Exhibit 10.1

 

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AGREEMENT

FOR PURCHASE AND SALE

OF ASSETS

 

 

BY AND BETWEEN

 

FOREST OIL CORPORATION

 

As Seller,

 

FOREST OIL PERMIAN CORPORATION

 

As Seller,

 

LINN OPERATING, INC.

 

As Purchaser

 

AND

 

LINN ENERGY HOLDINGS, LLC

 

 

As Purchaser,

 

 

Dated as of August 5, 2009

 

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TABLE OF CONTENTS

 

ARTICLE I

 

1

 

 

 

PURCHASE AND SALE

1

Section 1.1

Purchase and Sale

1

Section 1.2

Assets

1

Section 1.3

Excluded Assets

3

 

 

 

ARTICLE II

 

4

 

 

 

PURCHASE PRICE

4

Section 2.1

Purchase Price

4

Section 2.2

Performance Deposit

4

Section 2.3

Allocation of the Purchase Price

4

Section 2.4

Adjustment to Purchase Price

5

Section 2.5

Payment and Calculation of Estimated Final Purchase Price; Payment at Closing

7

 

 

 

ARTICLE III

 

7

 

 

 

ASSET INSPECTION AND TITLE EXAMINATION

7

Section 3.1

Access to Records and Properties of Seller

7

Section 3.2

On-Site Tests and Inspections

7

Section 3.3

Title Matters

8

Section 3.4

Title Adjustments

10

Section 3.5

Casualty Loss

12

Section 3.6

Identification of Additional Defective Interests

13

Section 3.7

Termination Due to Title Matters and Conditions

14

Section 3.8

Title Benefits

14

 

 

 

ARTICLE IV

 

15

 

 

 

SELLER’S REPRESENTATIONS AND WARRANTIES

15

Section 4.1

Organization, Standing and Power

15

Section 4.2

Authority and Enforceability

15

Section 4.3

Claims Affecting the Assets

16

Section 4.4

Claims Affecting the Sale

16

Section 4.5

No Demands

16

Section 4.6

Taxes

16

Section 4.7

Leases

17

Section 4.8

Non-Foreign Representation

17

Section 4.9

Commitments for Expenditures

17

Section 4.10

Compliance with Laws

17

Section 4.11

Material Contracts

18

Section 4.12

Payments for Production and Imbalances

18

Section 4.13

Governmental Authorizations

19

Section 4.14

Payout Balances

19

Section 4.15

Bankruptcy

19

Section 4.16

Brokerage Fees

19

 

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ARTICLE V

 

19

 

 

 

PURCHASER’S REPRESENTATIONS AND WARRANTIES

19

Section 5.1

Organization, Standing and Power

19

Section 5.2

Authority and Enforceability

20

Section 5.3

Independent Evaluation

20

Section 5.4

Suits Affecting the Sale

20

Section 5.5

Eligibility

21

Section 5.6

Financing

21

 

 

 

ARTICLE VI

 

21

 

 

 

ASSUMPTION OF OBLIGATIONS AND INDEMNIFICATION

21

Section 6.1

Assumption of Certain Liabilities and Obligations by Purchaser

21

Section 6.2

Indemnification by Purchaser

21

Section 6.3

Indemnification by Seller

22

Section 6.4

Interpretation

23

Section 6.5

Notices

24

Section 6.6

Tax Treatment of Indemnification Amounts

25

 

 

 

ARTICLE VII

 

25

 

 

 

SELLER’S OBLIGATIONS PRIOR TO CLOSING

25

Section 7.1

Restrictions on Operations

25

Section 7.2

Seller’s Operations

26

Section 7.3

Operated Assets

26

Section 7.4

Contract Operating, Marketing and Financial Services Agreement

27

 

 

 

ARTICLE VIII

 

27

 

 

 

ADDITIONAL AGREEMENTS OF THE PARTIES

27

Section 8.1

Government Reviews and Filings

27

Section 8.2

Confidentiality

27

Section 8.3

Taxes

27

Section 8.4

Receipts and Credits

30

Section 8.5

Suspense Accounts

30

 

 

 

ARTICLE IX

 

30

 

 

 

CONDITIONS TO CLOSING

30

Section 9.1

Seller’s Conditions

30

Section 9.2

Purchaser’s Conditions

31

 

 

 

ARTICLE X

 

32

 

 

 

RIGHT OF TERMINATION AND ABANDONMENT

32

Section 10.1

Termination

32

Section 10.2

Liabilities Upon Termination

32

 

 

 

ARTICLE XI

 

33

 

 

 

CLOSING MATTERS

33

Section 11.1

Time and Place of Closing

33

Section 11.2

Closing Obligations

33

 

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ARTICLE XII

 

34

 

 

 

POST-CLOSING OBLIGATIONS

34

Section 12.1

Post-Closing Adjustments

34

Section 12.2

Files and Records

35

Section 12.3

Further Assurances

35

 

 

 

ARTICLE XIII

 

35

 

 

 

ENVIRONMENTAL MATTERS

35

Section 13.1

Purchaser Acknowledgment Concerning Possible Contamination of the Assets

35

Section 13.2

Adverse Environmental Conditions

36

Section 13.3

Disposal of Materials, Substances, and Wastes; Compliance with Law

38

 

 

 

ARTICLE XIV

 

38

 

 

 

EMPLOYEE MATTERS

38

Section 14.1

Continuing Employees

38

Section 14.2

No Obligation to Hire Seller Employees

38

Section 14.3

Interview, Screening, and Offers to Seller Employees

39

Section 14.4

Employee Benefits

39

Section 14.5

Control of Seller Employees

41

Section 14.6

Solicitation of Continuing Employees

41

Section 14.7

Waiver of Restrictions on Continuing Employees

42

Section 14.8

No Third Party Beneficiaries

42

 

 

 

ARTICLE XV

 

42

 

 

 

MISCELLANEOUS

42

Section 15.1

Notices

42

Section 15.2

Binding Effect

43

Section 15.3

Counterparts

43

Section 15.4

Expenses

43

Section 15.5

Section Headings

43

Section 15.6

Entire Agreement

43

Section 15.7

Conditions

44

Section 15.8

Governing Law

44

Section 15.9

Assignment

44

Section 15.10

Public Announcements

44

Section 15.11

Notices After Closing

44

Section 15.12

Waiver of Compliance with Bulk Transfer Laws

44

Section 15.13

Waiver

45

Section 15.14

Bonds

46

 

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SCHEDULES

 

SCHEDULE A-1

DESCRIPTION OF PROPERTIES

SCHEDULE A-2

WELLS

SCHEDULE A-3

AGREEMENTS

SCHEDULE B

VALUE ALLOCATION

SCHEDULE C

SUITS AND CLAIMS

SCHEDULE D

TRANSITION SERVICES AGREEMENT

SCHEDULE E

OUTSTANDING AFE’S

SCHEDULE F-1

GENERAL ASSIGNMENT AND BILL OF SALE FORM

SCHEDULE F-2

ASSIGNMENT FORM

SCHEDULE G

ENVIRONMENTAL CONDITIONS

SCHEDULE 1.3

EXCLUDED ASSETS

SCHEDULE 2.3

TANGIBLE/INTANGIBLE ASSET ALLOCATION

SCHEDULE 3.6

PREFERENTIAL RIGHTS TO PURCHASE

SCHEDULE 4.10

LAW VIOLATIONS

SCHEDULE 4.11

UNPAID OBLIGATIONS

SCHEDULE 4.12(a)

TAKE OR PAY OBLIGATIONS

SCHEDULE 4.12(b)

IMBALANCES

SCHEDULE 4.13

MISSING PERMITS

SCHEDULE 4.14

PAYOUT BALANCES

SCHEDULE 15.14

BONDS AND PERMITS

 

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AGREEMENT FOR PURCHASE

AND SALE OF ASSETS

 

This Agreement for Purchase and Sale of Assets (the “Agreement”), dated as of
August 5 2009, is made and entered into by and among Forest Oil Corporation, a
New York corporation, and Forest Oil Permian Corporation, a Delaware corporation
(collectively “Seller”), and Linn Operating, Inc. a Delaware corporation and
Linn Energy Holdings, LLC a Delaware limited liability company (collectively
“Purchaser”).

 

RECITALS

 

A.            Seller desires to sell to Purchaser the assets, properties and
rights hereinafter described upon the terms and subject to the conditions,
exceptions and reservations hereinafter set forth;

 

B.            Purchaser desires to purchase from Seller such assets, properties
and rights as hereinafter set forth upon the terms and subject to the
conditions, exceptions and reservations hereinafter set forth; and

 

C.            In consideration of the premises and of the mutual promises,
representations, warranties, covenants, conditions and agreements contained
herein, Seller and Purchaser, intending to be legally bound by the terms hereof,
agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE

 

SECTION 1.1             PURCHASE AND SALE.

 

Subject to the provisions of this Agreement, Seller agrees to sell and convey at
the Closing (as defined in Section 11.1), and Purchaser agrees to purchase and
accept at the Closing, such conveyance to be effective for all purposes as of
7:00 a.m. at the location of each of the respective Assets on July 1, 2009 (the
“Effective Time”), all of the following, less and except the Excluded Assets (as
hereinafter defined), which shall be herein referred to collectively as the
“Assets”.

 

SECTION 1.2             ASSETS.

 

The Assets shall mean the following:

 

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(a)  All right, title and interest of Seller in and to all oil and gas leases,
other similar leases, mineral interests, royalties, and overriding royalties,
whether producing or non-producing, as described on Schedule A-1 attached hereto
(the “Leases”), and any other rights and interests of any type in, on or under
or relating to the lands also described on Schedule A-1 or in any of the Leases
(the “Land”), and including any and all right, title and interest of Seller in
and to the oil, gas and other hydrocarbons and other products produced in
association therewith in, on or under any of the foregoing, and all oil and gas
wells and injection and disposal wells located on any of the foregoing, or used
or useful in connection therewith, or on lands pooled or unitized therewith,
including, without limitation, the wells described in Schedule A-2 attached
hereto (the “Wells”);

 

(b)  All right, title and interest of Seller in, to and under or derived from
all presently existing or proposed unitization, pooling and communitization
agreements, declarations and orders, and the properties covered and the units
created or to be created thereby (including, but not limited to, all units
formed or to be formed under orders, regulations, rules or other official
actions of any federal, state or other governmental agency having jurisdiction)
including without limitation, the agreements, declarations, orders, properties
and units described in Schedule A-3 attached hereto to the extent that they
relate to or affect all or any part of the Leases , Lands or Wells (“Unit
Agreements”) ;

 

(c)  Subject to any and all applicable consents to assign and other limitations
on Seller’s rights to assign, all right, title and interest of Seller in, to and
under or derived from all contracts, agreements, and instruments to the extent
that they relate to or affect any of the Leases, Lands, Wells or Unit
Agreements, including presently existing and effective oil, gas liquids,
condensate, casinghead gas and gas sales, purchase, exchange, gathering,
transportation and processing contracts, operating agreements, joint venture
agreements, farmout agreements, partnership agreements, settlement agreements
and all other agreements and instruments, including without limitation the
agreements, instruments, and contracts described in Schedule A-3 attached
hereto;

 

(d)  All right, title and interest of Seller in or to all personal property,
fixtures, equipment leases, improvements, and other personal property, whether
real, personal, or mixed (including, but not limited to, well equipment, casing,
tubing, tanks, rods, tank batteries, boilers, buildings, pumps, motors,
machinery, injection facilities, disposal facilities, field separators and
liquid extractors, compressors, pipelines, gathering systems, docking
facilities, air service facilities, helicopter facilities, power lines,
telephone and telegraph lines, roads, and field processing plants, field offices
and office furnishings related thereto, field office leases, equipment leases,
trailers and all other appurtenances thereunto belonging), (the “Equipment”) and
in and to all easements, permits, licenses, servitudes, rights-of-way, surface
leases and other surface rights, to the extent now being used or proposed to be
used in connection with the exploration, development, operation or maintenance
of the properties and interests described in subsections (a), (b) and (c) of
this Section 1.2, or now being used or proposed to be used in connection with
the producing, treating, processing, storing, gathering, transporting or
marketing of oil, gas

 

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and other hydrocarbons and other products produced in association therewith
attributable to such properties or interests, and all contract rights (including
rights under leases to third parties) related thereto (the “Easements”) and in
and to all natural gas, crude oil, condensate or other products produced from
the properties described or referred to in subsection (a) of this Section 1.2
placed into storage or into pipelines (the “Products”);

 

(e)  All of Seller’s right, title and interest in and to any production
imbalances or balancing agreements relating to any of the Leases or otherwise
arising by virtue of the fact that Seller may not have taken or marketed its
full share of oil, gas and other hydrocarbons and other products produced in
association therewith attributable to its ownership prior to the Effective Time;

 

(f)  Subject to the provisions of Section 1.3, all of Seller’s right, title and
interest in and to all causes of action, judgments, pending litigation, claims
and demands set forth on Schedule C; and

 

(g)  Copies of all of Seller’s accounting records and books and files relating
to any of the foregoing matters set forth in this Section 1.2 including, without
limitation, all production records, operating records, correspondence, lease
records, well records, and division order records; prospect files; title records
(including abstracts of title, title opinions and memoranda, and title curative
documents related to the Leases and Wells), contracts, electric logs, core data,
pressure data, decline curves, graphical production curves, and a non-exclusive
license to all geophysical data owned by Seller (collectively, the “Records”);
provided, however, that the Records shall not include any interpretive
information, documents, or reports, shall not include any Records that Seller is
not contractually or legally permitted to assign, and, except as specifically
otherwise provided in Article XIV, shall not include payroll or personnel
records; and provided, further, that Seller shall be entitled to retain copies
of all accounting records and other files that Seller reasonably believes it
will need access to for future audit, tax, or reporting requirements.

