __, 1996 ("Third Amendment Date"), by and between FOREST OIL CORPORATION, a New York corporation, with principal offices at 1600 Broadway, Suite 2200, Denver, Colorado 80202 (the "Borrower"), and JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a Delaware limited partnership, with offices at 1400 Smith Street, Houston, Texas 77002 (the "Lender"). WHEREAS, reference for all purposes is hereby made to that certain Loan Agreement dated December 28, 1993, between the Borrower and the Lender, as amended by the First Amendment to Loan Agreement dated as of December 28, 1993, and the Second Amendment to Loan Agreement dated as of July 27, 1995 (as so amended, the "Agreement"); WHEREAS, the Borrower and the Lender desire to amend the Agreement as hereinafter set forth; NOW, THEREFORE, for and in consideration of ten dollars ($10.00) and other good and valuable consideration, the Borrower and the Lender hereby agree as follows: 1. Borrower and Lender hereby acknowledge and agree to the following: (a) As of even date herewith and prior to the consummation of the transactions provided for herein, the Tranche B Loan had an outstanding principal balance of $22,368,185.88. On even date herewith, Lender has conveyed to Borrower the Tranche B Warrant and its rights and obligations under the Anschutz Option and in exchange therefor Borrower has, in full repayment of the outstanding principal balance due under the Tranche B Loan, issued to Lender the Shares, all as contemplated by the Second Restructure Agreement. To evidence the repayment of the Tranche B Loan, Lender shall make an appropriate notation on the ledger forming a part of the Note or if no ledger is attached to the Note, otherwise reflect the payment of the Tranche B Loan in its records. (b) As of the Third Amendment Date and after giving effect to this Amendment, the Loan has an outstanding principal balance of $40,322,183.40 together with accrued but unpaid interest thereon in the amount of $302,967.22. (c) Lender hereby acknowledges that for purposes of the Agreement (i) the Conveyance Expiration Date shall be deemed to have occurred; (ii) the Anschutz Option shall be deemed to have expired; and (iii) the Tranche B Loan shall be deemed to have been fully repaid by Borrower. 2. All references within the Agreement to either "110%" or "115%" shall be modified to read "125%". 3. Section 1.01 of the Agreement is amended by replacing or inserting the following defined terms, as appropriate: "PARTIAL RELEASE OF LIENS" shall mean an instrument or instruments in recordable form pursuant to which Lender shall release the appropriate interest in the Mortgaged Properties from the Liens granted pursuant to the terms of the Security Instruments. Such instruments shall expressly state that they are partial release of liens only and that such release will not affect any other Liens securing the Mortgaged Properties or release any other property from such Liens. "SECOND RESTRUCTURE AGREEMENT" shall mean the Second Restructure Agreement dated as of December 29, 1995 by and between Borrower and Lender, as the same may be amended from time to time. "SHARES" shall have the meaning given such term in the Second Restructure Agreement. "WARRANTS" shall mean the Tranche A Warrant. 4. Section 2.02(c) of the Agreement is deleted. 5. Section 2.03(a) of the Agreement is amended in its entirety to read as follows: (a) With respect to any Capital Operation, if Borrower elects or is required to submit an AFE to Lender pursuant to the terms of this Agreement, such AFE shall set forth among other things, the estimated commencement date, the proposed depth, the objective zone or zones to be tested, the surface and bottom hole locations, applicable details regarding directional drilling, the equipment to be used and the estimated costs of the operation, and such other information as Lender reasonably may request. 6. Section 2.03(c) of the Agreement is amended in its entirety to read as follows: (c) With respect to any AFEs submitted pursuant to the terms of Sections 2.02(b), 2.03(b), 2.18, 2.20, and as provided in Footnote 1 to Exhibit I, Lender shall have ten (10) Business Days (48 hours if the rig is on location and Borrower notifies Lender of such circumstance at the time the AFE or Supplemental AFE is submitted for approval, or sixty (60) Business Days if the AFE involves the construction of a platform and/or facilities either as a part of the well proposal or as a separate proposal) after receipt of such AFE and all other information requested by Lender within which to approve the proposed AFE and the related operation. Failure of Lender to notify -2- Borrower in writing within such period of time of such approval shall be deemed disapproval of the proposed AFE and the related operation. If, however, Lender notifies Borrower in writing prior to the expiration of such period that it consents to Borrower's AFE, Lender shall be deemed to have consented to the commencement and completion by Borrower of such operation pursuant to such AFE. In addition, if within 60 days after Borrower's receipt from Lender of a consent as provided for pursuant to the terms of this Section 2.03 Borrower has not commenced the operation covered by such consent, such consent shall be void; provided, however, Borrower may resubmit the applicable AFE and operation to Lender for its approval. 7. Section 2.03(d) of the Agreement is amended in its entirety to read as follows: (d) If at any time Lender elects not to consent or is deemed to have elected not to consent to a Capital Operation and the related AFE submitted by Borrower pursuant to Section 2.02(b) or 2.03(b), then Borrower shall have the following options: (x) Borrower may elect not to perform such Capital Operation, and if such Capital Operation is a Scheduled Capital Operation, Borrower's obligation to complete such Scheduled Capital Operation shall terminate and Exhibit J to this Agreement shall be revised as provided for in Section 2.17; or (y) Borrower may complete at its sole cost and expense the operation provided for in such AFE ("Excluded Operation") pursuant to the terms of this Section 2.03(d) and the zone or zones targeted in such Capital Operation (as specified in the AFE) shall be released from the Liens granted to Lender pursuant to the Security Instruments. To obtain such a release, the Borrower must commence the operation proposed in the rejected AFE within 60 days after the first to occur of the date on which Borrower received written notice of Lender's election not to consent or the date on which Lender is deemed to have elected not to consent to the applicable Capital Operation. For purposes of all Scheduled Capital Operations providing for the drilling of a well, such operation shall be deemed to have commenced on the date the well is spudded, for purposes of all recompletion operations, such operation shall be deemed to have commenced on the date the workover rig is on-site and operations using such rig are underway, and for purposes of all other Capital Operations, such operations shall be deemed to have commenced on the date on which on-site operations with respect to such Capital Operation have commenced and costs in excess of 10% of costs set out in the AFE have been incurred. Once the Borrower has commenced a Capital Operation in accordance with the terms of the immediately preceding sentence, Borrower shall so notify Lender and Lender shall, within 10 Business Days following receipt of such notice, execute and deliver to Borrower a Partial Release of Liens pursuant to which the Lender releases only the zone or zones targeted pursuant to the terms of the AFE. Notwithstanding the delivery of the Partial Release, Borrower shall thereafter be obligated to conduct such operation as a reasonable and prudent operator. 8. Sections 2.08(d), (e) and (f) of the Agreement are hereby deleted. -3- 9. Section 2.16 of the Agreement is hereby deleted. 10. Section 2.17(a) of the Agreement is hereby modified in its entirety to read as follows: (a) If Lender does not consent to an AFE with respect to a Scheduled Capital Operation, or if an adjustment to Exhibit J is required pursuant to Sections 2.18 or 2.20, then in any such case Borrower and Lender shall attempt to mutually agree on an appropriate adjustment to the Scheduled Principal Amount and the Required Trailing Twelve Month Cash Flow. If Borrower and Lender are unable to agree on an appropriate adjustment to such amounts, then the Scheduled Principal Amount and the Required Trailing Twelve Month Cash Flow shall instead be adjusted as provided for on Attachment 1 to Exhibit J. 11. Section 2.18 of the Agreement is hereby modified in its entirety to read as follows: Section 2.18 COST OVERRUNS. If Borrower anticipates incurring Overrun Expenses in connection with any Capital Operation, Borrower shall have the right to submit a Supplemental AFE ("Supplemental AFE") to Lender, which Supplemental AFE shall set forth the estimated amount of the Overrun Expenses, a copy of the original AFE for such operation, the status of the work on the operation including the depth drilled, any objective zone or zones that have been tested, the expenses incurred, the work remaining to be completed, the estimated costs necessary to complete such work and such other information as Lender may reasonably request. Lender shall respond to any such Supplemental AFE within the time period provided for in Section 2.03(c). If Lender approves such Supplemental AFE then the costs set forth in the Supplemental AFE shall be the only Overrun Expenses approved with respect to such operation and such costs shall be used in calculating the Approved Overrun Expenses. If Lender elects not to consent to the Supplemental AFE or is deemed to have elected not to consent to the Supplemental AFE, Borrower shall have the right to either (i) terminate its participation in the operation covered by the Supplemental AFE or (ii) continue its participation in such operation. If Borrower elects the option set forth in either clause (i) or clause (ii) above, then Borrower's obligation to complete such operation shall terminate and Exhibit J attached hereto shall be revised as provided for in Section 2.17. If Borrower elects to continue with its participation as provided for in clause (ii), then Borrower shall so notify Lender and within 10 Business Days thereafter (if the operations subject to the Supplemental AFE have already been commenced as of the date of Borrower's notification), or within 10 Business Days following commencement of the operations subject to the Supplemental AFE, Lender shall execute and deliver to Borrower a Partial Release of Liens releasing only the objective zone or zones designated in the Supplemental AFE. Notwithstanding the delivery of the Partial Release, Borrower shall thereafter be obligated to conduct such operation as a reasonable and prudent operator. Borrower shall not have the right to -4- propose a Supplemental AFE with respect to Overrun Expenses incurred in connection with any Scheduled Capital Operation if Borrower's share of the initial AFE submitted to the working interest owners prior to the commencement of such Scheduled Capital Operation was more than 125% of the Schedule I amount for such operation and such initial AFE was not submitted to Lender prior to the commencement of such operation pursuant to the terms of Section 2.02(b). 12. Section 2.20 of the Agreement is hereby modified in its entirety to read as follows: Section 2.20 MANDATORY CAPITAL EXPENSES. From and after the Third Amendment Date and subject to the terms of this Section 2.20, Borrower shall maintain the leases described on Exhibit S attached hereto in full force and effect. If Borrower determines at any time that in order to maintain any lease described on Exhibit S it anticipates incurring expenses in excess of 125% of the amount set forth on Exhibit S as the projected cost of extending or renewing such lease for the time period specified on Exhibit S, then Borrower shall have the right to submit a request for approval (a "Lease Extension AFE") to Lender setting forth the amount of such excess. Borrower's Lease Extension AFE shall include information relating to the consideration being requested by the lessor and such other information as Lender may reasonably request. Lender shall respond to any such request within the time period provided for in Section 2.03(c) with respect to AFEs. If Lender consents to Borrower's Lease Extension AFE, then Exhibit S shall be deemed modified to increase the applicable amount set forth on Exhibit S by the excess amount approved by Lender. If Lender elects not to consent to Borrower's request or is deemed to have elected not to consent to such request, Borrower shall have the right to either (i) allow the lease in question to terminate or (ii) make the payments provided for in its request. If Borrower elects the option set forth in either clause (i) or clause (ii) above, then Borrower's obligation with respect to any Scheduled Capital Operations attributable to the lease in question shall terminate and Exhibit J attached hereto shall be revised as provided for in Section 2.17. If Borrower elects to extend the lease in question as provided for in clause (ii), then provided Borrower pays to the lessor of such lease an amount equal to or in excess of the amount set forth in the Lease Extension AFE, Lender shall execute a Partial Release of Liens releasing the lease in question. Such Partial Release of Liens shall be delivered by Lender to Borrower within 10 Business Days after receiving evidence of Borrower's payment of the amounts required to effect the extension. 13. Section 4.01(g) of this Agreement is amended in its entirety to read as follows: (g) MONTHLY PAYMENT AMOUNT REPORT. As soon as available and in any event no later than the twentieth day of the second month following each month (unless such twentieth day is not a Business Day in which case then the first Business Day following the twentieth day), a statement of the calculation of the Monthly Payment Amount for such month in the form of Exhibit L, and a lease operating statement for each Mortgaged Property setting forth quantities or volume -5- of production, pricing and operating expenses, a capital expenditure summary setting forth capital expenditures for each Mortgaged Property, and such other information with respect thereto as the Lender may require. 14. Section 4.17 of this Agreement is amended in its entirety to read as follows: Section 4.17 CAPITAL EXPENDITURES. Subject to the terms of this Section 4.17 and to Lender's approval rights as set forth in Section 2.02 and 2.03(a), Borrower agrees to make the capital expenditures involved in and to drill, complete, and equip for production, or recomplete and rework, as the case may be, each of the wells and to conduct each of the other Scheduled Capital Operations and Prior Capital Operations described or referred to on Exhibit I hereto. Borrower shall commence each Scheduled Capital Operation at any time after the Third Amendment Date and no later than twelve (12) months after the last day of, the month specified on Exhibit I with respect to such Scheduled Capital Operation (such time period, with respect to a particular Scheduled Operation being herein referred to as the "Window Period") and shall thereafter conduct such operation as a reasonable and prudent operator. For purposes of all Scheduled Capital Operations providing for the drilling of a well, such operation shall be deemed to have commenced on the date the well is spudded. Notwithstanding the foregoing or any other provision within this Agreement to the contrary, Borrower shall not be required to commence a Scheduled Capital Operation with respect to which (i) Borrower submits an AFE pursuant to Section 2.02(b) and Lender does not consent thereto or is deemed to have elected not to consent thereto; (ii) Lender elects not to or is deemed to have elected not to consent to a Supplemental AFE with respect to such operation pursuant to Section 2.18; (iii) Borrower's obligations have terminated pursuant to Section 2.20; or (iv) Borrower provides evidence satisfactory to the Lender that such operation is not reasonably necessary and Lender has consented in writing to delay or elimination thereof. 15. Section 4.19 of the Agreement is hereby modified by deleting the reference to "Sections 2.08(c), (d) and (e)" and inserting therefor the following: "Section 2.08(c)". -6- 16. Section 5.13 of the Agreement is hereby amended by deleting the two references in such Section to "Sections 2.08(c) and (d)" and inserting therefor "Section 2.08(c)". 17. The Borrower represents and warrants to the Lender that as of the date of this Amendment: (a) Each of the representations and warranties contained in (i) Sections 3.01 through 3.04, 3.13 through 3.16, and 3.21 through 3.27 are true and correct in all material respects; (b) After giving effect to the amendments hereunder and the waiver provided in Section 5.7 of the Second Restructure Agreement, there exists no Default or Event of Default; and (c) the Agreements described in Sections 3.18(a) and 3.18(b) (other than the gas purchase agreement referenced in Section 3.18(a)) have not been modified, terminated, assigned or pledged by Borrower, are in full force and effect and Borrower, and to the best of Borrower's knowledge, no other party, is in default in the performance of its obligations thereunder. 18. Except as amended and modified hereby, the Agreement, including, without limitation, the terms and provisions of Section 6.03 thereof, shall remain in full force and effect and the Borrower and the Lender hereby ratify, adopt, and confirm the Agreement as hereby amended. The amendments to the Agreement effected under this Amendment shall be effective as of the date of this Amendment. The execution of this Amendment shall not waive, modify, release or limit any of Lender's existing rights, claims or remedies. -7- IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of the date first above written. BORROWER: FOREST OIL CORPORATION By: ----------------------------- Kenton M. Scroggs Vice President LENDER: JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP By: Enron Capital Management Limited Partnership, its general partner By: Enron Capital Corp., its general partner By: ----------------------------- Clifford P. Hickey Vice President -8- EX-4.14 4 EXHIBIT 4.14 EXHIBIT 4.14 FILED WYOMING Secretary of State AMENDMENT NO. 2 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING HYDROCARBONS), AND FIXTURE FILING THIS AMENDMENT NO. 2 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING HYDROCARBONS) AND FIXTURE FILING (this "AMENDMENT") is entered into as of August 31, 1995 at 9:00 a.m., Mountain Time (the "EFFECTIVE DATE") by and between FOREST OIL CORPORATION, a New York corporation with an address for notice hereunder of 1500 Colorado National Building, 950 17th Street, Denver, Colorado 80202 ("MORTGAGOR") to: 1. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), with an address at One Chase Manhattan Plaza, New York, New York 10081, as agent for each bank referred to below (in such capacity, the "AGENT") (the Agent, together with its successors in such capacity, is hereinafter referred to as the "SECURED PARTY"), as to any and all portions of the Collateral EXCEPT those portions of the Collateral which (i) are located in the State of Texas or in offshore waters adjacent to the State of Texas and subject to the laws of the State of Texas and (ii) constitute interests in or to real property under the law of the State of Texas (the "DT COLLATERAL"); and 2. Ian G.P. Schottlaender, with an address at One Chase Manhattan Plaza, New York, New York 10081, as trustee (successor to Bettylou J. Robert) (in such capacity, together with her successors and assigns in such capacity, the "TRUSTEE"), but only as to the DT Collateral. A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER OF SALE MAY ALLOW THE SECURED PARTY TO TAKE THE COLLATERAL AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS INSTRUMENT. R E C I T A L S A. Mortgagor, certain banks (collectively, the "EXISTING BANKS"), and the Agent are parties to a Credit Agreement dated as of December 1, 1993 (as heretofore modified and supplemented and in effect on the date hereof (the "ORIGINAL CREDIT AGREEMENT"). B. Mortgagor, certain banks (collectively, the "BANKS"), and the Agent have agreed to amend and restate the Original Credit Agreement pursuant to an Amended and Restated Credit Agreement dated as of August 31, 1995 (the Original Credit Agreement as so amended and restated and as the same may be further amended and restated and in effect from time to time, being referred to herein as the "CREDIT AGREEMENT") C. The Original Credit Agreement is secured by, among other things, that certain Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated as of December 1, 1993 from Mortgagor to Secured Party and Trustee (as heretofore modified and supplemented, the "DEED OF TRUST"). D. The Deed of Trust was duly recorded as set forth on Schedule 1 attached hereto. E. Mortgagor and Secured Party now desire to amend the Deed of Trust to provide for the continuation of the mortgage lien and security interest provided under the Deed of Trust by Mortgagor to the Secured Party, for the benefit of itself and the Banks. NOW, THEREFORE, in view of the foregoing, Mortgagor and Secured Party do hereby agree as follows: 1. All capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Deed of Trust. 2. All references in the Deed of Trust to "this Instrument", as defined in the opening paragraph of the Deed of Trust shall mean the Deed of Trust as amended hereby and as the same may from time to time be further amended or supplemented. 3. The Deed of Trust is hereby amended by deleting Recital 1 in its entirety and substituting the following therefor: "1. Pursuant to the terms of the Amended and Restated Credit Agreement dated as of August 31, 1995 among Mortgagor, certain banks (collectively, the "BANKS"), the Subsidiary Borrowers, the Subsidiary Guarantors and the Secured Party (as amended, supplemented and otherwise modified and in effect from time to time, the "CREDIT AGREEMENT"), the Banks have agreed to make loans from time to time under a revolving credit facility Mortgagor the aggregate principal or stated amount of which shall not exceed $50,000,000.00 at any one time (maturing July 1, 1998), 2 and issue or acquire participation interests in letters of credit for account of Mortgagor the aggregate amount of the liabilities of the Banks under which shall not exceed $10,000,000.00." 4. Mortgagor hereby confirms that pursuant to and subject to the terms of the Deed of Trust, it has heretofore absolutely and unconditionally granted, bargained, sold, assigned, transferred and conveyed the DT Collateral to the Trustee and granted to the Secured Party a security interest in those portions of the Collateral which (i) are located in the State of Texas or in offshore waters adjacent to the State of Texas and subject to the laws of the State of Texas and (ii) do not constitute DT Collateral. 5. Mortgagor hereby confirms that pursuant to and subject to the Deed of Trust, it has heretofore absolutely and unconditionally granted, bargained, sold, assigned, transferred, pledged, mortgaged, warranted and conveyed to the Secured Party and granted the Secured Party a security interest in all of the Collateral (except the DT Collateral), including, without limitation, all severed and extracted Hydrocarbons and other minerals produced from or attributable to the Mortgaged Property, including, without limitation, all of the proceeds thereof. 6. The parties hereto hereby acknowledge and agree that except as specifically amended, changed or modified hereby, the Deed of Trust shall remain in full force and effect in accordance with its terms. None of the rights, titles and interests existing and to exist under the Deed of Trust are hereby released, diminished or impaired, and Mortgagor hereby reaffirms all agreements and covenants and acknowledges and agrees that, except as previously disclosed by Mortgagor under the Deed of Trust (except to the extent same relate to Collateral that is no longer owned by Mortgagor and other than the representation and warranty set forth in the first sentence of Section 2.02(c) of the Deed of Trust) are true and correct in all material respects as of the date hereof. Mortgagor also represents and warrants to the Banks that the current net overproduced position of the Mortgagor with respect to Hydrocarbons produced from the Mortgaged Properties (expressed in volumetric terms) is not materially greater than the overproduced position of the Mortgagor with respect to the Mortgaged Properties as of December 1, 1993. 7. INSOFAR AS PERMITTED BY OTHERWISE APPLICABLE LAW, THIS AMENDMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW RULES). MORTGAGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF NEW YORK AND EACH OTHER STATE WHERE THE COLLATERAL IS LOCATED AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AMENDMENT, THE BASIC DOCUMENTS OR THE OBLIGATIONS IN THE CASE OF A 3 PROCEEDING IN ANY OF SUCH STATES, BY SERVING THE SECRETARY OF STATE OF SUCH STATE IN ACCORDANCE WITH ANY APPLICABLE PROVISIONS OF SUCH STATE'S LAW GOVERNING SERVICE OF PROCESS UPON FOREIGN CORPORATIONS OR ENTITIES. 8. This Amendment may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof. 4 EXECUTED as of the 31st day of August, 1995 (the "EFFECTIVE DATE"). MORTGAGOR: FOREST OIL CORPORATION By: /s/ Kenton M. Scroggs ------------------------------- Name: Kenton M. Scroggs Title: Vice President & Treasurer SECURED PARTY: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By: /s/ Ian G.P. Schottlaender ------------------------------- Name: Ian G.P. Schottlaender Title: Managing Director TRUSTEE: By: /s/ Ian G.P. Schottlaender ------------------------------- Name: Ian G.P. Schottlaender Title: Managing Director 5 ACKNOWLEDGEMENT STATE OF COLORADO ) : ss. COUNTY OF DENVER ) BE IT REMEMBERED that I, the undersigned Notary Public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, hereby certify that, on Sept. 7, 1995 there personally appeared before me, the following person, being the designated officer of the corporation set opposite his name, and such corporation being a party to the foregoing Amendment: Kenton M. Scroggs, the Vice President & Treasurer of Forest Oil Corporation, This Amendment was acknowledged before me on this 7th day of Sept., 1995 by Kenton M. Scroggs, of Forest Oil Corporation, a New York corporation, on behalf of said corporation. LOUISIANA Who being by me duly sworn, deposed and said that he is the designated officer of said corporation described in and which executed the foregoing Amendment, that he signed his name thereto by order of the Board of Directors of said corporation, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the free act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County of Denver, State of Colorado, this 7th day of Sept., 1995. /s/ Teresa J. Marano ---------------------------------------- Notary Public, State of Colorado (NOTARY SEAL) Notary's Printed Name: Teresa J. Marano My Commission expires: Aug. 11, 1996 ACKNOWLEDGEMENT STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) BE IT REMEMBERED that I, the undersigned Notary Public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, hereby certify that, on September 5, 1995 there personally appeared before me, the following person, being the designated officer of the national banking association set opposite his name, and such corporation being a party to the foregoing Amendment: Ian G.P. Schottlaender, a Managing Director of The Chase Manhattan Bank (National Association), This Amendment was acknowledged before me on this 5th day of September, 1995 by Ian G.P. Schottlaender, of The Chase Manhattan Bank (National Association), a national banking association, on behalf of said national banking association. LOUISIANA Who being by me duly sworn, deposed and said that he is the designated officer of said national banking association described in and which executed the foregoing Amendment, that he signed his name thereto by order of the Board of Directors of said national banking association, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the free act and deed of said national banking association. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County of New York, State of New York, this 5th day of September, 1995. /s/ Joyce I. Francis --------------------------------------- Notary Public, State of New York Notary's Printed Name: Joyce I. Francis My Commission expires: 12/27/96 JOYCE I. FRANCIS Notary Public, State of New York No. 01FR5037511 Qualified in New York County Certificate Filed in New York County Commission Expires December 27, 1996 ACKNOWLEDGEMENT STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) BE IT REMEMBERED that I, the undersigned Notary Public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, hereby certify that, on September 5, 1995 there personally appeared before me, the following person, being a party to the foregoing Amendment: This Amendment was acknowledged before me on this 5th day of September, 1995 by Ian G.P. Schottlaender. LOUISIANA Who being by me duly sworn, deposed and said that he is the Trustee described in the foregoing Amendment, that he signed his name thereto, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as him free act and deed. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County of New York, State of New York, this 5th day of September, 1995. /s/ JOYCE I. FRANCIS ---------------------------------------- Notary Public, State of New York Notary's Printed Name: Joyce I. Francis My Commission expires: 12/27/96 JOYCE I. FRANCIS Notary Public, State of New York No. 01FR5037511 Qualified in New York County Certificate Filed in New York County Commission Expires December 27, 1996 Schedule 1 SCHEDULE OF RECORDING INFORMATION FOREST OIL CORPORATION and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as Agent 1. Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property Including Hydrocarbons), and Fixture Filing executed by Forest Oil Corporation ("Forest") in favor of Bettylou J. Robert, as Trustee, for the benefit of The Chase Manhattan Bank (National Association), as Agent (all recording references are to the Real Property Records): RECORDED IN THE STATE OF TEXAS COUNTY DATE FILED RECORDING INFORMATION ------ ---------- --------------------- Arkansas 12/8/93 Recorded 12/10/93 as #192065 Brazoria 12/8/93 Recorded 12/8/93 as #93-044178 Calhoun 12/8/93 Recorded 12/8/93 in Volume 116, Page 73 Chambers 12/8/93 Recorded 12/10/93 in Volume 93-225, Page 522 Galveston 12/16/93 Recorded 12/16/93 as # 9353245 Hidalgo 12/8/93 Recorded 12/8/93 as # 357731 Jefferson 12/8/93 Recorded 12/8/93 as #93-41412 Loving 12/8/93 Recorded 12/8/93 in Volume 45, Page 688 Matagorda 12/8/93 Recorded 12/8/93 in Volume 366, Page 787 Pecos 12/8/93 Recorded 12/8/93 in Volume 272, Page 25 Reeves 12/8/93 Recorded 12/8/93 in Volume 533, Page 315 Ward 12/8/93 Recorded 12/9/93 in Volume 175, Page 524 RECORDED IN THE STATE OF OKLAHOMA COUNTY DATE FILED RECORDING INFORMATION ------ ---------- --------------------- Caddo 12/8/93 Recorded 12/8/93 as No. 93 9150 Oklahoma 12/8/93 Recorded 12/8/93 as No. 03908 Washita 12/8/93 Recorded 12/8/93 as E-1333 RECORDED IN THE STATE OF WYOMING COUNTY DATE FILED RECORDING INFORMATION ------ ---------- --------------------- Natrona 12/8/93 Recorded 12/8/93 as Instrument #535014 RECORDED IN THE STATE OF LOUISIANA A. PARISH DATE FILED RECORDING INFORMATION ------ ---------- --------------------- Iberia 12/7/93 Entry No. 93-8912 MOB A-633, folio _____ Vermilion 12/7/93 Entry No. 9311419 MOB _____, folio _____ St. Mary 12/7/93 Entry No. 206,342 MOB 677, folio 650 Cameron 12/7/93 Entry No. 233834 MOB 197, folio _____ Plaquemines 12/7/93 MOB 231, folio 1 LaFourche 12/7/93 Entry No. 759883 MOB 657, folio _____ Terrebonne 12/7/93 Entry No. 927906 MOB 959, folio _____ 2 Jefferson 12/8/93 Entry No. 9368844 MOB 3629, folio 248 B. Minerals Management Service Gulf of Mexico Region December 7, 1993 Lease Files: OCS-G 0900, OCS-G 0986, OCS-G 0987, OCS-G 0991, OCS-G 0992, OCS-G 0993, OCS-G 0994, OCS-G 0995, OCS-G 0996, OCS-G -997, OCS-G 1216, OCS-G 1217, OCS-G 1979, OCS-G 1980, OCS-G 1981, OCS-G 1982, OCS-G 5517, OCS-G 5625, OCS-G 7793, OCS-G 8434, OCS-G 8457, OCS-G 9627, OCS-G 9651, OCS-G 10742, OCS-G 10785 2. Financing Statement executed by Forest in connection with item # 1 above and filed as follows: LOCATION DATE FILED FILING INFORMATION -------- ---------- ------------------ Secretary of 12/8/93 #230027 State of Texas 3 EX-4.16 5 EXHIBIT 4.16 EXHIBIT 4.16 AMENDMENT NO. 1 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING HYDROCARBONS), AND FIXTURE FILING THIS AMENDMENT NO. 1 TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING HYDROCARBONS) AND FIXTURE FILING (this "AMENDMENT") is entered into as of August 31, 1995 at 9:00 a.m., Mountain Time (the "EFFECTIVE DATE") by and between FOREST OIL CORPORATION, a New York corporation with an address for notice hereunder of 1500 Colorado National Building, 950 17th Street, Denver, Colorado 80202 ("MORTGAGOR") to: 1. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), with an address at One Chase Manhattan Plaza, New York, New York 10081, as agent for each bank referred to below (in such capacity, the "AGENT") (the Agent, together with its successors in such capacity, is hereinafter referred to as the "SECURED PARTY"), as to any and all portions of the Collateral EXCEPT those portions of the Collateral which (i) are located in the State of Texas or in offshore waters adjacent to the State of Texas and subject to the laws of the State of Texas and (ii) constitute interests in or to real property under the law of the State of Texas (the "DT COLLATERAL"); and 2. Richard F. Betz, with an address at One Chase Manhattan Plaza, New York, New York 10081, as trustee (successor to Bettylou J. Robert) (in such capacity, together with her successors and assigns in such capacity, the "TRUSTEE"), but only as to the DT Collateral. A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER OF SALE MAY ALLOW THE SECURED PARTY TO TAKE THE COLLATERAL AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS INSTRUMENT. R E C I T A L S A. Mortgagor, certain banks (collectively, the "EXISTING BANKS"), and the Agent are parties to a Credit Agreement dated as of December 1, 1993 (as heretofore modified and supplemented and in effect on the date hereof (the "ORIGINAL CREDIT AGREEMENT"). B. Mortgagor, certain banks (collectively, the "BANKS"), and the Agent have agreed to amend and restate the Original Credit Agreement pursuant to an Amended and Restated Credit Agreement dated as of August 31, 1995 (the Original Credit Agreement as so amended and restated and as the same may be further amended and restated and in effect from time to time, being referred to herein as the "CREDIT AGREEMENT") C. The Original Credit Agreement is secured by, among other things, that certain Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated as of June 3, 1994 from Mortgagor to Secured Party and Trustee (as heretofore modified and supplemented, the "DEED OF TRUST"). D. The Deed of Trust was duly recorded as set forth on Schedule 1 attached hereto. E. Mortgagor and Secured Party now desire to amend the Deed of Trust to provide for the continuation of the mortgage lien and security interest provided under the Deed of Trust by Mortgagor to the Secured Party, for the benefit of itself and the Banks. NOW, THEREFORE, in view of the foregoing, Mortgagor and Secured Party do hereby agree as follows: 1. All capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Deed of Trust. 2. All references in the Deed of Trust to "this Instrument", as defined in the opening paragraph of the Deed of Trust shall mean the Deed of Trust as amended hereby and as the same may from time to time be further amended or supplemented. 3. The Deed of Trust is hereby amended by deleting Recital 1 in its entirety and substituting the following therefor: "1. Pursuant to the terms of the Amended and Restated Credit Agreement dated as of August 31, 1995 among Mortgagor, certain banks (collectively, the "BANKS"), the Subsidiary Borrowers, the Subsidiary Guarantors and the Secured Party (as amended, supplemented and otherwise modified and in effect from time to time, the "CREDIT AGREEMENT"), the Banks have agreed to make loans from time to time under a revolving credit facility Mortgagor the aggregate principal or stated amount of which shall not exceed $50,000,000.00 at any one time (maturing July 1, 1998), 2 and issue or acquire participation interests in letters of credit for account of Mortgagor the aggregate amount of the liabilities of the Banks under which shall not exceed $10,000,000.00." 4. Mortgagor hereby confirms that pursuant to and subject to the terms of the Deed of Trust, it has heretofore absolutely and unconditionally granted, bargained, sold, assigned, transferred and conveyed the DT Collateral to the Trustee and granted to the Secured Party a security interest in those portions of the Collateral which (i) are located in the State of Texas or in offshore waters adjacent to the State of Texas and subject to the laws of the State of Texas and (ii) do not constitute DT Collateral. 5. Mortgagor hereby confirms that pursuant to and subject to the Deed of Trust, it has heretofore absolutely and unconditionally granted, bargained, sold, assigned, transferred, pledged, mortgaged, warranted and conveyed to the Secured Party and granted the Secured Party a security interest in all of the Collateral (except the DT Collateral), including, without limitation, all severed and extracted Hydrocarbons and other minerals produced from or attributable to the Mortgaged Property, including, without limitation, all of the proceeds thereof. 6. The parties hereto hereby acknowledge and agree that except as specifically amended, changed or modified hereby, the Deed of Trust shall remain in full force and effect in accordance with its terms. None of the rights, titles and interests existing and to exist under the Deed of Trust are hereby released, diminished or impaired, and Mortgagor hereby reaffirms all agreements and covenants and acknowledges and agrees that, except as previously disclosed by Mortgagor under the Deed of Trust (except to the extent same relate to Collateral that is no longer owned by Mortgagor and other than the representation and warranty set forth in the first sentence of Section 2.02(c) of the Deed of Trust) are true and correct in all material respects as of the date hereof. Mortgagor also represents and warrants to the Banks that the current net overproduced position of the Mortgagor with respect to Hydrocarbons produced from the Mortgaged Properties (expressed in volumetric terms) is not materially greater than the overproduced position of the Mortgagor with respect to the Mortgaged Properties as of December 1, 1993. 7. INSOFAR AS PERMITTED BY OTHERWISE APPLICABLE LAW, THIS AMENDMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW RULES). MORTGAGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF NEW YORK AND EACH OTHER STATE WHERE THE COLLATERAL IS LOCATED AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AMENDMENT, THE BASIC DOCUMENTS OR THE OBLIGATIONS IN THE CASE OF A 3 PROCEEDING IN ANY OF SUCH STATES, BY SERVING THE SECRETARY OF STATE OF SUCH STATE IN ACCORDANCE WITH ANY APPLICABLE PROVISIONS OF SUCH STATE'S LAW GOVERNING SERVICE OF PROCESS UPON FOREIGN CORPORATIONS OR ENTITIES. 8. This Amendment may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof. 4 IN WITNESS WHEREOF, Mortgagor has, on the date set forth in the acknowledgement hereto but effective as of the date first above written, caused this Amendment to be duly executed before me, the undersigned Notary Public, in and for the County of Denver, State of Colorado, in the presence of the competent witnesses, after due reading of the whole. MORTGAGOR: FOREST OIL CORPORATION By: /s/ Kenton M. Scroggs -------------------------- Name: Kenton M. Scroggs Title: Vice President & Treasurer WITNESSES: /s/ XXXXXXXXXXXXXXXXXXX - ------------------------- /s/ Marti J. Valentine - ------------------------- Teresa J. Marano ___________________________ (NOTARY Notary Public SEAL) (Notary Stamp) 5 IN WITNESS WHEREOF, Secured Party and Trustee have, on the date set forth in the acknowledgement hereto but effective as of the date first above written, caused this Amendment to be duly executed before me, the undersigned Notary Public, in and for the County of New York, State of New York, in the presence of the competent witnesses, after due reading of the whole. SECURED PARTY: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By: /s/ Richard F. Betz ------------------------ Name: Richard F. Betz Title: Vice President TRUSTEE: By: /s/ Richard F. Betz ----------------------- Name: Richard F. Betz Title: Vice President WITNESSES: /s/ XXXXXXXXXXXXXXXXXX ________________________ /s/ XXXXXXXXXXXXXXXXXXX ________________________ /s/ Joyce I. Francis ___________________________ Notary Public JOYCE I. FRANCIS Notary Public, State of New York No. 01FR5037511 Qualified in New York County Certificate Filed in New York County Commission Expires December 27, 1996 6 ACKNOWLEDGEMENT STATE OF COLORADO ) : ss. COUNTY OF DENVER ) ------ BE IT REMEMBERED that I, the undersigned Notary Public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, hereby certify that, on Sept. 13, 1995 there personally appeared before me, the following person, being the designated officer of the corporation set opposite his name, and such corporation being a party to the foregoing Amendment: Kenton M. Scroggs, the Vice President/Treasurer of Forest Oil Corporation, This Amendment was acknowledged before me on this 13th day of Sept., 1995 by Kenton M. Scroggs, of Forest Oil Corporation, a New York corporation, on behalf of said corporation. LOUISIANA Who being by me duly sworn, deposed and said that he is the designated officer of said corporation described in and which executed the foregoing Amendment, that he signed his name thereto by order of the Board of Directors of said corporation, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the free act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County of Denver, State of Colorado, this 13th day of Sept., 1995. /s/ Teresa J. Marano ---------------------------------------- Notary Public, State of Colorado (NOTARY SEAL) Notary's Printed Name: Teresa J. Marano My Commission expires: August 11, 1996 ACKNOWLEDGEMENT STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) BE IT REMEMBERED that I, the undersigned Notary Public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, hereby certify that, on September 14, 1995 there personally appeared before me, the following person, being the designated officer of the national banking association set opposite his name, and such corporation being a party to the foregoing Amendment: Richard F. Betz, a Vice President of The Chase Manhattan Bank (National Association), This Amendment was acknowledged before me on this 14th day of September, 1995 by Richard F. Betz, of The Chase Manhattan Bank (National Association), a national banking association, on behalf of said national banking association. LOUISIANA Who being by me duly sworn, deposed and said that he is the designated officer of said national banking association described in and which executed the foregoing Amendment, that he signed his name thereto by order of the Board of Directors of said national banking association, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the free act and deed of said national banking association. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County of New York, State of New York, this 14th day of September, 1995. /s/ Joyce I. Francis ---------------------------------------- Notary Public, State of New York Notary's Printed Name: Joyce I. Francis My Commission expires: 12/27/96 JOYCE I. FRANCIS Notary Public, State of New York No. 01FR5037511 Qualified in New York County Certificate Filed in New York County Commission Expires December 27, 1996 ACKNOWLEDGEMENT STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) BE IT REMEMBERED that I, the undersigned Notary Public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, hereby certify that, on September 14, 1995 there personally appeared before me, the following person, being a party to the foregoing Amendment: This Amendment was acknowledged before me on this 14th day of September, 1995 by Richard F. Betz. LOUISIANA Who being by me duly sworn, deposed and said that he is the Trustee described in the foregoing Amendment, that he signed his name thereto, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as him free act and deed. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County of New York, State of New York, this 14th day of September, 1995. /s/ Joyce I. Francis ---------------------------------------- Notary Public, State of New York Notary's Printed Name: Joyce I. Francis My Commission expires: 12/27/96 JOYCE I. FRANCIS Notary Public, State of New York No. 01FR5037511 Qualified in New York County Certificate Filed in New York County Commission Expires December 27, 1996 EX-10.12 6 EXHIBIT 10.12 EXHIBIT 10.12 SHAREHOLDERS AGREEMENT THIS SHAREHOLDERS AGREEMENT (the "Agreement") dated as of January 24, 1996 is between FOREST OIL CORPORATION, a New York corporation (the "Company"), and JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a Delaware limited partnership ("JEDI"). RECITALS A. The parties have entered into the Second Restructure Agreement (the "Second Restructure Agreement") dated as of December 29, 1995. B. Pursuant to the Second Restructure Agreement, JEDI has acquired 1,680,000 (the "JEDI Shares") of the Company's common stock, par value $.10 per share, together with the associated Rights (as defined in the Second Restructure Agreement) (the "Common Stock"). AGREEMENT The parties agree as follows: ARTICLE I DEFINITIONS The following terms have the following meanings: "Action" against a person means an action, suit, investigation, complaint or other proceeding, whether civil or criminal, in law or equity or before any arbitrator or Governmental Body, pending against or affecting the person or its property. "Affiliate" of a person means any other person (i) that directly or indirectly controls, is controlled by or is under common control with, the person or any of its Subsidiaries, (ii) that directly or indirectly beneficially owns or holds 5% or more of any class of voting stock of the person or any of its Subsidiaries or (iii) 5% or more of the voting stock of which is directly or indirectly beneficially owned or held by the person or any of its Subsidiaries. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise; PROVIDED that in relation to JEDI, "Affiliate" shall not include (i) any Affiliate of Enron Corp. that is not wholly owned, directly or indirectly, by Enron Corp., unless such Affiliate (a) beneficially owns any of the JEDI Shares or (b) is a member of a Group in which any person that beneficially owns any of the JEDI Shares is a member or (ii) the California Public Employees Retirement System. "Anschutz" means The Anschutz Corporation, a Kansas corporation. "Anschutz Shareholders Agreement" means the Shareholders Agreement entered into between the Company and Anschutz dated May 17, 1995. "beneficial ownership" has the meaning assigned to that term under Section 13(d) of the Exchange Act, unless otherwise specified herein. "Board of Directors" means the board of directors of the Company, from time to time. "Business Combination Transaction" means a merger, consolidation or similar transaction and each transaction that constitutes a "Change of Control" within the meaning of the Indenture dated as of September 8, 1993 between the Company and Shawmut Bank Connecticut, N.A. (giving effect to other terms and provisions of such indenture that are directly or indirectly incorporated or referenced by the definition therein of "Change of Control"). "Common Stock" has the meaning ascribed to it in Paragraph B of the Recitals hereof. "Equity Securities" of a person means the capital stock of such person and all other securities convertible into or exchangeable or exercisable for any shares of its capital stock, all rights to subscribe for or to purchase, all options for the purchase of, and all calls, commitments, or claims of any character relating to any shares of its capital stock and any securities convertible into or exchangeable or exercisable for any of the foregoing. "Excess JEDI Shares" means, at any time of determination and with respect to the matter subject to the vote or consent for which the Excess JEDI Shares are then being determined, -2- (i) the Equity Securities of the Company owned by any of JEDI and its Affiliates and the Groups in which any of them may be members that may then be voted or with respect to which consent may then be given, in each case with respect to such matter less (ii) the Non-Restricted Shares. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the related rules and regulations. "Governmental Body" means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state, county or local, domestic or foreign. "Group" has the meaning given such term in Section 13(d)(3) of the Exchange Act. "Independent Director" means any director who is not and has not been during the preceding two years an officer or employee of the Company or a director, officer or employee of a beneficial owner of 5% or more of the shares of Common Stock then issued and outstanding or of any Affiliate of such beneficial owner. "JEDI Registration Rights Agreement" means the Registration Rights Agreement dated July 27, 1995 between JEDI and the Company, as amended the date hereof. "JEDI Designee" shall have the meaning ascribed to it in Section 2.1(a). "JEDI Shares" has the meaning set forth in Paragraph B of the Recitals hereof. "Material Adverse Change" means any of (i) the average price for a share of Common Stock over a period of thirty trading days being less than or equal to $1.75, such number being subject to adjustment for any stock or other non-cash dividends, split-ups, mergers, recapitalizations, combinations, subdivisions, conversions, exchanges of shares or the like; or (ii) (a) any downgrading by any "nationally recognized statistical rating organization" (as that term is defined by the SEC for purposes of Rule 436(g)(2) under the Securities Act of 1933, as amended) in the rating accorded to any debt security of the Company by two or more ratings (including the relative standings within a major rating category) (x) below the rating existing as of the date hereof or (y) if not issued as of the date hereof, below the rating accorded thereto at the time of its initial issuance, or (b) any such downgrading which results in any debt security being accorded a rating of CCC or below by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or a rating of Caa or below by Moody's Investors Service, Inc. or their respective equivalents by any other such nationally recognized statistical rating organization. -3- "Non-Restricted Shares" means those shares of Common Stock, calculated by multiplying (i) the number of Equity Securities of the Company owned by any of JEDI and its Affiliates and the Groups in which any of them may be members that may then be voted or with respect to which consent may then be given by (ii) the quotient of (x) the number of Effective Equity Securities (as defined in the Anschutz Shareholders Agreement) less the number of Excess Purchaser Securities (as defined in the Anschutz Shareholders Agreement) divided by (y) the sum of the number of Effective Equity Securities and the shares of Common Stock issuable to Anschutz or its Affiliates or Groups upon conversion of the shares of Second Series Convertible Preferred Stock owned by Anschutz; PROVIDED, HOWEVER, that if the Excess Purchaser Securities is equal to zero, the Effective Equity Securities shall be deemed to include such number of shares of Common Stock issuable upon conversion of the shares of Second Series Convertible Preferred Stock owned by Anschutz or its Affiliates or Groups, which when added to the Effective Equity Securities would result in Anschutz and its Affiliates and Groups having voting power at the time of determination equal to 19.99% of the aggregate voting power of all Equity Securities of the Company then issued and outstanding. "Permitted Transfer Date" means the earlier to occur of (i) July 27, 1998 or (ii) the date on which Anschutz and its Affiliates or Groups shall have sold 50% or more of the shares of Common Stock beneficially owned by Anschutz and its Affiliates or Groups, which figure shall include shares of Common Stock issuable pursuant to the Second Series Convertible Preferred Stock, the JEDI/Anschutz Option and the Tranche A Warrants (as each such term is defined in the Second Restructure Agreement), held by Anschutz and its Affiliates or Groups on the date hereof, but excluding any shares of Common Stock issuable pursuant to the JEDI/Anschutz Option or the Tranche A Warrants if such option or warrants expires or is canceled or terminated during the period between the date hereof and July 27, 1998. "Related Transaction" means, with respect to any acquisition or disposition, or deemed acquisition or disposition, of any securities, a transaction that (i) has been disclosed in a document filed with the SEC with respect to the Company (that is then available for inspection at the offices of the SEC) or has been otherwise publicly announced and (ii) by its terms is effective upon, or immediately before or after giving effect to, the occurrence of such acquisition or disposition or deemed acquisition or disposition. "Rights Agreement" has the meaning ascribed to it in the Second Restructure Agreement. "SEC" means the United States Securities and Exchange Commission. "Second Restructure Agreement" has the meaning set forth in Paragraph A of the Recitals hereof. -4- "Section 16(b) Liability" means liability under Section 16(b) of the Exchange Act with respect to or as a consequence, directly or indirectly, of JEDI's or JEDI's Affiliate's acquisition (or deemed acquisition) or disposition (or deemed disposition) of "beneficial ownership" of, or a "pecuniary interest" or "indirect pecuniary interest" in, any of the JEDI Shares that shall have been issued or otherwise created, acquired (or deemed to have been acquired) or disposed of (or deemed to have been disposed of) by or pursuant to the Second Restructure Agreement. "Section 16(b) Matter" means each matter or series of matters (including, without limitation, a proposed transaction or series of transactions involving any stock or other non-cash dividend, split-up, reverse split-up, reclassification, recapitalization, reorganization, combination, subdivision, conversion, exchange of shares or Business Combination Transaction) which, directly or indirectly, as a result of the taking of action with respect thereto by the Company, its Board of Directors or shareholders or any Governmental Body having jurisdiction thereover, or the conclusion of any such matter will or may, directly or indirectly, whether taken alone or together with other facts or events, result in Section 16(b) Liability; PROVIDED, HOWEVER, that a Section 16(b) Matter shall not include any of the foregoing matters that will or may, directly or indirectly, result in Section 16(b) Liability with respect to or as a consequence of the transfer by JEDI or any of its Affiliates of any JEDI Shares in violation of the provisions of Section 3.2 or in transfers that would violate the provisions of Section 3.2 but for clauses (a), (d) and (e) thereof (collectively, "Excluded Transfers"). "Significant Transactions" means any one or more of the following: (i) the approval of the annual budget of the Company and any amendments thereto; (ii) the incurrence of any indebtedness (excluding the indebtedness represented by the Loan Agreement (as defined in the Second Restructure Agreement)) by the Company or any Subsidiary in an amount in excess of $20,000,000 in the aggregate, in a single transaction or series of related transactions, or any amendment to any material term of any agreement representing such indebtedness; (iii) the issuance, redemption or repurchase of 20% of the Equity Securities of the Company then outstanding, in one transaction or a series of transactions, whether or not pursuant to a recapitalization, reorganization, merger or consolidation of the Company; (iv) the sale, lease, exchange, transfer or other disposition, directly or indirectly, of the Company's or any Subsidiary's assets, in a single transaction or series of transactions, if such assets constitute or would constitute Substantial Assets; -5- the merger or consolidation of the Company or the adoption of a plan of liquidation or dissolution of the Company; any motion by the Company to commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or making a general assignment for the benefit of its creditors; and (v) any purchase, lease, exchange or other acquisition, directly or indirectly, of assets (including securities) by the Company or any Subsidiary, in a single transaction or series of related transactions, if such assets constitute or would constitute Substantial Assets, except purchases of equipment made in the ordinary course of business. "Subsidiary" of a person means (i) any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the person or (ii) a partnership in which the person or a Subsidiary of the person is, at the date of determination, a general or limited partner of such partnership, but only if the person or its Subsidiary is entitled to receive more than fifty percent of the assets of such partnership upon its dissolution. For purpose