 

Section 1.3                                      Excluded Assets.

 

Seller shall reserve and retain all of the Excluded Assets.  “Excluded Assets”
shall mean:

 

(a) all of Seller’s corporate minute books, accounting and financial records,
and other business records that relate to Seller’s business generally (including
the ownership of the Assets);

 

(b) all trade credits, all accounts, suspended funds not otherwise specifically
accounted for pursuant to Section 8.5, below, receivables (including from the
results of audits), and all other proceeds, income or revenues attributable to
the Assets with respect to any period of time prior to the Effective Time;

 

(c) all rights and interests of Seller (A) under any policy or agreement of
insurance or indemnity, (B) under any bond or (C) to any insurance or
condemnation

 

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proceeds or awards arising, in each case, from acts, omissions or events, or
damage to or destruction of property occurring prior to the Effective Time;

 

(d) all Hydrocarbons produced and sold from the Assets with respect to all
periods prior to the Effective Time;

 

(e) all claims of Seller for refunds of or loss carry forwards with respect to
(A) production or any other taxes attributable to any period prior to the
Effective Time, (B) income or franchise taxes or (C) any taxes attributable to
the Excluded Assets;

 

(f)  all personal computers and associated peripherals and all radio and
telephone equipment;

 

(g)  all of Seller’s computer software, patents, trade secrets, copyrights,
names, trademarks, logos and other intellectual property;

 

(h)  all documents and instruments of Seller that may be protected by an
attorney-client privilege other than title opinions;

 

(i)  all data that cannot be disclosed to Purchaser as a result of
confidentiality arrangements under agreements with third parties;

 

(j)  all hedging transactions and gains or losses attributable to any hedging
activities, whether occurring before or after the Effective Time;

 

(k) all correspondence, reports, analyses and other documents relating to the
transaction contemplated hereby (including without limitation, environmental
reports and analyses), whether internal, with or produced by other prospective
purchasers, produced by consultants or other third parties or otherwise, and

 

(l) the assets and liabilities listed on Schedule 1.3.

 

ARTICLE II

 

PURCHASE PRICE

 

SECTION 2.1             PURCHASE PRICE.

 

The aggregate purchase price payable by Purchaser to Seller for the Assets shall
be Ninety-Five Million Dollars ($95,000,000.00) (the “Preliminary Purchase
Price”), subject to adjustment as set forth in Section 2.4 below.

 

SECTION 2.2             PERFORMANCE DEPOSIT.

 

Upon execution of this Agreement, Purchaser shall pay to Seller by wire transfer
a deposit in the amount of Nine Million, Five-Hundred Thousand Dollars
($9,500,000.00) (“Performance Deposit”) to be held by Seller in accordance with
this Agreement.  In the event that the transactions contemplated by this
Agreement are consummated, the Performance Deposit shall be applied to the
Purchase Price as set forth in Section 2.5(b) below.  In the event this
Agreement is terminated, the Performance Deposit shall be applied in accordance
with the provisions of Article X.

 

SECTION 2.3             ALLOCATION OF THE PURCHASE PRICE.

 

(a)           The Preliminary Purchase Price shall be allocated among the Leases
and equipment included in the Assets in accordance with Section 8.3(b) and the
allocations set forth

 

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on Schedule B.  Any adjustments to the purchase price under Section 2.4 and
Section 12.1 shall correspondingly (as appropriate) adjust the allocations set
forth on Schedule B.

 

(b)           On or before the Closing Date, Seller and Purchaser shall agree in
writing as to the allocation of the Final Purchase Price among the Assets under
the methodology required by Section 1060 of the Internal Revenue Code of 1986,
as amended (the “Code”).  Such agreed allocation shall be set forth on Schedule
2.3 attached hereto.  Seller and Purchaser must report the transactions
contemplated hereby on all tax returns, including, but not limited to Form 8594,
in a manner consistent with such allocation.  Any adjustments to the purchase
price under Section 2.4 and Section 12.1 shall correspondingly (as appropriate)
adjust the allocations set forth on Schedule B.

 

SECTION 2.4             ADJUSTMENT TO PURCHASE PRICE.

 

The Preliminary Purchase Price shall be adjusted as follows and the resulting
amount shall be herein called the “Final Purchase Price”:

 

(a)           The Preliminary Purchase Price shall be adjusted upward by the
following (on a cash basis and on a sales, not an entitlement, method of
accounting):

 

(i)  The amount of all capital expenditures (net to Seller’s interest) incurred
and paid by Seller during the period on or after the Effective Time to the
Closing Date (“Adjustment Period”) in respect of the ownership and operation of
the Assets;

 

(ii)  The amount of all operating costs incurred and paid by Seller (excluding
amounts paid in connection with the transactions contemplated by this Agreement)
in respect of the ownership and operation of the Assets during the Adjustment
Period;

 

(iii)  The value (determined by the price most recently paid prior to the
Effective Time for such oil less all applicable deductions including, without
limitation, deductions for tank bottom sediment and water) of all oil in storage
above the wellhead as of the Effective Time which is credited to the Assets,
less applicable production taxes, royalty and other burdens on the production
payable on such oil and subsequently paid by Seller, the amount of oil in
storage as of the Effective Time to be based on gauge reports to the extent
available or on alternative methods to be agreed by the parties.

 

(iv)  The amount of underproduced volumes of gas attributable to Seller as of
the Effective Time, multiplied by a price of $4.00/Mcf for such production (net
of royalties and taxes) in each case to the extent provided by existing
balancing and other agreements affecting the Assets.

 

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(v)  The amount of any Title Adjustment which is a net increase in the value of
an Asset, as defined in Section 3.4(b).

 

(b)           The Preliminary Purchase Price shall be adjusted downward by the
following (on a cash basis and on a sales, not an entitlement, method of
accounting):

 

(i)  Amounts received by Seller for the sale of oil, gas, liquids or other
associated minerals produced during the Adjustment Period (net of any production
royalties, transportation costs and of any production, severance or sales taxes
paid or to be paid by Seller), and all other amounts received or to be received
by Seller relating to the ownership and operation of the Assets during the
Adjustment Period including but not limited to amounts attributable to
prepayments, cash calls, advance payments, gas transportation, take or pay
payments and similar payments;

 

(ii)  Amounts received by Seller for the sale, salvage or other disposition
during the Adjustment Period of any property, equipment or rights included in
the Assets without Purchaser having received full payment therefor;

 

(iii)  All amounts otherwise received by Seller and attributable to the
ownership of the Assets during the Adjustment Period;

 

(iv)  An amount equal to the value of the Assets set forth on Schedule B with
respect to which preferential purchase rights have been exercised in accordance
with Section 3.6;

 

(v)  The amount of any Title Adjustment which is a net reduction in the value of
an Asset, as defined in Section 3.4(b);

 

(vi) An amount equal to the value of any Casualty Loss as defined in
Section 3.5; and

 

(vii)  The amount of overproduced volumes of gas attributable to Seller as of
the Effective Time, multiplied by a price of $4.00/Mcf for such production (net
of royalties and taxes) in each case to the extent provided by existing
balancing and other agreements affecting the Assets.

 

(viii)  An amount equal to any adjustment set forth in Section 13.2(b),
Section 13.2(d), and 13.2(e).

 

(c)           It is Seller’s and Purchaser’s intent that the adjustments under
this Agreement to the Preliminary Purchase Price, and any components of such
adjustments, shall not be applied or computed in a manner that results in
duplicative effect.

 

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SECTION 2.5             PAYMENT AND CALCULATION OF ESTIMATED FINAL PURCHASE
PRICE; PAYMENT AT CLOSING.

 

(a)           Seller shall prepare and deliver to Purchaser, at least five
“Business Days” (which term shall mean any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are required or
authorized by law to be closed) prior to the Closing Date, Seller’s estimate of
the Final Purchase Price to be paid at Closing, based upon the best information
reasonably available to Seller, (such estimated Final Purchase Price being
herein referred to as the “Estimated Final Purchase Price”), together with a
statement setting forth Seller’s estimate of the amount of each adjustment to
the Preliminary Purchase Price to be made pursuant to Section 2.4.  The parties
shall negotiate in good faith and attempt to agree on such estimated adjustments
prior to Closing.

 

(b)           At Closing, Purchaser shall pay to Seller the Estimated Final
Purchase Price determined as set forth in Section 2.5(a) less an amount equal to
the Performance Deposit without interest earned thereon.

 

ARTICLE III

 

ASSET INSPECTION AND TITLE EXAMINATION

 

SECTION 3.1             ACCESS TO RECORDS AND PROPERTIES OF SELLER.

 

Between the date of this Agreement and Closing, Seller agrees, subject to
Section 8.2, to give Purchaser and its representatives full access at all
reasonable times to the Assets and to the Records for inspection and copying at
Purchaser’s expense at Seller’s office in Denver, Colorado.  To the extent
records are kept or maintained by Seller in other locations, Seller agrees to
make same available at such other locations.

 

SECTION 3.2             ON-SITE TESTS AND INSPECTIONS.

 

SELLER SHALL PERMIT OR, IN CASE OF ANY THIRD-PARTY OPERATED WELLS, USE ITS
COMMERCIALLY REASONABLE EFFORTS TO CAUSE THE OPERATOR THEREOF TO PERMIT,
PURCHASER’S AUTHORIZED REPRESENTATIVES TO CONSULT WITH SELLER’S OR THIRD-PARTY
OPERATOR’S AGENTS AND EMPLOYEES DURING REASONABLE BUSINESS HOURS AND TO CONDUCT,
AT PURCHASER’S SOLE RISK AND EXPENSE, ON-SITE INSPECTIONS, TESTS AND INVENTORIES
OF THE ASSETS.  PURCHASERS ENVIRONMENTAL INVESTIGATION OF THE PROPERTIES SHALL
BE LIMITED TO CONDUCTING A PHASE I ENVIRONMENTAL SITE ASSESSMENT IN ACCORDANCE
WITH THE AMERICAN SOCIETY FOR TESTING AND MATERIALS (A.S.T.M.) STANDARD PRACTICE
ENVIRONMENTAL SITE ASSESSMENTS: PHASE I ENVIRONMENTAL SITE ASSESSMENT PROCESS
(PUBLICATION DESIGNATION: E1527-05) (“SITE ASSESSMENT”), AND AT SELLER’S
DISCRETION, SHALL BE ACCOMPANIED BY SELLER’S REPRESENTATIVE. IF THIS AGREEMENT
IS TERMINATED FOR ANY REASON, PURCHASER SHALL FURNISH SELLER, FREE OF COST TO
SELLER, A COPY OF ANY WRITTEN REPORT PREPARED BY OR FOR PURCHASER RELATED TO ANY
SITE ASSESSMENT OF THE PROPERTIES AS SOON AS REASONABLY POSSIBLE.  ALL
ENVIRONMENTAL REPORTS PREPARED BY OR FOR PURCHASER SHALL BE MAINTAINED IN STRICT
CONFIDENCE BY PURCHASER AND

 

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SHALL BE USED BY PURCHASER SOLELY IN CONNECTION WITH THE EVALUATION OF THE
PROPERTIES OR IN ANY DISPUTE WITH SELLER INVOLVING THE PROPERTIES.  EXCEPT AS
PROVIDED IN THE PRECEDING SENTENCE, IF CLOSING DOES NOT OCCUR, SUCH REPORTS
SHALL NOT BE DISCLOSED TO ANY OTHER PARTY.  IF CLOSING DOES NOT OCCUR, THE
FOREGOING OBLIGATION OF CONFIDENTIALITY SHALL SURVIVE FOR FIVE (5) YEARS AFTER
THE TERMINATION OF THIS AGREEMENT.

 

SECTION 3.3            TITLE MATTERS.

 

(a)           For the sole purpose of determining the existence of Title Defects
prior to the Closing, Seller warrants that it owns Defensible Title (as defined
in Section 3.3(b)) to the Leases except to the extent affected by the litigation
described on Schedule C.

 

(b)           As used herein, the term “Defensible Title” to the Assets shall
mean such title of Seller that,:

 

(i)            is deducible of record either from the records of the applicable
county or parish clerk and recorder or, in the case of federal leases, from the
records of the applicable office of the Bureau of Land Management, or in the
case of state leases, from the records of the applicable state land office, or
from some combination of the foregoing official records;

 

(ii)           entitles Seller to receive not less than the net revenue interest
(indicated by the letters “NRI”) of Seller set forth in Schedule B of all oil,
gas and associated liquid and gaseous hydrocarbons produced, saved and marketed
from the Leases throughout the life of such properties;

 

(iii)          obligates Seller to bear costs and expenses relating to the
maintenance, development and operation of the Leases in an amount not greater
than the working interest (indicated by the letters “WI”) set forth in Schedule
B throughout the life of such properties except to the extent such increase in
working interest is accompanied by a proportionate increase in net revenue
interest; and

 

(iv)          is free and clear of encumbrances, liens and defects other than
the Permitted Encumbrances.

 

(c)           The term “Permitted Encumbrances”, as used herein, shall mean:

 

(1)           lessors’ royalties, overriding royalties, and division orders and
sales contracts covering oil, gas or associated liquid or gaseous hydrocarbons,
reversionary interests and similar burdens if and to the extent the net
cumulative effect of such burdens does not operate to reduce the net revenue
interest at any time in any property to less than the net revenue interest set
forth in Schedule B:

 

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(2)   preferential rights to purchase and required third-party consents to
assignments and similar agreements with respect to which prior to Closing;

 

(i)            waivers or consents are obtained from the appropriate parties, or

 

(ii)           the appropriate time period for asserting such rights has expired
without an exercise of such rights;

 

(3)           liens for taxes or assessments not yet due or not yet delinquent
or, if delinquent, that are not material and are being contested in good faith
in the normal course of business;

 

(4)           all rights to approve, required notices to, filings with, or other
actions by governmental or tribal entities in connection with the sale or
conveyance of the Assets if the same are customarily obtained subsequent to such
sale or conveyance;

 

(5)           rights of reassignment, to the extent any exist as of the date of
this Agreement, upon the surrender or expiration of any lease;

 

(6)           easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations, pipelines, or the like;
conditions, covenants or other restrictions; and easements for pipelines,
railways and other easements and rights-of-way, on, over or in respect of any of
the Assets which individually, or in the aggregate, do not materially adversely
affect the ownership, operation, value or use of the Assets, or any of them;

 

(7)           all other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects and irregularities affecting the Assets
(including, without limitation, liens of operators relating to obligations not
yet due or pursuant to which Seller is not in default) that do not reduce the
net revenue interest set forth in Schedule B, or do not prevent the receipt of
proceeds of production therefrom, or do not increase the share of costs above
the working interest set forth in Schedule B, or that do not materially
interfere with or detract from the operation, value or use of any of the
properties included within the Assets;

 

(8)           liens, if any, to be released at Closing in a form acceptable to
Purchaser;

 

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(9)           the terms and conditions of all Leases, agreements, orders,
pooling or unitization agreements or declarations included in the Assets or to
which the Assets are subject as long as same do not reduce the net revenue
interests for the Assets listed in Schedule B or do not increase the working
interests for the interests set forth in Schedule B; and

 

(10)         rights reserved to or vested in any municipality or governmental,
statutory or public authority to control or regulate any of the Assets in any
manner, and all applicable laws, rules and orders of governmental authority; and

 

(11)         Materialmen’s, mechanics’, repairmen’s, employees’, contractors’,
operators’ or other similar liens or charges arising in the ordinary course of
business incidental to construction, maintenance or operation of the Assets

 

(i)            if they have not been filed pursuant to law,

 

(ii)           if filed, they have not yet become due and payable or payment is
being withheld as provided by law and Seller either indemnifies Purchaser or
agrees to reduce the Preliminary Purchase Price for the amount claimed, or

 

(iii)          if their validity is being contested in good faith by appropriate
action provided that Seller either indemnifies Purchaser or agrees to reduce the
Preliminary Purchase Price for the amount claimed.

 

(d)           The term “Title Defect” as used herein shall mean any encumbrance,
encroachment, irregularity, defect in or objection to Seller’s title to the
Leases and Wells (excluding Permitted Encumbrances) which would result in Seller
not having Defensible Title.

 

SECTION 3.4            TITLE ADJUSTMENTS.

 

(a)           “Defective Interest(s)” shall mean that portion of the Assets (as
determined in accordance with Section 3.4(c)) as to which the warranty stated in
Section 3.3(a) is breached or that Purchaser is otherwise entitled under
Sections 3.5 or 3.6 to treat as a Defective Interest, and of which Seller has
been given written notice by Purchaser not later than five (5) Business Days
before Closing or any later date specified in Section 3.6 for Defective
Interests described in that Section (“Defective Interest Notice Date”).  Such
written notice shall include

 

(i)            a description of the Defective Interest,

 

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(ii)           the basis for the defect that Purchaser believes causes such
Asset to be a Defective Interest,

 

(iii)          the Allocated Value of the affected Asset calculated in
accordance with Section 3.4(c), and

 

(iv)          the amount by which Purchaser believes the Allocated Value of the
affected Asset has been reduced by the Defective Interest;

 

provided however, that any Title Defect (or individual Title Benefit, as defined
in Section 3.8) for which the Title Adjustment, as determined in Section 3.4(c),
below, is less than twenty-five thousand dollars ($25,000) shall not be a
Defective Interest or Title Benefit.  For purposes of determining Title
Adjustments pursuant to this Agreement, and without waiver of Purchaser’s rights
under the conveyances of the Assets to be delivered at Closing, Purchaser shall
be deemed to have waived all Title Defects of which Seller has not been given
written notice by the Defective Interest Notice Date.  Prior to Closing, Seller
shall have the option, but not the obligation, to cure any Title Defect or other
breach of title warranty for which timely notice is given.  If Purchaser desires
to attempt to cure any Title Defect, Seller shall cooperate with Purchaser,
prior to the Closing Date, in endeavoring to cure any such Title Defect.

 

(b)           Defective Interests and Title Benefits shall be conveyed to
Purchaser hereunder, and the Preliminary Purchase Price shall be reduced or
increased, as the case may be, in accordance with Section 2.4 by an amount
determined in accordance with Section 3.4(c) for such Defective Interests and
Title Benefits (which net reduction or increase, as applicable, shall be called
a “Title Adjustment”) but only to the extent that the total amount of all Title
Adjustments exceeds one percent (1%) of the Preliminary Purchase Price, unless
prior to the Closing, the basis for treating such Assets as Defective Interests
has been removed in a manner satisfactory to Purchaser.  For avoidance of doubt,
Seller and Purchaser agree that the foregoing threshold is a deductible.  If
Seller and Purchaser cannot agree to the amount of a Title Adjustment for a
specified Title Defect or Title Benefit, all information relating to the
Defective Interest or Title Benefit shall be submitted to a title attorney
chosen by mutual agreement of the parties, who shall have a minimum of ten
(10) years experience in examining oil and gas titles, who shall, in good faith,
determine the Title Adjustment.

 

(c)           The value of each of the Leases and Wells for purposes of
determining Purchase Price adjustments under this Section 3.4 (the “Allocated
Value”) shall be determined in accordance with Schedule B which Schedule shall
be mutually agreed upon by the parties.  The amount of the Title Adjustment for
a Defective Interest or Title Benefit shall be the Allocated Value thereof if
the Defective Interest or Title Benefit constitutes the entire property given an
Allocated Value.  If the amount of a Title Adjustment cannot be determined
directly because the Defective Interests or Title Benefit constitute a property
or interest included within, but not totally comprising, the Assets to which an
Allocated

 

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Value is given, Purchaser and Seller shall proportionately reduce the Allocated
Value to reflect the present or potential impact of the Title Defect or Title
Benefit.  The amount of any Title Adjustment shall reflect the anticipated
reduction or increase of the Allocated Value for the affected property caused by
the breach of title warranty or Title Benefit, taking into account the method
for arriving at such Allocated Value, the legal and practical effect of the
Title Defect or Title Benefit or other breach, the probability of adverse impact
of the Title Defect or breach of title warranty on the use and enjoyment of the
property interest affected, and the potential economic effect of the Title
Defect or breach of title warranty or Title Benefit over the life of the
property involved; provided, however that if the Title Defect is an actual
reduction in net revenue interest, , then the amount of the Title Adjustment
shall be the product of the Allocated Value of the Defective Interest multiplied
by a fraction, the numerator of which is the actual net revenue interest or
ownership and the denominator of which is the net revenue interest or percentage
ownership stated on Schedule B.

 

(d)           Notwithstanding any claimed Title Defect, Purchaser shall have the
right at any time up to the Closing Date to waive any such claim, and purchase
the affected property without reduction of the Purchase Price.

 

SECTION 3.5             CASUALTY LOSS.

 

If, prior to the Closing, any portion of the Wells or related equipment is
destroyed or impaired by fire or other casualty, Purchaser may elect:

 

(a)           to treat the Assets so affected by such destruction as Defective
Interests in accordance with Section 3.4, provided however that neither the
twenty-five thousand dollar threshold in Section 3.4(a) nor the 1% of Purchase
Price deductible in Section 3.4(b) will be applicable to the exclusion of such
Assets and the Preliminary Purchase Price will be adjusted downward by the
amount of the Allocated Value for such Asset, or

 

(b)           to purchase such Assets notwithstanding any such destruction
(without adjustment to the Preliminary Purchase Price therefor), in which case,
Seller shall, at the Closing, pay to Purchaser all sums paid to Seller by
third-parties (including insurance proceeds relating thereto) and assign to
Purchaser all sums to which Seller is entitled, as the case may be, by reason of
the destruction of such Wells and the underlying Assets to be assigned to
Purchaser and shall assign, transfer and set over unto Purchaser all of the
right, title and interest of Seller in and to any unpaid awards or other
payments from third-parties arising out of the destruction of such Wells and the
Assets to be assigned to Purchaser.

 

Prior to the Closing, Seller shall not voluntarily compromise, settle or adjust
any amounts payable by reason of any destruction of such Wells and the
underlying Assets without first obtaining the written consent of Purchaser.

 

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SECTION 3.6             IDENTIFICATION OF ADDITIONAL DEFECTIVE INTERESTS.

 

(a)           Seller has listed all preferential rights to purchase the Assets
on Schedule 3.6.   Seller shall promptly prepare and send (i) notices to the
holders of any required consents to assignment of any Assets requesting such
holder’s consent to assign such Assets to Purchaser and (ii) notices to the
holders of any applicable preferential rights to purchase any Asset requesting
waivers of such preferential rights to purchase; provided, however, that
Purchaser shall have the opportunity to review such notices before they are
sent.   The consideration payable under this Agreement for any particular Assets
for purposes of preferential purchase right notices shall be the Allocated Value
for such Assets. Seller shall use commercially reasonable efforts to cause such
consents and waivers of preferential rights to purchase (or the exercise
thereof) to be obtained and delivered prior to Closing. Purchaser shall
cooperate with Seller in seeking to obtain such consents and waivers of
preferential rights.

 

(b)           If any preferential purchase right is exercised prior to or after
the Closing, Purchaser may elect to treat that portion of the Assets affected by
such preferential right as a Defective Interest, subject to the additional
provisions of this paragraph.  If Seller receives notice of such exercise prior
to Closing, Seller shall give Purchaser notice thereof in accordance with
Section 3.4(a) prior to the Closing, in which event the property affected by
such preferential purchase right shall be treated as a Defective Interest;
provided however that neither the twenty-five thousand dollar threshold in
Section 3.4(a) nor the 1% of Purchase Price deductible in Section 3.4(b) will be
applicable to the exclusion of such Assets and the Preliminary Purchase Price
will be adjusted downward by the amount of the Allocated Value for such Asset. 
If Seller or Purchaser receive notice of such exercise after the Closing, the
party receiving such notice shall promptly give notice to the other party, and
Purchaser shall convey the affected property interest to the holder of the
preferential purchase right upon receipt of the Allocated Value attributable
thereto from such party.

 

(c)           If, prior to the Closing Date, Purchaser or Seller become aware of
any suit, action or other proceeding before any court or government agency other
than those listed in Schedule C that would result in loss or impairment of
Seller’s title to any portion of the Assets, or a portion of the value thereof,
Purchaser may elect to treat that portion of the Assets affected thereby as a
Defective Interest by giving Seller notice thereof in accordance with
Section 3.4(a) no later than the Closing Date, in which event the procedures
specified in Section 3.4 shall apply to the property affected by such
proceeding; provided however that neither the twenty-five thousand dollar
threshold in Section 3.4(a) nor the 1% of Purchase Price deductible in
Section 3.4(b) will be applicable to the exclusion of such Assets and the
Preliminary Purchase Price will be adjusted downward by the amount of the
Allocated Value for such Asset.