of the foregoing definition, an arrangement by which a person who owns an oil and gas interest is subject to a joint operating agreement, processing agreement, net profits interest, overriding royalty interest, farmout agreement, development agreement, area of mutual interest agreement, joint bidding agreement, unitization agreement, pooling arrangement or other similar agreement or arrangement shall not, by reason of such agreement or arrangement alone, be considered a Subsidiary. Unless the context otherwise requires, references to one or more Subsidiaries shall be references to Subsidiaries of the Company. "Substantial Assets" means assets having a fair market value that, or assets to be acquired for a consideration that, equals or exceeds 10% of the amount of the Consolidated Tangible Net Assets of the Company, as reflected on the most recent audited consolidated balance sheet of the Company existing at the time the Board makes the determination whether or not to approve, adopt or authorize the Significant Transaction involved. The term "Consolidated Tangible Net Assets" means, as of any date of determination, the amount of total assets on a consolidated balance sheet of the Company, determined in accordance with generally accepted accounting principles in -6- the United States as in effect from time to time consistently applied ("GAAP"), less the sum of the amounts of all intangible assets determined in accordance with GAAP. "Transaction Documents" has the meaning ascribed to it in the Second Restructure Agreement. ARTICLE II COMPANY COVENANTS Section 2.1 BOARD OF DIRECTORS. (a) At any time during the period of 90 days following the occurrence of a Material Adverse Change, JEDI may, in writing, request that the Company take all actions necessary (including, without limitation, the amendment of the bylaws of the Company and other applicable agreements, including the Anschutz Shareholders Agreement) to cause (1) the election as a director of the Company of a person selected by JEDI who may lawfully serve as a director and who shall be reasonably satisfactory to the Company (the "JEDI Designee"), (2) if the JEDI Designee shall cease to be a director for any reason, the filling of the vacancy resulting thereby with another JEDI Designee and (3) the calling of meetings of the Board of Directors upon the written request of the JEDI Designee. JEDI shall only be entitled to one JEDI Designee at any given time. The term of the JEDI Designee shall be until the second annual meeting of the Company's shareholders following the date of such Material Adverse Change (which term may be extended by JEDI for consecutive periods of one year each if a Material Adverse Change is in existence or continuing on the date of such second annual meeting). Upon termination of this Agreement, the Company may remove the JEDI Designee as a director. (b) At any time during which a JEDI Designee is not serving as a director of the Company, one individual who shall be designated from time to time in writing by JEDI to the Company and who shall be reasonably satisfactory to the Company (each such individual, during the period of such designation, a "JEDI Observer") shall be entitled to (1) receive prior notice (at the time given to members of the Board of Directors) of any meeting of the Board of Directors of the Company at which the authorization or approval of a Significant Transaction is proposed to be considered, (2) attend such portion of such meeting at which such Significant Transaction shall be so considered and (3) receive all written management reports relating to any Significant Transaction that shall be considered for authorization and approval at such meeting; PROVIDED, HOWEVER, that (x) JEDI and each JEDI Observer shall agree to keep strictly confidential all information relating to the Company, whether or not related to any Significant Transaction, that JEDI and such JEDI Observer shall obtain in connection with the foregoing and shall acknowledge his, her or its responsibilities -7- under securities laws and other laws in connection therewith, (y) JEDI and each such JEDI Observer shall not be entitled to receive any such notice, attend any such meeting (or portion thereof) or receive such written management reports if doing so could, in the judgment of the Company, violate any obligation or duty (whether contractual, statutory, fiduciary or otherwise) to which the Company or its officers, directors or employees were then subject (including, without limitation, obligations of confidentiality) or otherwise subject the Company or any of such persons to any liability or otherwise materially and adversely affect the interests of the Company and (z) JEDI and each such JEDI Observer shall not be entitled to attend such portion of such meeting if, in the judgment of the Chairman of the Board of Directors or a majority of the directors of the Company, such attendance would impair the due consideration by the Board of Directors of any matter. (c) If at any time when permitted to be appointed by JEDI pursuant to Section 2.1(a) the JEDI Designee shall not be elected to the Board of Directors by the shareholders of the Company (notwithstanding JEDI and its Affiliates having voted all shares of Common Stock owned by them in favor of such election) and the JEDI Designee shall not otherwise have been elected to the Board of Directors before a date that is 10 days after the date of such vote by the shareholders of the Company and, in any event, before any other material action or matter is considered and resolved by the Board of Directors, the provisions set forth in Article III shall thereafter be of no further force or effect. Section 2.2 EXCHANGE ACT SECTION 16(b). (a) Without the prior written consent of JEDI, for a period of six months from the date hereof, the Company shall take no action with respect to a Section 16(b) Matter that will or may, directly or indirectly, whether taken alone or together with other facts or events, result in JEDI or an Affiliate of JEDI having Section 16(b) Liability, PROVIDED that the Company may take any such action (1) with respect to a Section 16(b) Matter if there shall have been entered a final judgment to the effect that JEDI and its Affiliates do not and will not, directly or indirectly, have any Section 16(b) Liability, which judgment shall not be subject to appeal and is RES JUDICATA as to all matters that may give rise to Section 16(b) Liability in connection therewith, or (2) that may, directly or indirectly, result in any such liability with respect to or as a consequence of any Excluded Transfer. (b) The Company may seek to determine by an Action brought against JEDI in the United States District Court in the Southern District of New York, or other jurisdiction approved by the Company and JEDI, the respective rights and obligations of the parties under Section 2.2(a). Section 2.3 RESTRICTIONS ON JEDI. Without the prior written consent of JEDI, the Company shall not take or recommend to its shareholders any action which would impose -8- limitations on the legal rights to be enjoyed by JEDI or Affiliates of JEDI as a shareholder of the Company, other than those imposed by the express terms of this Agreement and the Transaction Documents including, without limitation, any action which would impose or increase restrictions on JEDI or Affiliates of JEDI (a) based upon the size of its security holdings, the business in which it is engaged or other considerations applicable to it and not to security holders generally, (b) by means of the issuance of or proposal to issue any other class of securities having voting power disproportionately greater than the equity investment in the Company represented by such securities or by charter or by-law amendment or (c) by reducing by any means (including, without limitation, by split-up, reverse split-up, reclassification, recapitalization, reorganization, combination, redemption, repurchase, or cancellation of securities or rights or by a Business Combination Transaction) the number of shares of Common Stock that are then issued and outstanding or are then subject to issuance upon the conversion of or exercise or exchange for any Equity Securities (including securities exchangeable or convertible into Equity Securities) of the Company then outstanding, excepting only (i) the reduction in such number of shares of Common Stock then issued and outstanding or subject to issuance resulting from the conversion of, exercise or exchange for, or cancellation, termination or modification of, Equity Securities of the Company and adjustments in the number of shares of Common Stock subject to issuance under the outstanding stock options issued by the Company to current and former employees of the Company and its Subsidiaries pursuant to which 3,059,000 shares of Common Stock are reserved for issuance or under other Equity Securities of the Company, or (ii) the reduction in the number of shares of Common Stock issued and outstanding as a result of the one-for-five reverse stock split contemplated by the Company to be approved by shareholders of the Company at a special meeting to be held January 5, 1996. Section 2.4 ACCESS TO INFORMATION. (a) The Company shall promptly furnish to JEDI all information that is required by GAAP to enable JEDI to account for its investment in the Company. To the extent reasonably requested by JEDI, the Company shall, and shall cause its employees, independent public accountants and other representatives to, provide information regarding the Company to, and otherwise cooperate with, JEDI and the representatives of JEDI so as to enable JEDI to prepare financial statements in accordance with GAAP. (b) Upon reasonable notice, JEDI may from time to time request that the Company (1) promptly disclose to JEDI the number of shares of Common Stock issued and outstanding on a date not more than five days prior to the date of such request and the number of shares of Common Stock subject to issuance upon the conversion of or exercise or exchange for the Equity Securities of the Company outstanding on such date and (2) give JEDI reasonable access to all books and records of the Company, including its minute books. -9- ARTICLE III JEDI RESTRICTIONS Section 3.1 VOTING RESTRICTIONS. (a) In connection with each vote or written consent of the holders of Common Stock, JEDI and its Affiliates shall vote, or consent with respect to, and cause each of its Affiliates and each Group of which it is a member, to vote or consent with respect to, all Excess JEDI Shares in respect of the matters subject to such vote or consent in the same proportion that all other Equity Securities of the Company (other than Equity Securities of the Company owned by JEDI, Anschutz, any of their respective Affiliates or any Group of which any such entity is a member) are voted or with respect to which such consent is given by holders of such Equity Securities with respect to such matter; PROVIDED, HOWEVER, that notwithstanding the foregoing, each of JEDI, its Affiliates and such Groups at all times may vote, or consent with respect to, Excess Purchaser Securities (1) for the election of the JEDI Designee, (2) as JEDI, such Affiliate or such Group shall determine with respect to each Section 16(b) Matter with respect to which (A) any of JEDI and its Affiliates and the respective Groups in which any of them may be members will have or may, directly or indirectly, have Section 16(b) Liability and (B) there shall not have been entered, as of the date such vote or consent shall be required to be given, a final judgment to the effect that JEDI and its Affiliates and the respective Groups in which any of them may be members do not and will not, directly or indirectly, have any Section 16(b) Liability, which judgment shall not be subject to appeal and is RES JUDICATA as to all matters that may give rise to Section 16(b) Liability in connection therewith, and (3) as otherwise approved by the Board of Directors of the Company, including a majority of Independent Directors, with respect to the matter subject to such vote or consent. (b) Notwithstanding anything contained in this Agreement, JEDI and its Affiliates and the respective Groups in which any of them may be members shall not be restricted in any manner whatsoever from voting, or consenting with respect to, Equity Securities of the Company owned by any of them that are not Excess JEDI Shares with respect to the matter subject to such vote or consent. (c) The provisions of Section 3.1(a) shall terminate contemporaneously with the termination of the restrictions contained in the Anschutz Shareholders Agreement on the voting by Anschutz of its Excess Purchaser Securities (as defined in the Anschutz Shareholders Agreement). Section 3.2 TRANSFER RESTRICTIONS. Unless otherwise permitted under the JEDI Registration Rights Agreement to include Registrable Shares (as defined in the JEDI Registration -10- Rights Agreement) in an offering of the Company's Equity Securities, prior to the Permitted Transfer Date JEDI shall not, and shall not cause or permit its Affiliates to, transfer the beneficial ownership of any JEDI Shares, except in one or more of the following transactions: (a) each transfer approved by the Board of Directors, including a majority of Independent Directors; and (b) each transfer in a Business Combination Transaction approved by the Board of Directors, including a majority of Independent Directors, or by two-thirds of the shares of Common Stock voted with respect to the transaction (in which the JEDI Shares are voted in accordance with the restrictions contained in Section 3.1, if applicable); and (c) each transfer pursuant to a tender or exchange offer for outstanding Common Stock by any person other than JEDI, any of its Affiliates or any Group including JEDI or any of its Affiliates (1) which the Board of Directors, including a majority of the Independent Directors, does not oppose, or (2) which the Board of Directors or a majority of Independent Directors opposes if after completion of such tender or exchange offer securities not tendered or exchanged may be treated less favorably than securities tendered; PROVIDED that no tender, indication or arrangement to tender Common Stock may be made in the case of the preceding clause (2) until forty-eight hours prior to the expiration of any time after which securities tendered may be treated less favorably than securities tendered prior thereto; and (d) each bona fide pledge of or the granting of a security