 

(d)           If with respect to any preferential purchase rights and required
third-party consents to assignment and similar agreements, one or more of the
conditions set forth in Section 3.3(c)(2) has not been met prior to the Closing,
Purchaser may elect to treat that

 

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portion of the Assets affected thereby as a Defective Interest by giving Seller
notice thereof in accordance with Section 3.4(a) no later than the Closing Date,
in which event the procedures specified in Section 3.4 shall apply to the
property affected by such third-party right; provided however that neither the
twenty-five thousand dollar threshold in Section 3.4(a) nor the 1% of Purchase
Price deductible in Section 3.4(b) will be applicable to the exclusion of such
Assets and the Preliminary Purchase Price will be adjusted downward by the
amount of the Allocated Value for such Asset.

 

SECTION 3.7             TERMINATION DUE TO TITLE MATTERS AND CONDITIONS.

 

If, prior to Closing, the aggregate amount of the value of (a) all Title
Adjustments asserted in good faith under this Article III and (b) all
adjustments for Conditions pursuant to Section 13.2(b)(i), equals or exceeds
twenty percent (20%) of the Preliminary Purchase Price, then either party, at
its option exercised by the giving of written notice to the other party not
later than the Closing, may elect to terminate this Agreement, in which event
Seller and Purchaser shall be under no obligation to each other with regard to
the purchase and sale of any of the Assets, such termination to be without
liability to either party.  Failure of either party to give timely notice to the
other party of an election to terminate this Agreement pursuant to this
Section 3.7 shall be deemed an election not to terminate this Agreement.

 

SECTION 3.8            TITLE BENEFITS.

 

(A)           IF A PARTY DISCOVERS ANY TITLE BENEFIT AFFECTING THE ASSETS, IT
SHALL PROMPTLY NOTIFY THE OTHER PARTY IN WRITING THEREOF ON OR BEFORE THE
EXPIRATION OF THE DEFECTIVE INTEREST NOTICE DATE.   SUBJECT TO
SECTION 3.4(A) AND 3.4(B), SELLER SHALL BE ENTITLED TO AN UPWARD ADJUSTMENT TO
THE PURCHASE PRICE PURSUANT TO SECTION 2.4(A)(VI) WITH RESPECT TO ALL TITLE
BENEFITS, IN AN AMOUNT DETERMINED IN ACCORDANCE WITH SECTION 3.4(C).  FOR
PURPOSES OF THIS AGREEMENT, THE TERM “TITLE BENEFIT” SHALL MEAN SELLER’S NET
REVENUE INTEREST IN ANY ASSET IS GREATER THAN THAT SET FORTH IN SCHEDULE B OR
SELLER’S WORKING INTEREST IN ANY ASSET LESS THAN THAT SET FORTH IN SCHEDULE B
(WITHOUT A CORRESPONDING DECREASE IN THE NET REVENUE INTEREST) SUBJECT TO THE
RESTRICTION OF SECTION 3.4(A). ANY MATTERS THAT MAY OTHERWISE CONSTITUTE TITLE
BENEFITS, BUT OF WHICH NEITHER PARTY HAS BEEN SPECIFICALLY NOTIFIED IN
ACCORDANCE WITH THE FOREGOING, SHALL BE DEEMED TO HAVE BEEN WAIVED BY SELLER FOR
ALL PURPOSES.

 

(B)           SUBJECT TO SECTION 3.4(A) AND 3.4(B), THE AGGREGATE AMOUNT OF
UNDISPUTED TITLE BENEFITS SHALL BE NETTED AGAINST THE AGGREGATE AMOUNT OF
UNDISPUTED DEFECTIVE INTERESTS PRIOR TO ANY ADJUSTMENT OF THE PURCHASE PRICE AT
CLOSING PURSUANT TO SECTION 2.4.

 

(c)           If with respect to a Title Benefit the Parties have not agreed on
the amount of the upward Purchase Price adjustment or have not otherwise agreed
on such amount prior to the Closing Date, Seller or Purchaser shall have the
right to elect to have such Purchase Price adjustment determined pursuant to
Section 3.4(b).  If the amount of such adjustment is not determined pursuant to
this Agreement by the Closing, the

 

14

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undisputed portion of the Purchase Price with respect to the Asset affected by
such Title Benefit shall be paid by Purchaser at the Closing and, subject to
Section 3.4(b), upon determination of the amount of such adjustment, any unpaid
portion thereof shall be paid by Purchaser to Seller or shall be netted against
the aggregate amount of any disputed Title Adjustments that also are determined
after Closing.

 

ARTICLE IV

 

SELLER’S REPRESENTATIONS AND WARRANTIES

 

As used in this Article IV when referring to Seller, “Knowledge” means all
information attributed to Seller that is actually known to the following
employees of Seller :  Glen J. Mizenko, Senior Vice President Business
Development & Engineering, Scott Laverde, Vice President Acquisitions &
Divestitures, Leonard Gurule, Senior Vice President Western Region, Ralph
Thomas, Director of Tax, and Stephen Rawlings, Production Manager Western
Region. Seller represents and warrants to Purchaser as follows:

 

SECTION 4.1             ORGANIZATION, STANDING AND POWER.

 

Forest Oil Corporation is a corporation duly organized, validly existing and in
good standing under the laws of the state of New York and Forest Oil Permian
Corporation is a corporation duly organized and in good standing under the laws
of the state of Delaware.  Each Seller has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.   Seller is duly qualified to carry on its business in
each state identified in Schedule A where failure to so qualify would have a
materially adverse effect upon its business or properties in such state.

 

SECTION 4.2             AUTHORITY AND ENFORCEABILITY.

 

The execution and delivery by Seller of this Agreement, and the consummation of
the transactions contemplated hereby, have been duly and validly authorized by
all necessary corporate action, on the part of Seller.  This Agreement is the
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability and to
general equity principles.  Neither the execution and delivery by Seller of this
Agreement nor the consummation of the transactions contemplated hereby, nor
compliance by Seller with any of the provisions hereof, will

 

(a)           conflict with or result in a breach of any provision of Seller’s
certificate of incorporation or bylaws,

 

(b)           except with respect to third-party consents or waivers required in
connection with agreements and properties to be assigned pursuant to this
Agreement (it being understood that Seller will make reasonable efforts to
obtain such required consents or waivers) result in a material default (with due
notice or lapse of time or both) or give rise to any right of termination,
cancellation or acceleration under any of the terms,

 

15

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conditions or provisions of any note, bond, mortgage, indenture, license or
agreement to which Seller is a party or by which Seller or any of Seller’s
properties or assets may be bound or,

 

(c)           violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to any Seller, or any Seller’s properties or
assets, assuming receipt of all routine governmental consents normally acquired
after the consummation of transactions such as transactions of the nature
contemplated by this Agreement,

 

except, in any of (a)-(c), where any such foregoing effect would not be likely
to affect Purchaser’s ability to own, possess, control or enjoy the Assets.

 

SECTION 4.3             CLAIMS AFFECTING THE ASSETS.

 

Except as disclosed on Schedule C, to Seller’s Knowledge, there is no suit,
action, claim, investigation or inquiry by any person or entity or by any
administrative agency or governmental body and no legal, administrative or
arbitration proceeding pending, or to Seller’s Knowledge, threatened against or
affecting the Assets.  Except as disclosed on Schedule C, Seller has not
received any notice in writing from any Governmental Body or any other Person
claiming any violation of or noncompliance with any Law with respect to the
Assets (including any such Law concerning the conservation of natural
resources).

 

SECTION 4.4             CLAIMS AFFECTING THE SALE.

 

Except as disclosed on Schedule C, to Seller’s Knowledge there is no suit,
action, claim, investigation or inquiry by any person or entity or by any
administrative agency or governmental body and no legal, administrative or
arbitration proceeding pending, or to Seller’s Knowledge, threatened against
Seller or any Affiliate of Seller which has affected or could affect Seller’s
ability to consummate the transactions contemplated by this Agreement.  In this
Agreement, “Affiliate” means any person or entity which controls, is controlled
by or is under common control with, the subject person or entity.

 

SECTION 4.5             NO DEMANDS.

 

Except as disclosed on Schedule C, Seller has received no notice of any claimed
defaults, offsets or cancellations from any lessors with respect to the Leases,
and Seller has no Knowledge of the existence of any default existing with
respect to any of the Leases or any express or implied term of any Lease.

 

SECTION 4.6             TAXES.

 

(a)           To Seller’s Knowledge all ad valorem, real property, personal
property, production, severance, excise and other taxes applicable to the
ownership and operation of the Assets prior to the Effective Time have been or
will be duly and timely paid except as may be contested by Seller in good faith.

 

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(b)           With respect to all taxes related to the Assets, (i) all material
tax returns relating to such taxes required to be filed on or before the
Effective Time by Seller with respect to any taxes for any period ending on or
before the Effective Time have been timely filed with the appropriate
governmental authority, (ii) to Seller’s Knowledge such tax returns are true and
correct in all respects, and (iii) all taxes reported on such tax returns have
been paid or provided for, except those being contested in good faith.

 

(c)           With respect to all taxes related to the Assets (i) there are not
currently in effect any extension or waiver by Seller of any statute of
limitations of any jurisdiction regarding the assessment or collection of any
such taxes, and (ii) there are no administrative proceedings or lawsuits pending
against the Assets or Seller with respect to the Assets by any taxing authority.

 

(d)           To Seller’s Knowledge, none of the Assets were bound as of the
Effective Time or will be bound at Closing by any tax partnership agreement or
other agreement binding upon Seller that would preclude Seller from being
entitled to dispose of the property.

 

(e)           There are no liens for taxes encumbering any of the Assets.

 

SECTION 4.7             LEASES.

 

To the Knowledge of Seller:

 

(a)           The Leases have been maintained according to their terms, in
compliance with the agreements to which the Leases are subject; and

 

(b)           The Leases are presently in full force and effect; and all other
oil and gas leases covering the Lands have expired and are no longer of any
force or effect.

 

SECTION 4.8            NON-FOREIGN REPRESENTATION.

 

Seller is not a non-resident alien, foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are defined in the “Code” and
the Income Tax Regulations promulgated thereunder (the “Income Tax
Regulations”).

 

SECTION 4.9            COMMITMENTS FOR EXPENDITURES.

 

Except as set forth on Schedule E there are no outstanding authorities for
expenditures (AFE’s) which Seller has received from a third party operator, but
has not responded to. Except as set forth on Schedule E, Seller has not
consented to any AFEs that Seller reasonably anticipates will require
expenditures by the owner of the Assets after the Effective Time in excess of
$100,000.00 net to Seller’s interest.

 

SECTION 4.10          COMPLIANCE WITH LAWS.

 

Except as disclosed on Schedule 4.10, the Assets operated by Seller are, and
Seller’s operation of the same has been and currently is and to Seller’s
Knowledge the non-operated

 

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Assets are and the operation of the non-operated Assets has been and currently
is, in substantial compliance with the provisions and requirements of all Laws
of all Governmental Bodies having jurisdiction with respect to the Assets.

 

SECTION 4.11          MATERIAL CONTRACTS.

 

(A)           EXCEPT AS DISCLOSED ON SCHEDULE 4.11(A), TO SELLER’S KNOWLEDGE,
SELLER HAS PAID ITS SHARE OF ALL COSTS PAYABLE BY IT UNDER THE CONTRACTS SET
FORTH ON SCHEDULE A-3, AND ALL SUCH CONTRACTS ARE IN FULL FORCE AND EFFECT AND
CONSTITUTE VALID AND BINDING OBLIGATIONS OF THE PARTIES THERETO.  SELLER IS NOT
IN BREACH OR DEFAULT (AND NO SITUATION EXISTS THAT, WHICH THE PASSING OF TIME OR
GIVING OF NOTICE WOULD CREATE A BREACH OR DEFAULT) UNDER ANY OF SUCH CONTRACTS,
AND NO BREACH OR DEFAULT BY ANY THIRD PARTY (OR SITUATION THAT, WITH THE PASSING
OF TIME OR GIVING OF NOTICE WOULD CREATE A BREACH OR DEFAULT) EXISTS, EXCEPT
SUCH DEFAULTS AS WOULD NOT, INDIVIDUALLY OR IN THE AGGREGATE HAVE A MATERIAL
ADVERSE EFFECT.

 

(B)           TO SELLER’S KNOWLEDGE, SCHEDULE A-3 SETS FORTH ALL OF THE
FOLLOWING CONTRACTS, AGREEMENTS, AND COMMITMENTS (EXCLUDING LEASES AND SURFACE
CONTRACTS) TO WHICH ANY OF THE ASSETS WILL BE BOUND AS OF THE CLOSING: (I) ANY
AGREEMENT WITH ANY AFFILIATE; (II) ANY AGREEMENT OR CONTRACT FOR THE SALE,
EXCHANGE, OR OTHER DISPOSITION OF HYDROCARBONS PRODUCED FROM OR ATTRIBUTABLE TO
SELLER’S INTEREST IN THE ASSETS THAT IS NOT CANCELABLE WITHOUT PENALTY OR OTHER
MATERIAL PAYMENT ON NOT MORE THAN 30 DAYS PRIOR WRITTEN NOTICE; (III) ANY
AGREEMENT OF OR BINDING UPON SELLER TO SELL, LEASE, FARMOUT, OR OTHERWISE
DISPOSE OF ANY INTEREST IN ANY OF THE ASSETS AFTER THE DATE HEREOF, OTHER THAN
CONVENTIONAL RIGHTS OF REASSIGNMENT ARISING IN CONNECTION WITH SELLER’S
SURRENDER OR RELEASE OF ANY OF THE ASSETS; AND (IV) ANY TAX PARTNERSHIP
AGREEMENT OF OR BINDING UPON SELLER AFFECTING ANY OF THE ASSETS.