interest in or any other mortgage, deed of trust, lien, hypothecation, charge, deposit, arrangement, preference, priority, or encumbrance ("Lien") relating to the JEDI Shares to secure a bona fide loan, guarantee or other financial support, the foreclosure of such pledge or security interest or any Lien that may be placed involuntarily upon any JEDI Shares, or the subsequent sale or other disposition of such JEDI Shares by such lender or its agent, provided that such lender is not a member of a Group with respect to Common Stock which Group includes JEDI or Affiliates of JEDI; and (e) each transfer of JEDI Shares to any Affiliate of JEDI, or a bona fide pledge of or the granting of a security interest in or any other Lien relating to such JEDI Shares to an Affiliate of JEDI, provided in each case that such Affiliate shall expressly assume by written instrument satisfactory to the Company and JEDI all of the obligations and restrictions contained in this Agreement to which such JEDI Shares shall be subject immediately before such transfer; and (f) a transfer upon the liquidation or dissolution of the Company or a transfer which is effected by operation of law. -11- ARTICLE IV TERMINATION Section 4.1 TERMINATION. This Agreement shall terminate on the earlier of (i) the date of termination of the Anschutz Shareholders Agreement and (ii) the date on which JEDI has beneficial ownership of JEDI Shares constituting less than 3% of the issued and outstanding shares of Common Stock. ARTICLE V MISCELLANEOUS Section 5.1 LEGENDS. Certificates representing the JEDI Shares shall bear the legends set forth in Exhibit C to the Second Restructure Agreement; PROVIDED, HOWEVER, that after (a) the transfer of any JEDI Shares in accordance with Section 3.2 or (b) the termination of this Agreement, the third paragraph of such legend shall be removed with respect to such JEDI Shares and all JEDI Shares, respectively. Section 5.2 NOTICES. All notices, requests and other communications given under this Agreement shall be in writing. Each communication shall be given to such party at its address stated on the signature pages of this Agreement or at any other address as such party may from time to time specify in writing to the other party. Each communication shall be effective (a) if given by telecopy, when the telecopy is transmitted to the proper address and the receipt of the transmission is confirmed, (b) if given by mail, 72 hours after the communication is deposited in the mails properly addressed with first class postage prepaid, or (c) if given by any other means, when delivered to the proper address and a written acknowledgment of delivery is received. Section 5.3 NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE. (a) No failure or delay by either party in exercising any right, power or privilege under this Agreement shall operate as a waiver of such right, power or privilege. A single or partial exercise of any right, power or privilege shall not preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of any rights or remedies available at law or in equity. (b) In view of the uniqueness of the agreements contained in this Agreement and the transactions contemplated hereby and the fact that each party would not have an -12- adequate remedy at law for money damages in the event that any obligation under this Agreement is not performed in accordance with its terms, each party therefore agrees that the other party to this Agreement shall be entitled to specific enforcement of the terms of this Agreement in addition to any other remedy to which either of them may be entitled, at law or in equity. Section 5.4 AMENDMENTS, ETC. No amendment, modification, termination, or waiver of any provision of this Agreement, and no consent to any departure by a party from any provision of this Agreement, shall be effective unless it shall be in writing and signed and delivered by the other party to this Agreement, and then it shall be effective only in the specific instance and for the specific purpose for which it is given. Section 5.5 SUCCESSORS AND ASSIGNS. (a) Except as expressly contemplated by this Agreement, no party may assign its rights or delegate its obligations under this Agreement without the prior written consent of the other party; PROVIDED that JEDI may assign its rights and delegate its responsibilities under this Agreement (other than those set forth in Article II) pursuant to Sections 3.2(d) or (e) without the consent of the Company; provided, further, that the consent of the Company shall not be unreasonably withheld with respect to an assignment and delegation of JEDI's rights and obligations under Article II if all of the JEDI Shares then owned are transferred pursuant to Section 3.2(e). Any assignment or delegation in contravention of this Section 5.5 shall be void AB INITIO and shall not relieve the delegating party of any of its obligations under this Agreement. (b) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective permitted successors and assigns. (c) Notwithstanding anything herein to the contrary, each transferee of JEDI Shares transferred in one or more of the transactions specified in any of clauses (a) through (f), inclusive, of Section 3.2 shall acquire such JEDI Shares free and clear of any restrictions or obligations contained in this Agreement. Section 5.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. All rights and obligations of the parties shall be in addition to and not in limitation of those provided by applicable law. Section 5.7 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if all signatures were on the same instrument. -13- Section 5.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of the provision in any other jurisdiction. Section 5.9 HEADINGS AND REFERENCES. Article and section headings in this Agreement are included for the convenience of reference only and do not constitute a part of this Agreement for any other purpose. References to parties and articles and sections in this Agreement are references to the parties to or the articles and sections of this Agreement, as the case may be, unless the context shall require otherwise. Section 5.10 ENTIRE AGREEMENT. Except for the Second Restructure Agreement and the agreements referred to therein, this Agreement embodies the entire agreement and understanding of the parties and supersedes all prior agreements or understandings with respect to the subject matters of this Agreement. Section 5.11 SURVIVAL. Except as otherwise specifically provided in this Agreement, each representation, warranty or covenant of each party contained in this Agreement shall remain in full force and effect, notwithstanding any investigation or notice to the contrary. Section 5.12 WAIVER OF JURY TRIAL. Each party waives any right to a trial by jury in any action to enforce or defend any right under this Agreement or any amendment, instrument, document or agreement delivered, or which in the future may be delivered, in connection with this Agreement and agrees that any action shall be tried before a court and not before a jury. Section 5.13 AFFILIATE. Nothing contained in this Agreement shall cause JEDI to be or be deemed an "affiliate"of any of the Company and its Subsidiaries within the meaning of Rule 13e-3 under the Exchange Act. [The remainder of this page is intentionally left blank.] -14- IN WITNESS WHEREOF, the parties hereto have executed and delivered this Shareholders Agreement as of the date first written above. FOREST OIL CORPORATION By: s/ Daniel L. McNamara --------------------- Name: Daniel L. McNamara Title: Secretary Address: 1600 Broadway Suite 2200 Denver, Colorado 80202 Telecopy: (303) 812-1510 JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP By: Enron Capital Management Limited Partnership, its General Partner By: Enron Capital Corp., its General Partner By: s/ Clifford P. Hickey --------------------- Clifford P. Hickey Vice President Address: 1200 17th Street, Suite 2750 Denver, Colorado 80202 Telecopy: (303) 534-2205 with a copy to: Joint Energy Development Investments Limited Partnership c/o Enron Capital Corp. Attention: Keith Power/Brenda McGee 1400 Smith Street, Room 2940 Houston, Texas 77002 Telecopy: (713) 646-4485 Enron Capital & Trade Resources Corp. Attention: Lance Schuler 1400 Smith Street, 38th Floor Houston, Texas 77002 Telecopy: (713) 646-3393 EX-10.13 7 EXHIBIT 10.13 EXHIBIT 10.13 JEDI/ANSCHUTZ OPTION THIS JEDI/ANSCHUTZ OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SAID ACT. THIS JEDI/ANSCHUTZ OPTION AND THE TRANCHE B WARRANT SHARES (AS DEFINED HEREIN) ARE ALSO SUBJECT TO THE RESTRICTIONS CONTAINED IN A REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 19, 1995 AND THE RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT DATED AS OF JULY 27, 1995, COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE SECRETARY OF FOREST OIL CORPORATION. JEDI/ANSCHUTZ OPTION dated as of July 27, 1995 by JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a Delaware limited partnership ("OPTIONOR"), in favor of THE ANSCHUTZ CORPORATION, a Kansas corporation, and its successors and assigns ("OPTIONEE"). Optionor agrees as follows: SECTION 1. DEFINITIONS. The following terms have the following meanings: "ACTION" against a person means an action, suit, investigation, complaint or other proceeding threatened or pending against or affecting the person or its property, whether civil or criminal, in law or in equity or before any arbitrator or Governmental Body. "APPROVAL" means an authorization, consent, approval or waiver of, clearance by, notice to or registration or filing with, or any other similar action by or with respect to a Governmental Body or any other person and the expiration or termination of all prescribed waiting, review or appeal periods with respect to any of the foregoing. "COMMON STOCK" means the common stock, $.10 par value per share, together with the associated Rights, of the Company. "COMPANY" means Forest Oil Corporation, a New York corporation, and its successors. "CONVEYANCE ELECTION DATE" means the date on which the Company elects to exercise the Conveyance Option (as defined in the Loan Agreement) which Conveyance Option has been approved in writing by the Optionee. "EXERCISE NOTICE" has the meaning stated in Section 2(b). "GOVERNMENTAL BODY" means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state, county or local, domestic or foreign. "HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the related rules, regulations and published interpretations thereunder. "LIEN" means any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, charge, deposit arrangement, preference, priority, security interest or encumbrance of any kind (including, but not limited to, any conditional sale agreement or other title retention agreement, any capitalized lease or financing lease having substantially the same economic effect as the foregoing and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). "LOAN AGREEMENT" means the Loan Agreement dated as of December 28, 1993 between the Company and the Optionor, as amended through the date hereof. "OPTION" has the meaning stated in Section 2(a). "OPTION PRICE" means a dollar amount per Tranche B Warrant Share equal to the amount set forth on Schedule A hereto with respect to the month in which the Exercise Notice is received by the Optionor, as such price per share may be adjusted pursuant to the terms of the Tranche B Warrant. "REGULATION" means (1) any applicable law, rule, regulation, judgment, decree, ruling, order, award, injunction, recommendation or other official action of any Governmental Body and (2) any official change in the interpretation or administration of any of the foregoing by the Governmental Body or by any other Governmental Body or other person responsible for the interpretation or administration of any of the foregoing. "RIGHTS" means the rights distributed or to be distributed to the holders of shares of Common Stock pursuant to the Rights Agreement dated as of October 14, 1993 between the Company and Securities Trust Corporation, as Rights Agent, as amended. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations thereunder. 2 "TERMINATION DATE" means the earlier of (1) the Conveyance Election Date and (2) July 27, 1998. "TRANCHE B WARRANT SHARES" means 11,250,000 shares of Common Stock that may be issued, sold and delivered by the Company upon exercise of the Tranche B Warrants (as such number of shares of Common Stock may be adjusted pursuant to the terms of the Tranche B Warrants) and the other shares of capital stock, securities, cash and property receivable upon exercise of the Tranche B Warrants. "TRANCHE B WARRANTS" means the warrants to purchase 11,250,000 Tranche B Warrant Shares from the Company at a purchase price of $2.00 per Tranche B Warrant Share (as such number of shares and price per share may be adjusted pursuant to the terms of the Tranche B Warrants). "TRANSFER" means the offer, transfer, sale, assignment, pledge, hypothecation or other disposition, whether directly or indirectly, of the subject of the transaction or any interest therein or to offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of the subject of the transaction, as the context requires. SECTION 2. TERM OF OPTION; EXERCISE OF OPTION; REDUCTION OF OPTION. (a) TERM OF OPTION. Subject to the conditions and on the terms of this JEDI/Anschutz Option, Optionee shall have the right (the "OPTION") until 5:00 P.M., Denver time, on the Termination Date, to purchase from Optionor any or all of the Tranche B Warrant Shares on exercise of the Option and the payment of the Option Price for the number of Tranche B Warrant Shares so purchased. The Option shall be void, have no value and be of no further effect with respect to any Exercise Notice delivered to Optionor after the Termination Date. (b) EXERCISE OF OPTION. The Option may be exercised in whole or in part at any time and from time to time by (1) delivery by Optionee to Optionor (no later than concurrently with delivery to the Company of the instruments and certificate required under Section 3.2(a) of the Tranche B Warrant) of the Anschutz Notice (as defined in the Loan Agreement) (the "EXERCISE NOTICE") stating the Optionee is exercising the Option in respect of the number of Tranche B Warrant Shares specified therein, (2) payment to Optionor of the Option Price with respect to such Tranche B Warrant Shares and (3) delivery to the Secretary of the Company of a duly completed copy of the Election to