 

SECTION 4.12          PAYMENTS FOR PRODUCTION AND IMBALANCES.

 

(a)           Except as set forth on Schedule 4.12(a), Seller is not obligated
under any contract or agreement for the sale of gas from the Assets containing a
take-or-pay, advance payment, prepayment, or similar provision, or under any
gathering, transmission, or any other contract or agreement with respect to any
of the Assets to gather, deliver, process, or transport any gas without then or
thereafter receiving full payment therefor.

 

(b)           Schedule 4.12(b) sets forth all of Seller’s Imbalances and
penalties as of the Effective Time arising with respect to the Assets and except
as disclosed in Schedule 4.12(b) as of the Effective Time (i) no Person is
entitled to receive any portion of the Seller’s Hydrocarbons produced from the
Assets or to receive cash or other payments to “balance” any disproportionate
allocation of Hydrocarbons produced from the Assets under any operating
agreement, gas balancing or storage agreement, gas processing or dehydration
agreement, gas transportation agreement, gas purchase agreement, or other
agreements, whether similar or dissimilar, (ii) Seller is not obligated to
deliver any quantities of gas or to pay any penalties or other amounts, in
connection with the violation of any of the terms of any gas contract or other
agreement with shippers with

 

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respect to the Assets, and (iii) Seller is not obligated to pay any penalties or
other payments under any gas transportation or other agreement as a result of
the delivery of quantities of gas from the Wells in excess of the contract
requirements.

 

SECTION 4.13           GOVERNMENTAL AUTHORIZATIONS.

 

To Seller’s Knowledge, and except as disclosed on Schedule 4.13, Seller has
(i) obtained and is maintaining all federal, state and local governmental
licenses, permits, franchises, orders, exemptions, variances, waivers,
authorizations, certificates, consents, rights, privileges and applications
therefor (the “Governmental Authorizations”) that are presently necessary or
required for the ownership and operation of the Assets operated by Seller as
currently owned and operated and (ii) operated the Assets operated by Seller in
accordance with the conditions and provisions of such Governmental
Authorizations, except, in each of (i) and (ii) above, to the extent that such
failure does not have a material affect on the Assets or the operation of the
same.

 

SECTION 4.14           PAYOUT BALANCES.

 

To Seller’s Knowledge, Schedule 4.14 contains a complete and accurate list of
the status of any “payout” balance, as of the Effective Time, for the Wells and
Units subject to a reversion or other adjustment at some level of cost recovery
or payout (or passage of time or other event other than termination of a Lease
by its terms).

 

SECTION 4.15           BANKRUPTCY.

 

To Seller’s Knowledge, there are no bankruptcy, reorganization, or similar
arrangement proceedings pending, being contemplated by or, to Seller’s
Knowledge, threatened against Seller or any Affiliate.

 

SECTION 4.16           BROKERAGE FEES.

 

Purchaser shall not directly or indirectly have any responsibility, liability or
expense, as a result of undertakings or agreements of Seller, for brokerage
fees, finder’s fees, agent’s commissions or other similar forms of compensation
in connection with this Agreement or any agreement or transaction contemplated
hereby.

 

ARTICLE V

 

PURCHASER’S REPRESENTATIONS AND WARRANTIES

 

SECTION 5.1             ORGANIZATION, STANDING AND POWER.

 

Linn Energy Holdings, LLC is a Delaware limited liability company duly
organized, validly existing and in good standing under the laws of the state of
its formation and Linn Operating, Inc. is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and each has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.

 

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Purchaser is duly qualified to carry on its business in each state identified in
Schedule A where the failure to so qualify would have a materially adverse
effect on Purchaser’s business or properties in such state.

 

SECTION 5.2            AUTHORITY AND ENFORCEABILITY.

 

The execution and delivery by Purchaser of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly and validly authorized
by all necessary corporate action on the part of Purchaser.  This Agreement is
the valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
and to general equity principles.  Neither the execution and delivery by
Purchaser of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Purchaser with any of the provisions
hereof, will

 

(a)           conflict with or result in a breach of any provision of its
certificate of incorporation, formation or bylaws (as applicable),

 

(b)           result in a material default (with due notice or lapse of time or
both) or give rise to any right of termination, cancellation or acceleration
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license or agreement to which Purchaser is a party or by which it or
any of its properties or assets may be bound or

 

(c)           violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to Purchaser, or any of its properties or assets,
assuming receipt of all routine governmental consents normally acquired after
the consummation of transactions such as transactions of the nature contemplated
by this Agreement.

 

SECTION 5.3            INDEPENDENT EVALUATION.

 

Purchaser is knowledgeable and experienced in the evaluation, acquisition and
operation of oil and gas properties.  Except as set forth in this Agreement,
Purchaser acknowledges that Seller has made no representations or warranties as
to the accuracy or completeness of such information, and, in entering into and
performing this Agreement, Purchaser has relied and will rely solely upon its
independent investigation of, and upon its own knowledge and experience and that
of its advisors’ with respect to, the Assets and their value.

 

SECTION 5.4            SUITS AFFECTING THE SALE.

 

There is no suit, action, claim, investigation or inquiry by any person or
entity or by any administrative agency or governmental body and no legal,
administrative or arbitration proceeding pending or, to Purchaser’s knowledge,
threatened against Purchaser or any Affiliate of Purchaser which has affected or
could materially affect Purchaser’s ability to consummate the transactions
contemplated by this Agreement.

 

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SECTION 5.5            ELIGIBILITY.

 

The Purchaser is eligible under all applicable laws and regulations to own the
Assets, including, without limitation, the Leases.

 

SECTION 5.6            FINANCING.

 

Purchaser has the financial ability to purchase the Assets, and Closing of the
transaction is not contingent upon obtaining financing.

 

ARTICLE VI

 

ASSUMPTION OF OBLIGATIONS AND INDEMNIFICATION

 

SECTION 6.1            ASSUMPTION AND RETENTION OF CERTAIN LIABILITIES AND
OBLIGATIONS BY PURCHASER AND SELLER.

 

(a)           If the Closing occurs, (a) Purchaser assumes all obligations that
are attributable to the Assets on or after the Effective Time including, but not
limited to, any obligation for make-up gas according to the terms and conditions
of the applicable gas contracts, and all obligations to properly plug and
abandon all wells, pipelines and other facilities now or thereafter located on
the Leases (regardless of whether any such obligation to plug and abandon is
attributable to periods of time prior to or after the Effective Time) and
restore the surface of the Leases in accordance with applicable lease or other
agreements and governmental (including environmental) laws, orders and
regulations, and (b) Purchaser agrees to execute and deliver any specific
assumption agreements, bonds, or other financial assurances, if any, required to
effectuate the assumption of such obligations.

 

(B)           NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, SELLER
WILL RETAIN ANY LIABILITIES OF SELLER OR ANY OF ITS AFFILIATES WITH REGARD TO
THE SELLER PLANS (AS DEFINED IN SECTION 14.4(C) OR OTHERWISE RELATING TO ANY
PRESENT OR FORMER EMPLOYEES OF SELLER OR ANY OF ITS AFFILIATES (“SELLER EMPLOYEE
LIABILITIES”).

 

SECTION 6.2            INDEMNIFICATION BY PURCHASER.

 

If the Closing occurs Purchaser agrees to release, indemnify, defend and hold
harmless Seller, its agents and representatives from and against any and all
suits, judgments, damages, claims, liabilities, losses, costs and expenses
(including court costs and reasonable attorney’s fees)

 

(a)           that are attributable to the use, ownership and operation of the
Assets arising and attributable to periods of time after the Effective Time (but
including, the obligation to properly plug and abandon all wells now or
hereafter located on the Leases), regardless of whether Seller, its agents and
representatives were wholly or partially negligent or otherwise at fault,

 

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(b)           that arise out of any breach by Purchaser of any representation,
warranty, covenant or agreement hereunder.

 

SECTION 6.3            INDEMNIFICATION BY SELLER.

 

If the Closing occurs, Seller agrees, for a period of one (1) year, two
(2) years in the case of the special warranty of title described in
Section 6.4(a), below, after the Effective Time, to release, indemnify, defend
and hold harmless Purchaser from and against any and all suits, judgments,
damages, claims, liabilities, losses, costs and expenses (including, without
limitation, court costs and reasonable attorneys’ fees)

 

(a)           that are attributable to use, ownership or operation of the Assets
attributable to periods of time prior to the Effective Time (other than relating
to the obligation to properly plug and abandon wells located on the Leases)
regardless of whether Purchaser was wholly or partially negligent or otherwise
at fault, or

 

(b)           that arise out of any breach by Seller of any covenant, agreement,
representation, or warranty, hereunder, including the special warranty of title
contained in the conveyances to be delivered at closing,

 

(c)           that are attributable to claims by third parties for damages
caused by or arising out of the escape of salt water prior to the Closing Date
from the lands described on Schedule G, attached hereto, (the “Schedule G
Lands”) or that are attributable to claims by the following former surface
owners of said lands, Robert Milton O’Daniel, Cindy O’Daniel, and Lorin Patrick
O’Daniel;

 

provided, however, that such indemnity, defense and hold harmless obligations
shall not apply to (A) any amount that was taken into account as an adjustment
to the Purchase Price pursuant to the provisions hereof, (B) any liability of
Purchaser to Seller under the provisions of this Agreement, and (C) any amount
in excess of twenty-five percent (25%) of the Purchase Price; and provided
further, that if Purchaser (i) provides Seller with a plan (the “Mitigation
Plan”) for mitigating the flow of water off of the Schedule G Lands by
installing a water recovery system (the “Mitigation System”), (ii) implements
the Mitigation Plan on or before March 31, 2010 (provided, however, that such
date will be extended in the event of a force majeure or other delay caused by a
third-party or governmental authority), (iii) maintains the Mitigation System as
a prudent operator would, (iv) provides Seller with the opportunity to inspect
the Mitigation System twice per year, once the Mitigation System is installed,
(v) upon request (but no more frequently than once per year) provides the Seller
with an annual report describing the amount of water that has been collected by
the Mitigation System, and estimating the volume of water, if any, that has not
been collected by the Mitigation System, and (vi) has not caused the release of
water from the Schedule G Lands through Purchaser’s gross negligence or willful
misconduct, then the indemnity provided in Section 6.3(c), above, shall be
extended for so long as the foregoing described conditions are met by Purchaser,
in no event however to exceed six (6) years after the Closing Date.  As used
herein, force majeure shall mean acts of God; strikes, lockouts, or other
industrial disturbances; acts of a public enemy; wars; blockades; insurrections;
riots; epidemics; landslides; lightning; earthquakes; fires; storms (including
but not limited to

 

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hurricanes or hurricane warnings); floods; washouts; arrests and restraints of
the government, either federal or state, civil or military; civil disturbances;
shutdowns for purposes of necessary repairs; relocation, or construction of
facilities; breakage or accident to machinery or lines of pipe; the necessity
for testing accidents; breakdowns and any other causes, whether of the kind
enumerated or otherwise, which are not reasonably in the control of the party
claiming suspension. It is understood and agreed that the settlement of strikes
or lockouts shall be entirely within the discretion of the party having the
difficulty and that the above requirement that any force majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of an opposing party when such
course is inadvisable in the discretion of the party having the difficulty.

 

SECTION 6.4            INTERPRETATION.

 

The provisions of each of the foregoing Sections 6.2 and 6.3 shall be
interpreted as follows:

 

(a)           The indemnity provided for by each of such Sections shall extend
to any loss, cost, expense, liability or damage (“Loss”) incurred or suffered by
the indemnified party, including reasonable fees and expenses of attorneys,
technical experts and expert witnesses reasonably incident to matters
indemnified against.  The indemnity provided for in Section 6.3 with respect to
a breach or failure of a special warranty of title of any interest contained in
the conveyance shall be for a period of two (2) years following the Effective
Time and shall be reduced by the value of production from the interest actually
received by Purchaser (to the extent such production received is not subject to
any repayment or offset), net of expenses incurred for the interest by the
Purchaser, for which a special warranty of title was breached or failed, but
only in proportion to and to the extent of such breach or failure.  After the
Defective Interest Notice Date (prior to which the adjustment provisions of
Section 3.4 also shall be in effect) and subject to the provisions of
Section 3.6, the indemnity provided for herein shall be the sole and exclusive
remedy, as between the parties hereto, for a breach or failure of a warranty or
representation of title.  The adjustment provisions for breaches of title
representations and warranties as set forth in Section 3.4 are applicable only
as to breaches of title representations and warranties for which notice has been
given on or prior to the Defective Interest Notice Date subject to the
provisions of Section 3.6.  Subject to Section 3.6 and this Article 6, after the
Defective Interest Notice Date, the exclusive applicable representations and
warranties of title shall be the special warranty of title by, through and under
Seller, contained in the conveyances delivered pursuant hereto, and not
otherwise.

 

(b)           The amount of each payment claimed by an indemnified party to be
owing as described in each of such Sections, together with a list identifying to
the extent reasonably possible each separate item of Loss for which payment is
so claimed, shall be set forth by such party in a statement delivered to the
indemnifying party or parties, as the case may be, setting forth the basis of
such claim and shall be paid by such indemnifying party or parties, as the case
may be, as and to the extent required herein with thirty (30) days after receipt
of such statement.

 

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(c)           Except each party’s obligations in Section 3.5, Section 6.1(b),
Section 8.2, Section 8.3, Section 13.2(b)(iii), Article X, or Article XIV of
this Agreement, and as may be permitted under the conveyances delivered
hereunder, the remedies set forth in this Article VI shall be the sole and
exclusive remedies of Seller and Purchaser for any breach of a covenant,
agreement, representation or warranty, other than the special warranty of title
to be included on any conveyance delivered to Purchaser at Closing.

 

SECTION 6.5            NOTICES.

 

(a)           Within sixty (60) days after notification to an indemnified party
with respect to any claim or legal action or other matter that may or could
result in a Loss for which indemnification may be sought under Article VI, but
in any event in time sufficient for the indemnifying party to contest any
action, claim or proceeding that has become the subject of proceedings before
any court or tribunal, such indemnified party shall give written notice of such
claim, legal action or other matter to the indemnifying party and, at the
request of such indemnifying party, shall furnish the indemnifying party or its
counsel with copies of all pleadings and other information with respect to such
claim, legal action or other matter and shall, at the election of the
indemnifying party made within sixty (60) days after receipt of such notice,
permit the indemnifying party to assume control of such claim, legal action or
other matter (to the extent only that such claim, legal action or other matter
relates to a Loss for which the indemnifying party is liable), including the
determination of all appropriate actions, the negotiation of settlements on
behalf of the indemnified party, and the conduct, of litigation, through
attorneys of the indemnifying party’s choice.  In the event of such an election
by the indemnifying party,

 

(i)    any expense incurred by the indemnified party thereafter for
investigation or defense of the matter shall be borne by the indemnifying party,
and

 

(ii)   the indemnified party shall give all reasonable information and
assistance, other than pecuniary, that the indemnifying party shall deem
reasonably necessary to the proper defense of such claim, legal action, or other
matter.

 

In the absence of such an election, the indemnified party will use its
commercially reasonable efforts to defend any claim, legal action or other
matter to which such other party’s indemnifications under this Article VI
applies.

 

(b)           Failure to provide timely notice pursuant to subsection (a) of
this Section 6.5 shall not deprive the party seeking indemnification of its
right to indemnifications pursuant to this Article VI, although such party shall
be liable for any damages occasioned by its delay in affording the party
entitled to notice with such notice and shall not be entitled to
indemnifications for any costs incurred during the period of such delay that

 

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could reasonably have been avoided by the indemnifying party if timely notice
had been given.

 

Section 6.6             Tax Treatment of Indemnification Amounts.

 

Seller and Purchaser agree that any amounts recoverable by any party pursuant to
this Article VI shall be treated as adjustments to the Purchase Price for all
tax purposes.

 

ARTICLE VII

 

SELLER’S OBLIGATIONS PRIOR TO CLOSING

 

SECTION 7.1             RESTRICTIONS ON OPERATIONS.

 

(a)            From the date hereof until the end of the Transition Period (as
defined in Section 14.1), Seller shall (or, with respect to non-operated Wells,
shall use its commercially reasonable efforts to cause the operator of all Wells
in which it owns working interests to):

 

(i)            not abandon any Well on any Lease capable of commercial
production, or release or abandon all or any part of the Assets capable of
commercial production, or release or abandon all or any portion of the Leases
without Purchaser’s written consent;

 

(ii)           not cause the Assets to be developed, maintained or operated in a
manner materially inconsistent with prior operation;

 

(iii)          not commence or agree to participate in any operation on the
Assets anticipated to cost in excess of one hundred thousand and NO/100 Dollars
($100,000.00) per operation net to Seller’s interest without Purchaser’s written
consent (except emergency operations, operations required under presently
existing contractual obligations, and operations undertaken to avoid any penalty
provision of any applicable agreement or order);

 

(iv)          not create any lien, security interest or other encumbrance with
respect to the Assets (except for Permitted Encumbrances), or, without
Purchaser’s written consent, enter into any agreement for the sale, disposition
or encumbrance of any of the Assets, or dedicate, sell, encumber or dispose of
any oil and gas production, except in the ordinary course of business on a
contract which is terminable on not more than thirty (30) days notice except
production sold under a contract listed on Schedule A-3;

 

(v)           not agree to any alterations in the contracts included in or
relating to a material portion of the Assets or enter into any material new
contracts relating to the Assets (other then contracts terminable on not more
than thirty (30) days notice) without Purchaser’s written consent;

 

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(vi)          maintain in force all insurance policies covering the Assets;

 

(vii)         maintain the Leases in full force and effect and comply with all
express or implied covenants contained therein (provided that this covenant
shall not be deemed to expand Seller’s title warranties beyond those expressly
contained in this Agreement);

 

(viii)        furnish Purchaser with copies of all AFE’s in excess of one
hundred thousand dollars ($100,000.00) received or issued by Seller prior to the
Closing.

 

(b)           From and after the date of this Agreement until the end of the
Transition Period, Seller shall:

 

(i)            provide Purchaser with access (or, where Seller is not an
operator, use its commercially reasonable efforts to arrange for access) to the
Assets for inspection thereof at the sole cost, risk and expense of Purchaser;

 

(ii)           use reasonable efforts to obtain any and all necessary consents,
waivers (including waiver of preferential purchase rights), permissions and
approvals of third parties or governmental authorities in connection with the
sale and transfer of the Assets other than approvals of federal lease
assignments to Purchaser;

 

(iii)          cause to be filed all reports required to be filed by Seller with
governmental authorities relating to the Assets;

 

(iv)          provide prompt notice to Purchaser of any notice received by
Seller of a default, claim, obligation or suit which affects any of the Assets;
and

 

(v)           notify Purchaser of any event, condition, or occurrence which
results in any of the representations and warranties made herein to be untrue.

 

Section 7.2             Seller’s Operations

 

From the date hereof until the end of the Transition Period, Seller will
(i) continue the routine operation of the Assets operated by Seller in the
ordinary course of business; and (ii) operate the Assets operated by Seller in
material compliance with all applicable laws and in material compliance with all
Leases and contracts described in Schedule A-3.

 

Section 7.3             Operated Assets

 

Seller makes no representations or warranties to Purchaser as to transferability
or assignability of operatorship of any Assets operated by Seller.  Rights and
obligations associated with operatorship of such Assets are governed by
operating and similar agreements

 

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covering the Assets and will be decided in accordance with the terms of such
agreements. However, Seller will assist Purchaser in its efforts to succeed
Seller as operator of any Wells included in the Assets.  For all assets operated
by Seller, Seller shall execute and deliver to Purchaser and Purchaser shall
promptly file the appropriate forms with the applicable regulatory agency
transferring operatorship of such Assets to Linn Operating, Inc., to the extent
permitted or approved pursuant to the applicable operating agreement.

 

SECTION 7.4            CONTRACT OPERATING, MARKETING AND FINANCIAL SERVICES
AGREEMENT

 

SELLER AGREES TO PROVIDE PURCHASER THOSE SERVICES LISTED IN THE TRANSITION
SERVICES AGREEMENT (“TSA”), WHICH SHALL BE SUBSTANTIALLY IN THE FORM ATTACHED
HERETO AS EXHIBIT D, FOR THE TERM AS SET FORTH IN THE TSA.

 

ARTICLE VIII

 

ADDITIONAL AGREEMENTS OF THE PARTIES

 

SECTION 8.1            GOVERNMENT REVIEWS AND FILINGS.

 

Both prior to and after the Closing, as appropriate, each of Seller and the
Purchaser shall in a timely manner

 

(a)           make required filings with, prepare applications to and conduct
negotiations with each governmental agency as to which such filings,
applications or negotiations are necessary or appropriate for the consummation
of the transactions contemplated hereby, and

 

(b)           provide such information as each may reasonably request to make
such filings, prepare such applications and conduct such negotiations.

 

Seller shall cooperate with and assist Purchaser in pursuing such filings,
applications and negotiations, and Purchaser shall cooperate with and assist
Seller with respect to such filings, applications and negotiations.  Each party
shall be responsible for and shall make any governmental filings occasioned by
the ownership or structure of such party.

 

SECTION 8.2            CONFIDENTIALITY.

 

Until completion of the Closing (and without limitation in the event Closing
should not occur for any reason), except as required by law, Purchaser and its
officers, agents and representatives shall continue to be bound by the
Confidentiality Agreement between the parties dated July 20, 2009.

 

SECTION 8.3            TAXES.

 

(a)           Each party shall provide the other party with reasonable
information which may be required by the other party for the purpose of
preparing tax returns and responding to any audit by any taxing jurisdiction. 
Each party shall cooperate with all reasonable requests of the other party made
in connection with contesting the imposition

 

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of taxes.  Notwithstanding anything to the contrary in this Agreement neither
party shall be required at any time to disclose to the other party any tax
returns or other confidential tax information.

 

(b)           Seller and Purchaser shall report the information required by
Section 1060 of the Code, (or any corresponding state or local income tax
statute), on all tax returns including, but not limited to, Internal Revenue
Service Form 8594, in a manner consistent with

 

(i)            the allocations set forth on Schedule 2.3(b), as adjusted
pursuant to this Agreement and

 

(ii)           the requirements of such Section 1060.

 

If, contrary to the intent of the parties hereto as expressed in this
Section 8.3(b), any taxing authority makes or proposes an allocation different
from the allocation determined under this Section 8.3(b), Purchaser and Seller
shall cooperate with each other in good faith to contest such taxing authority’s
allocation (or proposed allocation), provided, however, that, after consultation
with the party adversely affected by such allocation (or proposed allocation),
the other party hereto may file such protective claims or tax returns as may be
reasonably required to protect its interests.

 

(c)           All ad valorem taxes, real property taxes, personal property taxes
and similar obligations (“Property Taxes”) attributable to the Assets with
respect to the tax period in which the Effective Time occurs shall be
apportioned as of the Effective Time between Seller and Purchaser based on the
number of days in such period which fall on each side of the Effective Time
(with the day on which the Effective Time falls being counted in the period
after the Effective Time).  The owner of record on the assessment date shall
file or cause to be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to the taxing authorities all
Property Taxes relating to the tax period on which the Effective Time occurs. 
If Seller is the owner of record on the assessment date, then Purchaser shall
pay to Seller Purchaser’s pro rata portion of Property Taxes within 30 days
after receipt of Seller’s invoice therefor, except to the extent taken into
account as an adjustment to the Purchase Price pursuant to Section 2.4.  If
Purchaser is the owner of record as of the assessment date then Seller shall pay
to Purchaser Seller’s pro rata portion of Property Taxes within 30 days after
receipt of Purchaser’s invoice therefor.

 

(d)           Subject to the provisions of Section 8.3(e), Seller shall
indemnify Purchaser for all liabilities that are assessed against Purchaser for
foreign, federal, state, local or Indian Tribal taxes in respect of the
ownership or operation of the Assets prior to the Effective Time, together with
penalties and interest thereon (provided such penalties and interest do not
result from the negligence, late filing, fraud or acts of misfeasance or
malfeasance of Purchaser), to the extent such liabilities exceed the amounts of
such taxes

 

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paid by Seller; provided that Seller shall be entitled to all refunds or rebates
of taxes paid in respect of the ownership or operation of the Assets prior to
the Effective Time that may be received by Seller or Purchaser.  Subject to the
provisions of Section 8.3(e), Purchaser shall indemnify Seller for all
liabilities which are assessed against Seller for foreign, federal, state, local
or Indian Tribal taxes, together with penalties and interest thereon (provided
such penalties and interest do not result from the negligence, late filing,
fraud or acts of misfeasance or malfeasance of Seller), to the extent such
liabilities relate to the ownership or operation of the Assets from and after
the Effective Time; provided, however, that such indemnity shall not apply to
such taxes to the extent (but only to the extent) such taxes are included in the
determination of the Final Purchase Price, and provided further, however, that
Purchaser shall be entitled to all refunds or rebates of taxes attributable to
the Assets on or after the Effective Time that may be received by Seller or
Purchaser, except to the extent (but only to the extent) such refunds or rebates
are included in the determination of the Final Purchase Price.  Seller and
Purchaser agree that any amounts recoverable by any party pursuant to this
Section 8.3(d) shall be treated as adjustments to the Purchase Price for all tax
purposes.