Purchase attached to the Tranche B Warrant and a certificate of the President or chief financial officer of Optionee to the effect that Optionee has exercised the Option with respect to a specified number of Tranche B Warrant Shares and has paid to the Optionor the aggregate Option Price with respect to such shares, as required by Section 3.2(a) of the Tranche B Warrants. Payment of the aggregate Option Price shall be made by wire transfer of immediately available funds in accordance with written wire instructions to be provided by Optionor. It is the intention of Optionor and Optionee that in all events the Optionee 3 shall be entitled to receive upon exercise of the Option only the capital stock, other securities, cash and other property receivable upon exercise of the Tranche B Warrants. Except as specifically set forth in the Tranche B Warrant, Optionor shall have no obligation to take any action upon exercise of the Option. (c) REDUCTION OF OPTION. The number of Tranche B Warrant Shares subject to the Option shall be reduced, effective after the issuance of the Tranche B Warrant Shares specified in the Exercise Notice, by the number of Tranche B Warrant Shares specified in the Exercise Notice. SECTION 3. REPRESENTATIONS AND WARRANTIES OF OPTIONOR. Optionor represents and warrants to Optionee as follows: (a) EXISTENCE AND POWER. Optionor (1) is a Delaware limited partnership duly formed, validly existing and in good standing under the laws of Delaware and (2) has all necessary partnership power and authority to execute and deliver the JEDI/Anschutz Option. (b) AUTHORIZATION; CONTRAVENTION. The execution and delivery of the JEDI/Anschutz Option by Optionor and, except as noted in Section 3(c), the performance of Optionor's obligations under the JEDI/Anschutz Option, have been duly authorized by all necessary partnership action and do not and will not contravene, violate, result in a breach of or constitute a default under, (1) the Optionor's agreement of limited partnership, (2) any Regulation of any Governmental Body or any decision, ruling, order or award of any arbitrator by which Optionor or any of its properties may be bound or affected, including, but not limited to, the Hart- Scott-Rodino Act, (3) any agreement, indenture or other instrument to which it is a party or by which Optionor or its properties may be bound or affected or (4) result in or require the creation or imposition of any Lien on any of the properties which it now owns or hereafter acquires. (c) APPROVALS. Except for Approvals, if any, that may be required under the Hart-Scott-Rodino Act or state securities laws upon exercise of the Option, all Approvals required to be obtained by Optionor have been obtained by Optionor for (1) the due execution and delivery by Optionor of the JEDI/Anschutz Option, and (2) the performance by Optionor of its obligations under the JEDI/Anschutz Option. (d) BINDING EFFECT. The JEDI/Anschutz Option, when executed and delivered by Optionor, is a legal, valid and binding obligation, enforceable against Optionor in accordance with its terms. (e) OWNERSHIP. Optionor owns all the Tranche B Warrants and as of the date of each Exercise Notice will own all the Tranche B Warrants other than Tranche B Warrants previously exercised, in each case free and clear of all Liens. 4 (f) CONTINUING REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by Optionor in the JEDI/Anschutz Option as of any date other than the date on which the Optionor first executes the JEDI/Anschutz Option shall be true and correct on and as of each date Tranche B Warrant Shares are transferred to Optionee pursuant to the JEDI/Anschutz Option. SECTION 4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF OPTIONEE. Upon acceptance hereof, Optionee represents and warrants to and covenants and agrees with Optionor as follows: (a) INVESTMENT INTENT. Optionee is acquiring the JEDI/Anschutz Option for investment and not with any view toward distribution of the Option or any portion thereof to any other person in violation of the Securities Act or any state securities law; Optionee will not transfer the Option or any interest therein except in compliance with the registration requirements under the Securities Act and applicable state securities laws or available exemptions therefrom; and before any transfer of the Option or any interest therein the Optionee shall deliver to the Optionor the legal opinion referred to in Section 7(a) hereof. (b) TRANSFER TAXES. Optionee shall pay any documentary stamp taxes or other taxes, if any, attributable to the initial issuance of Tranche B Warrant Shares pursuant to the exercise of the Option. (c) TRANSFEREE ASSUMPTION AGREEMENT. Upon receipt of the Transferee Assumption Agreement in the form of Annex 1 hereto duly executed and delivered to Optionee, Optionee shall, at the request of the person executing the Transferee Assumption Agreement deliver the JEDI/Anschutz Option to Optionor marked "cancelled" upon receipt of a replacement option identical in all respects to the JEDI/Anschutz Option except for the replacement of the name of the Optionor to the name of such transferee in the replacement option. (d) FURTHER AGREEMENTS OF OPTIONEE. Without the prior written approval of the Optionor, which approval may be granted or withheld in the discretion of the Optionor, the Optionee shall not (1) take any action (other than the exercise of the Option) that could in any manner whatsoever adversely affect the right of the Holder (as defined in the Tranche B Warrants) to exercise any of the Tranche B Warrants or restrict the Company from issuing to the Holder the securities or other property issuable to the Holder upon the exercise of the Tranche B Warrants or (2) take any action to amend, supplement, replace or otherwise modify the terms of the Tranche A Warrants to permit the exercise of the Tranche A Warrants on a date occurring after the Expiration Date (as defined in the Tranche A Warrant as in effect on even date herewith). 5 SECTION 5. COVENANTS OF OPTIONOR. (a) SURRENDER AND EXERCISE OF TRANCHE B WARRANTS. At all times before the Termination Date, (1) Optionor shall comply with the requirement to surrender Tranche B Warrants pursuant to Section 3.2(a) thereof and (2) Optionor shall not exercise any Tranche B Warrants except in accordance with the terms hereof. (b) TRANSFER OF TRANCHE B WARRANTS. Optionor shall not transfer any Tranche B Warrants (or any interest therein) or the Tranche B Loan (as defined in the Loan Agreement) to which the Tranche B Warrants are attached (or any interest therein) including, without limitation, in connection with the liquidation, dissolution or merger of Optionor, on or prior to the Termination Date except in connection with a permitted transfer of the Tranche B Warrants in accordance with the terms thereof as in effect on the date hereof and then only as and when the transferee thereof executes and delivers to Optionee the Transferee Assumption Agreement attached hereto as Annex 1. Upon transfer of any Tranche B Warrants in accordance with the provisions of this Section 5(b), Optionor shall be released from and shall have no further obligation under this JEDI/Anschutz Option with respect to the Tranche B Warrant Shares issuable upon exercise of the Tranche B Warrants so transferred. (c) FURTHER AGREEMENTS OF OPTIONOR. Without the prior written approval of Optionee, which approval may be granted or withheld at the discretion of the Optionee, Optionor shall not take any action (1) that could in any manner whatsoever adversely affect the right of the Holder (as defined in the Tranche A Warrants) to exercise any of the Tranche A Warrants, (2) on or prior to the Termination Date, that could in any manner whatsoever adversely affect the right of the Holder (as defined in the Tranche B Warrant) to exercise any of the Tranche B Warrants, (3) that would prohibit or otherwise restrict the Company from issuing the securities or other property issuable upon exercise of the Tranche A Warrants or, on or prior to the Termination Date, the Tranche B Warrants or (4) on or prior to the Termination Date waive, surrender or otherwise extinguish any of the Optionor's rights with respect to the Tranche B Warrants; PROVIDED, HOWEVER, that nothing contained in this Section 5(c) shall limit in any manner whatsoever the right of Optionor under the Loan Documents (as defined in the Loan Agreement) to exercise its remedies thereunder in accordance with the terms thereof. (d) COMPLIANCE WITH LAWS. Optionor shall comply in all respects with all Regulations of each Governmental Body and all decisions, rulings, orders and awards of each arbitrator applicable to it or its business, properties or operations, including, but not limited to, all of the provisions of the Hart-Scott-Rodino Act, in connection with the JEDI/Anschutz Option. (e) BEST EFFORTS. Optionor shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, and to assist and cooperate with Optionee in doing all things necessary, proper or advisable under applicable Regulations to 6 ensure that the sale of Tranche B Warrant Shares pursuant to the JEDI/Anschutz Option are concluded, without interference or delay, in the most expeditious manner practicable. (f) FURTHER ASSURANCES. Promptly upon request by Optionee, Optionor shall correct any defect or error that may be discovered in the JEDI/Anschutz Option or in the execution of the JEDI/Anschutz Option and execute, acknowledge, deliver, file, re-file, register and re-register, any and all such further acts, certificates, assurances and other instruments as Optionee may require from time to time in order (1) to carry out more effectively the purposes of the JEDI/Anschutz Option, (2) to enable Optionee to exercise and enforce its rights and remedies and collect any payments and proceeds under the JEDI/Anschutz Option and (3) to better transfer, preserve, protect and confirm to Optionee the rights granted or now or hereafter intended to be granted to Optionee under the JEDI/Anschutz Option or under each other instrument executed in connection with or pursuant to the JEDI/Anschutz Option. SECTION 6. TRANSFERABILITY OF JEDI/ANSCHUTZ OPTION. (a) TRANSFER. The JEDI/Anschutz Option shall be transferable in whole or in part. No such transfer shall occur without delivery to the Optionor of an opinion of that such transfer may be made without registration under the Securities Act and applicable state securities laws. (b) EXCHANGE. The JEDI/Anschutz Option may be exchanged at the election of Optionee for one or more JEDI/Anschutz Option(s) entitling Optionee(s) thereof to purchase a like aggregate number of Tranche B Warrant Shares as the JEDI/Anschutz Option surrendered then entitles such Optionee to purchase. Any Optionee desiring to exchange a JEDI/Anschutz Option shall make such request in writing delivered to the Secretary of Optionor, and shall surrender, duly endorsed or with separate assignment and stock powers duly endorsed, the JEDI/Anschutz Option to be so exchanged at the office of the Secretary of the Optionor. Thereupon, one or more new JEDI/Anschutz Option(s), as so requested, shall be delivered to the person entitled thereto. SECTION 7. POWER OF ATTORNEY. (a) Optionor hereby irrevocably appoints the Optionee (acting in its capacity as attorney-in-fact pursuant hereto, the "ATTORNEY-IN- FACT") as the true and lawful attorney-in-fact and agent of Optionor, with power of substitution and resubstitution, to act in the name, place and stead of Optionor solely with respect to the following: (1) to exercise the Tranche B Warrants on behalf of Optionor; and (2) to instruct the Company, on behalf of Optionor, to issue and deliver the Tranche B Warrant Shares acquired upon exercise of the Tranche B Warrant pursuant to Section 3.2(a) thereof to the Optionee or its assigns. 7 (b) Optionor hereby acknowledges and confirms that the Power of Attorney granted pursuant to this Section 7 is coupled with an interest and, therefore, shall be irrevocable and shall not be terminated by any act of Optionor or by operation of law, whether by the liquidation or dissolution of the Optionor or by the occurrence of any other event or events, and if, after the execution hereof, Optionor is liquidated or dissolved, or if any other such event or events shall occur before the completion of the transactions contemplated by this Section 7 and Section 3.2(a) of the Tranche B Warrant, the Attorney-in-Fact shall nevertheless be authorized and directed to complete all such transactions as if such liquidation or other event or events had not occurred and regardless of notice thereof. (c) The Power of Attorney granted under this Section 7 shall terminate at 5:00 P.M., Denver time, on the Termination Date. SECTION 8. MISCELLANEOUS PROVISIONS. (a) NOTICES. All notices, requests and other communications to Optionor or any Optionee under the JEDI/Anschutz Option shall be in writing. Communications may be made by telecopy or similar writing. Each communication to Optionor shall be given to the Optionor at its address stated on the signature page of the JEDI/Anschutz Option (or at any other address as Optionor may specify in writing to each Optionee at the time of such notice) for this purpose by notice to the Optionor. Each communication to the Optionee shall be given to Optionee at 2400 Anaconda Tower, 555 - 17th Street, Denver, Colorado 80202 (telecopy number: 303-298- 8881) or such address as communicated to Optionor in writing (or, in each case, at any other address as Optionee may specify to Optionor at the time of such notice). Each communication shall be effective (1) if given by telecopy, when the telecopy is transmitted to the proper address and the receipt of the transmission is confirmed, (2) if given by mail, 72 hours after the communication is deposited in the mails properly addressed with first class postage prepaid or (3) if given by any other means, when delivered to the proper address and a written acknowledgement of delivery is received. (b) NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE. (1) Prior to the Termination Date no failure or delay by Optionee in exercising any right, power or privilege under the JEDI/Anschutz Option shall operate as a waiver of the right, power or privilege. A single or partial exercise of any right, power or privilege shall not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege. The rights and remedies provided in the JEDI/Anschutz Option shall be cumulative and not exclusive of any rights or remedies