 

(e)           In order for Seller or Purchaser (“Claimant”) to make a claim
against the other (“Indemnitor”) under this Section 8, Claimant shall give
prompt notice to Indemnitor of any liability for which Claimant would claim
indemnification under this Section 8.3, which notice shall include the
circumstances surrounding such liability.  Indemnitor shall then have the right
but not the obligation, to contest such liability at its sole cost and expense
by giving written notice to Claimant of such election within 30 days after
Indemnitor receives Claimant’s notice.  Should Indemnitor fail to notify
Claimant within such 30-day period, Indemnitor shall be deemed to have elected
not to contest such liability.  Should Indemnitor elect (or be deemed to have
elected) not to contest such liability, Indemnitor shall pay the full amount due
under Section 8.3(d) in respect of such liability to Claimant in cash within 30
days after Indemnitor elects (or is deemed to have elected) not to contest such
liability.  Except as specifically provided in this Section 8.3 with respect to
certain tax issues which must be combined or joined with other tax issues, if
Indemnitor elects to contest any such liability, Claimant shall give Indemnitor
full authority to defend, adjust, compromise or settle such liability and any
action, suit, or proceeding in which Indemnitor contests such liability, in the
name of Claimant or otherwise as Indemnitor shall elect.  In any administrative
or legal proceeding, Indemnitor shall employ counsel selected by it and
reasonably acceptable to Claimant.  With respect to tax issues incident to any
such liability that must be combined or joined with one or more other tax issues
which Claimant desires to contest, Claimant and Indemnitor shall cooperate
fully, and control of any administrative legal proceeding shall rest with the
party having the greater ultimate liability (including liability under
Section 8.3(d) for the taxes in dispute).  The party in control may not adjust,
compromise or settle taxes which are contested by or on behalf of the other
party without the consent of the other party.  With respect to any liability
contested by Indemnitor under the terms of this Section 8.3(d), Indemnitor shall
pay the full amount due under Section 8.3(d) in respect of such liability to
Claimant in cash within 30 days after the liability is finally determined

 

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either by settlement or pursuant to the final unappealable judgment of a court
of competent jurisdiction.

 

(f)            Purchaser shall pay and be liable for all sales taxes occasioned
by the sale of the Assets and all documentary, transfer, filing, licensing, and
recording fees required in connection with the processing, filing, licensing or
recording of any assignments, titles, or bills of sale.

 

(g)           The provisions of Article VI limiting the obligations of Seller
notwithstanding, the obligations of the parties pursuant to this Section 8.3
shall survive for a period of four (4) years following Closing.

 

SECTION 8.4            RECEIPTS AND CREDITS.

 

Subject to the terms hereof and except to the extent same have already been
taken into account as an adjustment to the Purchase Price, all monies, proceeds,
receipts, credits and income attributable to the ownership and operation of the
Assets (a) for all periods of time from and subsequent to the Effective Time,
shall be the sole property and entitlement of Purchaser, and to the extent
received by Seller, Seller shall within 10 business days after such receipt,
fully disclose, account for and transmit same to Purchaser and (b) for all
periods of time prior to the Effective Time, shall be the sole property and
entitlement of Seller and, to the extent received by Purchaser, Purchaser shall
fully disclose, account for and transmit same to Seller within 10 business
days.  Subject to the terms hereof and except to the extent same have already
been taken into account as an adjustment to the Purchase Price, all costs,
expenses, disbursements, obligations and liabilities attributable to the Assets
(i) for periods of time prior to the Effective Time, regardless of when due or
payable, shall be the sole obligation of Seller and Seller shall promptly pay,
or if paid by Purchaser, promptly reimburse Purchaser for and hold Purchaser
harmless from and against same and (ii) for periods of time from and subsequent
to the Effective Time, regardless of when due or payable, shall be the sole
obligation of Purchaser and Purchaser shall promptly pay, or if paid by Seller,
promptly reimburse Seller for and hold Seller harmless from and against same.

 

SECTION 8.5            SUSPENSE ACCOUNTS.

 

At the Closing, Seller agrees to transfer to Purchaser and provide information
regarding all of Seller’s payable accounts holding monies in suspense
attributable to the Assets.  Purchaser agrees to take and apply such monies in a
manner consistent with prudent oil and gas business practices and to indemnify
Seller against any claim relating to the failure to pay such funds after the
Closing.

 

ARTICLE IX

 

CONDITIONS TO CLOSING

 

SECTION 9.1            SELLER’S CONDITIONS.

 

The obligations of Seller at the Closing are subject, at the option of Seller,
to the satisfaction at or prior to the Closing of the following conditions.

 

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(a)           All representations and warranties of Purchaser contained in this
Agreement shall be true in all material respects at and as of the Closing as if
such representations and warranties were made at and as of the Closing, and
Purchaser shall have performed and satisfied all agreements in all material
respects required by this Agreement to be performed and satisfied by Purchaser
at or prior to the Closing.

 

(b)           Seller shall have received a certificate dated as of the Closing,
executed by the President or any Vice President of Purchaser, to the effect that
the statements in Section 9.1(a) are true in all material respects at and as of
the Closing.

 

(c)           No order shall have been entered by any court or governmental
agency having jurisdiction over the parties or the subject matter of this
contract that restrains or prohibits the purchase and sale contemplated by this
Agreement and which remains in effect at the time of Closing, except

 

(i)            any order affecting a matter with respect to which Seller has
been adequately indemnified by Purchaser or

 

(ii)           any order affecting only a portion of the Assets, which portion
of the Assets could be treated as a Casualty Loss in accordance with
Section 3.5.

 

(d)           Seller shall have been provided with such documentation or other
assurance as Seller deems necessary that Purchaser has obtained all bonds or
approvals as may be required for assigning, owning or operating the Assets and
all obligations associated with the Assets; or as may be necessary to comply
with Purchaser’s assumption of obligations as described in Section 6.1, hereof.

 

SECTION 9.2            PURCHASER’S CONDITIONS.

 

The obligations of Purchaser at the Closing are subject, at the option of
Purchaser, to the satisfaction at or prior to the Closing of the following
conditions:

 

(a)           All representations and warranties of Seller contained in this
Agreement shall be true in all material respects at and as of the Closing as if
such representations were made at and as of the Closing, and Seller shall have
performed and satisfied all agreements in all material respects required by this
Agreement to be performed and satisfied by Seller at or prior to the Closing.

 

(b)           Purchaser shall have received a certificate dated as of the
Closing, executed by the President or any Vice President of Seller, to the
effect that

 

(i)            the statements in Section 9.2(a) are true in all material
respects at and as of the Closing, and

 

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(ii)           the covenants and agreements contained in Article VII have been
performed in all material respects.

 

(c)           No order shall have been entered by any court or governmental
agency having jurisdiction over the parties or the subject matter of this
contract that restrains or prohibits the purchase and sale contemplated by this
Agreement and which remains in effect at the time of closing, except

 

(i)            any order affecting a matter with respect to which Purchaser has
been adequately indemnified by Seller or

 

(ii)           any order affecting only a portion of the Assets, which portion
of the Assets could be treated as Casualty Loss in accordance with Section 3.5.

 

ARTICLE X

 

RIGHT OF TERMINATION AND ABANDONMENT

 

SECTION 10.1          TERMINATION.

 

This Agreement and the transactions contemplated hereby may be terminated in the
following instances:

 

(a)           by Seller if the conditions set forth in Section 9.1 are not
satisfied or waived as of the Closing Date;

 

(b)           by Purchaser if the conditions set forth in Section 9.2 are not
satisfied or waived as of the Closing Date;

 

(c)           by Seller if, through no fault of Seller, the Closing does not
occur on or before November 30, 2009;

 

(d)           by Purchaser if, through no fault of Purchaser, the Closing does
not occur on or before November 30, 2009;

 

(e)           by either party as provided in Section 3.7; or

 

(f)            at any time by the mutual written agreement of Purchaser and
Seller and in accordance with any other express provisions of this Agreement.

 

SECTION 10.2          LIABILITIES UPON TERMINATION.

 

If this Agreement is terminated pursuant to Section 10.1(a), except by reason of
a failure of the condition set forth in Section 9.1(c), or is terminated as a
result of the negligence, fault or willful failure of Purchaser to perform its
obligations hereunder, Seller shall be entitled to retain the Performance
Deposit, plus any interest earned thereon, as liquidated damages for lost

 

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opportunities and not as a penalty.  If this Agreement is terminated for any
other reason, Seller shall return the Performance Deposit to Purchaser, plus any
interest earned thereon.  Upon termination of this Agreement by Seller pursuant
to an express right to do so set forth herein, Seller shall be free to enjoy
immediately all rights of ownership of the Assets and to sell, transfer,
encumber and otherwise dispose of the Assets to any party without any
restriction under this Agreement.  In no event shall either party ever be
entitled to consequential or speculative damages including, without limitation,
lost profits.

 

ARTICLE XI

 

CLOSING MATTERS

 

SECTION 11.1          TIME AND PLACE OF CLOSING.

 

(a)           The purchase by Purchaser and the sale by Seller of the Assets, as
contemplated by this Agreement (the “Closing”), shall, unless otherwise agreed
to in writing by Purchaser and Seller, take place at the offices of Seller.  The
time of the Closing shall be at 10:00 a.m., local time, on September 30, 2009.

 

(b)           The date on which the Closing occurs is referred to herein as the
“Closing Date.”

 

SECTION 11.2          CLOSING OBLIGATIONS.

 

At the Closing the following events shall occur, each being a condition
precedent to the others and each being deemed to have occurred simultaneously
with the others:

 

(a)           Seller shall execute, acknowledge and deliver to Purchaser

 

(i)            a General Assignment and Bill of Sale of the Assets in the form
of Schedule F-1 attached hereto,

 

(ii)           assignments, bills of sale and conveyances (in sufficient
counterparts to facilitate recording) substantially in the form of Schedule F-2
(the “Conveyance”) together with any transfer forms to be filed with
governmental and tribal agencies conveying the Leases and Wells effective as of
the Effective Time to Purchaser,

 

(iii)          letters in lieu of transfer orders in a form acceptable to both
parties, and

 

(iv)          deeds, assignments, bills of sale and any other specialized
instruments of transfer necessary to convey to or perfect in Purchaser the
Assets other than the Leases and Wells;

 

(b)           Seller and Purchaser shall execute and deliver a preliminary
settlement statement (the “Preliminary Settlement Statement”) prepared by Seller
that shall set forth

 

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the Estimated Final Purchase Price together with the calculations of all
adjustments using for such adjustments the best information available;

 

(c)           Purchaser shall deliver to Seller the Estimated Final Purchase
Price by wire transfer in immediately available funds;

 

(d)           Seller shall deliver to Purchaser possession of the Assets;

 

(e)           Seller shall deliver to the Purchaser the certificate referred to
in Section 9.2(b).

 

(f)            Purchaser shall deliver to Seller the certificate referred to in
Section 9.1(b);

 

(g)           Purchaser shall assume the obligation to disburse all royalty,
overriding royalty and other payments due under or with respect to the Leases to
the extent Seller was responsible for such payments prior to the Closing, except
to the extent described otherwise in the TSA;

 

(h)           Seller shall deliver a certificate of Non-Foreign Status of Seller
that meets the requirements of Treasury Regulations § 1.1445-2(b)(2);

 

(i)            Seller and Purchaser shall execute the TSA; and

 

(j)            Seller and Purchaser shall execute and deliver all other
documents or agreements called for herein.

 

ARTICLE XII

 

POST-CLOSING OBLIGATIONS

 

SECTION 12.1          POST-CLOSING ADJUSTMENTS.