provided by law. (2) In view of the uniqueness of the agreements contained in the JEDI/Anschutz Option and the transactions contemplated hereby and the fact that Optionee would not have an adequate remedy at law for money damages in the 8 event that any obligation under the JEDI/Anschutz Option is not performed in accordance with its terms, Optionor therefore agrees that Optionee shall be entitled to specific enforcement of the terms of the JEDI/Anschutz Option in addition to any other remedy to which any of them may be entitled, at law or in equity. (c) AMENDMENTS, ETC. No amendment, modification, termination, or waiver of any provision of the JEDI/Anschutz Option, and no consent to any departure by Optionor or Optionee from any provision of the JEDI/Anschutz Option, shall be effective unless it shall be in writing and signed and delivered by Optionor and such Optionee, and then it shall be effective only in the specific instance and for the specific purpose for which it is given. (d) SUCCESSORS AND ASSIGNS. (1) Optionee may assign any of its rights under the JEDI/Anschutz Option. Optionor may not assign any of its rights or delegate any of its obligations under the JEDI/Anschutz Option except pursuant to Section 5(b). Any assignment or delegation in contravention of this Section shall be void AB INITIO and shall not relieve the delegating party of any obligation under the JEDI/Anschutz Option. (2) The provisions of the JEDI/Anschutz Option shall be binding upon and inure to the benefit of Optionor and Optionee and their respective permitted successors and assigns. (e) GOVERNING LAW. The JEDI/Anschutz Option shall be governed by and construed in accordance with the internal laws of the State of New York. All rights and obligations of Optionor and Optionee shall be in addition to and not in limitation of those provided by applicable law. (f) SEVERABILITY OF PROVISIONS. Any provision of the JEDI/Anschutz Option that is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions of the JEDI/Anschutz Option or affecting the validity or enforceability of the provision in any other jurisdiction. (g) HEADINGS AND REFERENCES. Section headings in the JEDI/Anschutz Option are included for the convenience of reference only and do not constitute a part of the JEDI/Anschutz Option for any other purpose. References to sections in the JEDI/Anschutz Option are references to sections of the JEDI/Anschutz Option unless the context shall require otherwise. (h) ENTIRE AGREEMENT. The JEDI/Anschutz Option embodies the entire agreement and understanding of Optionor and Optionee and supersedes all prior 9 agreements or understandings with respect to the subject matters of the JEDI/Anschutz Option. (i) SURVIVAL. Except as otherwise specifically provided in the JEDI/Anschutz Option, each representation, warranty or covenant contained in the JEDI/Anschutz Option shall remain in full force and effect, notwithstanding any investigation or notice to the contrary or any waiver by any other party of a related condition precedent to the performance by the other party of an obligation under the JEDI/Anschutz Option. (j) NON-EXCLUSIVE JURISDICTION. Each of Optionor and Optionee, by acceptance hereof, (1) agrees that any legal action with respect to the JEDI/Anschutz Option or transactions contemplated by the JEDI/Anschutz Option may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, (2) accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of those courts and (3) irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any legal action in those jurisdictions. (k) WAIVER OF JURY TRIAL. Each of Optionor and Optionee, by acceptance hereof, waives any right to a trial by jury in any Action to enforce or defend any right under the JEDI/Anschutz Option or any amendment, instrument, document or agreement delivered, or which in the future may be delivered, in connection with the JEDI/Anschutz Option and agrees that any Action shall be tried before a court and not before a jury. 10 ANNEX 1 TO JEDI/ANSCHUTZ OPTION FORM OF TRANSFEREE ASSUMPTION AGREEMENT [Date] Name of Optionee Address of Optionee Re: JEDI/ANSCHUTZ OPTION Gentlemen: This letter is delivered to you pursuant to Section 5(b) of the JEDI/Anschutz Option dated July 27, 1995 (the "JEDI/ANSCHUTZ OPTION"). Concurrently with the execution and delivery of this letter, the undersigned has become the holder of Tranche B Warrants entitling the holder thereof to purchase up to Tranche B Warrant Shares (as each term is defined in the JEDI/Anschutz Option). The undersigned hereby agrees that for so long as it holds Tranche B Warrants it shall be deemed to be an Optionor under the terms of the JEDI/Anschutz Option and shall be bound by all of the terms and provisions of the JEDI/Anschutz Option including, without limitation, Section 7 (Power of Attorney). The undersigned hereby assumes all obligations of _________ under the JEDI/Anschutz Option with respect to the number of Tranche B Warrant Shares specified above. The undersigned further agrees that until the Termination Date (as defined in the JEDI/Anschutz Option) it shall not transfer (as defined in the JEDI/Anschutz Option) the Tranche B Warrants or any interest therein except in accordance with the provisions of the Tranche B Warrants and then only as and when the transferee executes and delivers to the Optionee the Transferee Assumption Agreement attached as Annex 1 to the JEDI/Anschutz Option. ---------------------------- (Name of Transferee) By: ------------------------ Name: Title: A-1 SCHEDULE A OPTION PRICE DURING MONTH FOLLOWING DATE OF JEDI/ANSCHUTZ OPTION AMOUNT -------------------- ------
0(1) $2.0000 1 $2.0278 2 $2.0559 3 $2.0845 4 $2.1134 5 $2.1428 6 $2.1726 7 $2.2027 8 $2.2333 9 $2.2643 10 $2.2958 11 $2.3277 12 $2.3600 13 $2.3928 14 $2.4260 15 $2.4597 16 $2.4939 17 $2.5285 18 $2.5636 19 $2.5992 20 $2.6353 21 $2.6719 22 $2.7090 23 $2.7467 24 $2.7848 25 $2.8235 26 $2.8627 27 $2.9024 28 $2.9428 29 $2.9836 30 $3.0251 31 $3.0671 32 $3.1000 33 $3.1000 34 $3.1000 35 $3.1000 36 $3.1000
(1) Month in which JEDI/Anschutz Option is issued. A-2 IN WITNESS WHEREOF, Optionor has executed the JEDI/Anschutz Option as of the date first written above in New York, New York. JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP By: Enron Capital Corp., its General Partner By: CLIFFORD HICKEY ---------------------- Title: Attorney-in-fact Address: 1400 Smith Street Houston, Texas 77002 Attention: Keith Power Telecopy: (713) 646-3602 with a copy to: Enron Capital & Trade Resources Corp. 1200 17th Street, Suite 2750 Denver, Colorado 80202 Attention: Mr. Clifford Hickey Telecopy: (303) 534-2205 S-1 EX-10.14 8 EXHIBIT 10.14 EXHIBIT 10.14 FOREST OIL CORPORATION 1600 Broadway, Suite 2200 Denver, Colorado 80202 January ___, 1996 The Anschutz Corporation 2400 Anaconda Tower 555 Seventeenth Street Denver, Colorado 80202 Re: JEDI/ANSCHUTZ OPTION Gentlemen: This letter is delivered to you pursuant to Section 5(b) of the JEDI/Anschutz Option dated July 27, 1995 (the "JEDI/ANSCHUTZ OPTION"). Concurrently with the execution and delivery of this letter, the undersigned has become the holder of Tranche B Warrants entitling the holder thereof to purchase up to 2,250,000 Tranche B Warrant Shares (as each term is defined in the JEDI/Anschutz Option). The undersigned hereby agrees that for so long as it holds Tranche B Warrants it shall be deemed to be the Optionor under the terms of the JEDI/Anschutz Option and shall be bound by all of the terms and provisions of the JEDI/Anschutz Option including, without limitation, Section 7 (Power of Attorney). The undersigned hereby assumes all obligations of Joint Energy Development Investments Limited Partnership under the JEDI/Anschutz Option with respect to the number of Tranche B Warrant Shares specified above. The undersigned further agrees that until the Termination Date (as defined in the JEDI/Anschutz Option) it shall not transfer (as defined in the JEDI/Anschutz Option) the Tranche B Warrants or any interest therein except in accordance with the provisions of the Tranche B Warrants and then only as and when the transferee executes and delivers to the Optionee the Transferee Assumption Agreement attached as Annex 1 to the JEDI/Anschutz Option. FOREST OIL CORPORATION By: _____________________________ Name: Daniel L. McNamara Title: Secretary ACKNOWLEDGED AND ACCEPTED as of the ___ day of January, 1996: THE ANSCHUTZ CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ EX-11 9 EXHIBIT 11 Exhibit 11 FOREST OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES CALCULATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Years Ended December 31, --------------------------------------- 1995 1994 1993 ---- ---- ---- (In Thousands Except Per Share Amounts) Primary earnings (loss) per share: Net earnings (loss) $(17,996) (81,843) (21,213) Less dividend requirements on: $.75 Convertible Preferred Stock (2,160) (2,161) (2,250) -------- ------- ------- Net earnings (loss) attributable to common stock for primary earnings (loss) per share calculation $(20,156) (84,004) (23,463) -------- ------- ------- -------- ------- ------- Weighted average number of common shares outstanding 7,360 5,619 4,399 -------- ------- ------- -------- ------- ------- Primary earnings (loss) per share of common stock $ (2.74) (14.95) (5.34) -------- ------- ------- -------- ------- ------- Fully diluted earnings (loss) per share: Net earnings (loss) attributable to common stock, as above $(20,156) (84,004) (23,463) Add: Dividend requirements on: $.75 Convertible Preferred Stock 2,160 2,161 2,250 Interest expense on 5-1/2% Convertible Subordinated Debentures -- -- 409 Expenses related to the 5-1/2% Convertible Subordinated Debentures -- -- 6 Less: Additional Federal income taxes -- -- (141) -------- ------- ------- Net earnings (loss) attributable to common stock for fully diluted earnings (loss) per share calculation $(17,996) (81,843) (20,939) -------- ------- ------- -------- ------- ------- Common shares applicable to fully diluted calculation: Weighted average number of common shares outstanding, as above 7,360 5,619 4,399 Add weighted average number of shares: Issuable upon assumed conversion of: $.75 Convertible Preferred Stock 2,017 2,017 2,098 Issuable upon assumed conversion of 5-1/2% Convertible Subordinated Debentures -- -- 122 -------- ------- ------- Common shares applicable to fully diluted calculation 9,377 7,636 6,619 -------- ------- ------- -------- ------- ------- Fully diluted earnings (loss) per share of common stock $ (1.92)* (10.72)* (3.16)* -------- ------- ------- -------- ------- -------
* The fully diluted loss per share is not presented in the Company's financial statements because the effects of assumed exercises and conversions were anti-dilutive. EX-21.1 10 EXHIBIT 21.1 Exhibit 21.1 FOREST OIL CORPORATION List of Subsidiaries of the Registrant Name of Subsidiary Jurisdiction in Which Organized ------------------------ ------------------------------- Saxon Petroleum Inc. Alberta EX-23 11 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 Statement (No. 33-43292) on Form S-3 of Forest Oil Corporation - -- Common Stock issuable upon exercise of the Warrants of Forest Oil Corporation and (iv) the Registration Statements (Nos. 33-47477 and 33-47478) on Forms S-2 and S-3 of Forest Oil Corporation -- Common Stock issuable to Richard Dorn and resales thereof, of our report dated February 20, 1996 relating to the consolidated balance sheets of Forest Oil Corporation and subsidiaries as of December 31, 1995 and 1994, 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, 1995, which report appears in the December 31, 1995 annual report on Form 10-K of Forest Oil Corporation. Our report on the consolidated financial statements refers to a change in the method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994 and to changes in the method of accounting for postretirement benefits and income taxes in 1993. KPMG PEAT MARWICK LLP Denver, Colorado March 29, 1996 EX-24 12 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 Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /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 Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /s/ Robert S. Boswell ---------------------------------- Robert S. Boswell POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /s/ Richard J. Callahan -------------------------------- Richard J. Callahan POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /s/ Dale F. Dorn ------------------------------- Dale F. Dorn POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /s/ William L. Dorn -------------------------------- William L. Dorn POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /s/ David H. Keyte ------------------------------ David H. Keyte POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /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 Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /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 Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 27th day of March, 1996. /s/ Joan C. Sonnen --------------------------------- Joan C. Sonnen POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /s/ Drake S. Tempest ------------------------------ Drake S. Tempest POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of FOREST OIL CORPORATION, a New York corporation (the "Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara E. Chesebro his true and lawful attorneys and agents (each with authority to act alone), to do any and all acts and things and to execute any and all instruments which said attorneys and agents deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Form 10-K--Annual Report for the year ended December 31, 1995 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, 1995, 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 8th day of February, 1996. /s/ Michael B. Yanney ---------------------------------- Michael B. Yanney EX-27 13 EXHIBIT 27
5 This schedule contains summary financial information extracted from the condensed consolidated statements of income and condensed consolidated balance sheets on pages 33 through 35 of the Company's Form 10-K for the year ended December 31, 1995, and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 3,287 0 17,395 0 0 23,239 1,226,529 948,930 321,043 32,420 193,879 0 24,359 1,066 18,872 321,043 82,275 82,456 22,463 31,544 43,592 0 25,323 (18,003) (7) (17,996) 0 0 0 (17,996) (2.74) (2.74)
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