 

As soon as practicable after the Closing, but in no event later than one hundred
eighty (180) days thereafter, Seller shall prepare and deliver to Purchaser a
final settlement statement (the “Final Settlement Statement”) setting forth each
adjustment or payment that was not finally determined as of the Closing and
showing the calculation of such adjustments and the resulting Final Purchase
Price.  Seller shall make its workpapers and other information available to
Purchaser to review in order to confirm the adjustments shown on Seller’s
draft.  As soon as practicable after receipt of the Final Settlement Statement,
but in no event later than ninety (90) days thereafter, Purchaser shall deliver
to Seller a written report containing any changes that Purchaser proposes to
make to the Final Settlement Statement.  Any failure by Purchaser to deliver to
Seller the written report detailing Purchaser’s proposed changes to the Final
Settlement Statement within ninety (90) days following Purchaser’s receipt of
the Final Settlement Statement shall be deemed an acceptance by Purchaser of the
Final Settlement Statement as submitted by Seller.  The parties shall agree with
respect to the changes proposed by Purchaser, if any, no later than sixty (60)
days after Seller receives from Purchaser the written report described above

 

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containing Purchaser’s proposed changes.  If the Purchaser and the Seller cannot
then agree upon the Final Settlement Statement, the determination of the amount
of the Final Settlement Statement shall be submitted to a mutually agreed firm
of independent public accountants (the “Accounting Firm”).  The determination by
the Accounting Firm shall be conclusive and binding on the parties hereto and
shall be enforceable against any party hereto in any court of competent
jurisdiction.  Any costs and expenses incurred by the Accounting Firm pursuant
to this Section 12.1 shall be borne by the Seller and the Purchaser equally. 
The date upon which such agreement is reached or upon which the Final Purchase
Price is established, shall be herein called the “Final Settlement Date.”  In
the event

 

(a)           the Final Purchase Price is more than the Estimated Final Purchase
Price, Purchaser shall pay to Seller the amount of such difference, or

 

(b)           the Final Purchase Price is less than the Estimated Final Purchase
Price, Seller shall pay to Purchaser the amount of such difference,

 

in either event by wire transfer in immediately available funds or, if the
amount of such difference is less than Twenty-Five Thousand and No/100 Dollars
($25,000.00), by check.  Payment by Purchaser or Seller, as the case may be,
shall be within five (5) days of the Final Settlement Date.

 

SECTION 12.2          FILES AND RECORDS.

 

Within thirty (30) business days following the Closing Date, Seller shall
deliver to Purchaser at Purchaser’s expense the Records, to the extent not
previously delivered.  For a period of seven (7) years after the Closing Date,
Purchaser shall maintain the Records, and Seller shall have access thereto
during normal business hours upon advance written notice to Purchaser to audit
the same in connection with federal, state or local regulatory or tax matters,
resolution of existing disputes or contract compliance matters affecting Seller.

 

SECTION 12.3          FURTHER ASSURANCES.

 

From time to time after Closing, Seller and Purchaser shall execute, acknowledge
and deliver to the other such further instruments, and take such other action as
may be reasonably requested in order more effectively to assure to said party
all of the respective properties, rights, titles, interests and estates intended
to be assigned and delivered in consummation of the transactions contemplated by
this Agreement.

 

ARTICLE XIII

 

ENVIRONMENTAL MATTERS

 

SECTION 13.1          PURCHASER ACKNOWLEDGMENT CONCERNING POSSIBLE CONTAMINATION
OF THE ASSETS.

 

Purchaser is aware that the Assets have been used for exploration, development,
and production of oil and gas and that there may be petroleum, produced water,
wastes, or other materials located on or under the Assets or associated with the
Assets.  Equipment and sites

 

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included in the Assets may contain asbestos, hazardous substances, or
naturally-occurring radioactive materials (“NORM”).  NORM may affix or attach
itself to the inside of wells, materials, and equipment as scale, or in other
forms; the wells, materials, and equipment located on the Assets or included in
the Assets may contain NORM and other wastes or hazardous substances; and
NORM-containing material and other wastes or hazardous substances may have been
buried, come in contact with the soil, or otherwise been disposed of on the
Assets.  Special procedures may be required for the remediation, removal,
transportation, or disposal of wastes, asbestos, hazardous substances, and NORM
from the Assets.

 

Purchaser will assume liability for the assessment, remediation, removal,
transportation, and disposal of wastes, asbestos, hazardous substances, and NORM
from the Assets and associated activities and will conduct these activities in
accordance with applicable federal, state, and local laws, including statutes,
regulations, orders, ordinances, and common law, currently enacted or enacted in
the future and relating to protection of public health, welfare, and the
environment, including those laws relating to storage, handling, and use of
chemicals and other hazardous materials; those relating to the generation,
processing, treatment, storage, transport, disposal, cleanup, remediation, or
other management of waste materials or hazardous substances of any kind; and
those relating to the protection of environmentally sensitive or protected areas
(“Environmental Laws”).

 

SECTION 13.2          ADVERSE ENVIRONMENTAL CONDITIONS.

 

(a)           Purchaser will have until 5 Business Days before the Closing to
notify Seller of any material adverse environmental condition of the Assets that
Purchaser finds unacceptable and provide evidence of the condition to Seller. 
An environmental condition is a material adverse environmental condition
(“Condition”) only if all the following criteria are met:

 

(i)            The environmental condition is required to be remediated at the
Effective Time under the Environmental Laws in effect at the Effective Time.

 

(ii)           The total of the cost to remediate each environmental condition
identified by Purchaser to levels required by the Environmental Laws in effect
at the Effective Time is reasonably estimated to be more than twenty-five
thousand dollars ($25,000) (net to Seller’s interest).

 

(iii)          The environmental condition was not disclosed on Schedule G.

 

(b)           For any Condition Purchaser notifies Seller of in accordance with
Section 13.2(a), Seller will have until two (2) Business Days before the Closing
Date to elect any of the following:

 

(i)            adjust the Allocated Value for an Asset by a mutually acceptable
amount reflecting Seller’s proportionate share, based on its working interest,
of

 

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the cost reasonably estimated to remediate a Condition affecting the Asset and
adjust the Purchase Price in accordance with Section 2.4 (b)(viii),

 

(ii)           remove the affected Asset from this Agreement and adjust the
Purchase Price by the Allocated Value for the affected Asset in accordance with
Section 2.4 (b)(viii), or

 

(iii)          indemnify the Purchaser for the Condition.  For avoidance of
doubt Seller and Purchaser agree that if Seller elects to indemnify Purchaser
for any Condition pursuant to this subsection, the duration and maximum amount
of liability will be negotiated by the parties at the time of such election,
and, if Purchaser and Seller are unable to agree on the duration and maximum
amount of liability prior to Closing, Seller will elect to proceed under either
subsection (i) or subsection (ii) with respect to the Affected Asset.

 

(c)           If Seller and Purchaser agree to an adjustment under subsection
(b) (i), the adjustment will be the estimated cost to remediate the Condition,
but only to the level required by the Environmental Laws in effect at the
Effective Time, and only to the extent that the total value of all Conditions
exceeds one percent (1%) of the Preliminary Purchase Price, it being understood
by Purchaser and Seller that such amount is a deductible.

 

(d)           If the estimated cost to remediate any Condition exceeds one
percent (1%) of the Preliminary Purchase Price, Purchaser may, prior to Closing,
elect to remove the affected Asset from this Agreement and adjust the Purchase
Price by the Allocated Value for the affected Asset in accordance with
Section 2.4(b)(viii).

 

(e)           If, prior to Closing, Seller and Purchaser are unable to reach an
agreement as to whether a Condition exists, or if it does exist, the cost
estimated to remediate the Condition, each party shall have the right to submit
the dispute to an independent expert (the “Independent Expert”), who shall serve
as sole arbitrator.  If either party so elects, the affected Asset shall be
removed from the Closing and the Preliminary Purchase Price shall be adjusted by
the Allocated Value of the affected Asset in accordance with
Section 2.4(b)(viii).  For a period of sixty (60) days following Closing the
parties shall make good faith efforts to negotiate an agreement as to the
affected Asset failing which the parties shall submit the dispute to the
Independent Expert in accordance with the following procedure.  The Independent
Expert shall be appointed by mutual agreement of Seller and Purchaser from among
candidates with experience and expertise in the area that is the subject of such
dispute, and failing such agreement, such Independent Expert for such dispute
shall be selected in accordance with the Commercial Arbitration Rules of the AAA
(the “Rules”).  Disputes to be resolved by an Independent Expert under this
subsection shall be resolved in accordance with mutually agreed procedures and
rules and failing such agreement, in accordance with the Rules.  The Independent
Expert shall be instructed by the parties to

 

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resolve such dispute as soon as reasonably practicable in light of the
circumstances.  The decision of the Independent Expert shall be binding upon the
parties as an award under the Federal Arbitration Act.   Subject to Seller’s
right to remove the affected Asset from this Agreement and terminate all further
proceedings related to the affected Asset, the parties shall conduct a delayed
Closing as to the affected Asset as soon as reasonably possible following the
decision of the Independent Expert.  Except for the Closing Date, all other
terms and provisions of this Agreement, including without limitation the
Purchase Price adjustment provisions of Article II, shall apply to the delayed
Closing of the affected Asset and all other conditions to Closing shall have
been deemed satisfied as of the date of the delayed Closing.

 

Section 13.3           Disposal of Materials, Substances, and Wastes; Compliance
with Law.

 

Except as provided for in Section 13.3, above, Purchaser will store, handle,
transport, and dispose of or discharge all materials, substances, and wastes
from the Assets (including produced water, drilling fluids, NORM, and other
wastes), whether present before or after the Effective Time, in accordance with
applicable local, state, and federal laws and regulations.  Purchaser will keep
records of the types, amounts, and location of materials, substances, and wastes
that are stored, transported, handled, discharged, released, or disposed of
onsite and offsite.  When any lease terminates, an interest in which has been
assigned under this Agreement, Purchaser will undertake additional testing,
assessment, closure, reporting, or remedial action with respect to the Assets
affected by the termination as is necessary to satisfy all local, state, or
federal requirements in effect at that time and necessary to restore the Assets.

 

ARTICLE XIV

 

EMPLOYEE MATTERS

 

Section 14.1           Continuing Employees.

 

From and after the date hereof, and throughout the term of the TSA (the
“Transition Period”) Seller will assist Purchaser in seeking to retain certain
of Seller’s employees to effectuate a smooth transition of the operation of the
Assets to the Purchaser.  Within 10 days from the date hereof, Seller will
provide Purchaser with a list of employees (the “Seller Employees”) available
for employment with Purchaser, which will include the following data: name, job
title, salary or wage, bonus eligibility, vacation eligibility, hire date, and
service date.  The Seller Employees that Purchaser hires and who complete one
hour of actual service with Purchaser are referred to as the “Continuing
Employees.”

 

Section 14.2           No Obligation to Hire Seller Employees.

 

Nothing in this Agreement shall require or be construed or interpreted as
requiring the Purchaser to offer employment to any employee of Seller or its
Affiliates or to continue the employment of any employee of Seller or its
Affiliates (including any Continuing Employees) following their respective Hire
Date, or to prevent Purchaser thereof from changing the terms and conditions of
employment (including compensation and benefits) of any of its employees
(including any Continuing Employees) following their respective Hire Dates. 
Seller and the

 

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Purchaser hereby acknowledge and agree that any employment offered by Purchaser
to a Continuing Employee will be “at will” and may be terminated by the
Purchaser or such Continuing Employee at any time for any reason (subject to
applicable Laws and to any specific written commitments made to the contrary by
Purchaser or by such Continuing Employee).  Further, any such offer of
employment shall be on such terms and conditions as Purchaser determines and may
be conditioned upon the Seller Employee’s passage of Purchaser’s pre-employment
screening requirements.

 

Section 14.3           Interview, Screening, and Offers to Seller Employees.

 

(A)           SELLER WILL NOTIFY THE SELLER EMPLOYEES OF PURCHASER’S DESIRE TO
INTERVIEW THEM.  SELLER AND PURCHASER WILL ASSIST ONE ANOTHER IN PROVIDING SUCH
EMPLOYEES ONE OR MORE MEETINGS WITH REPRESENTATIVES OF PURCHASER TO DISCUSS THE
CAPACITY IN WHICH SUCH PERSONS MAY BE EMPLOYED BY PURCHASER AND THE TERMS AND
CONDITIONS UNDER WHICH SUCH EMPLOYMENT WOULD BE OFFERED; PROVIDED, HOWEVER, THAT
NO EMPLOYEE OF SELLER SHALL BE REQUIRED TO ACCEPT AN OFFER OF EMPLOYMENT WITH
PURCHASER THEREOF IF SUCH AN OFFER IS MADE.  SELLER WILL RETAIN ALL LIABILITY
FOR ALL SEVERANCE BENEFITS OWED TO THE EMPLOYEES OF SELLER WHO DO NOT BECOME
CONTINUING EMPLOYEES (INCLUDING BUT NOT LIMITED TO ANY SELLER EMPLOYEES WHO
RECEIVE BUT DO NOT ACCEPT OFFERS OF EMPLOYMENT FROM PURCHASER) UNDER SELLER’S
EMPLOYMENT AGREEMENTS, OFFER LETTERS, OR SEVERANCE PLANS OR POLICIES, IF ANY, AS
WELL AS LIABILITY ARISING UNDER THE WORKER’S ADJUSTMENT AND RETRAINING ACT
(“WARN ACT”).  DURING THE TRANSITION PERIOD, PURCHASER WILL PROVIDE OFFERS OF
EMPLOYMENT TO THE SELLER EMPLOYEES THE PURCHASER DESIRES TO HIRE, WITH EACH
OFFER STIPULATING THAT THE DATE FOR COMMENCEMENT OF WORK IS THE DATE IMMEDIATELY
FOLLOWING THE TERMINATION DATE OF THE TSA (THE “HIRE DATE”).  PURCHASER WILL
PROVIDE SELLER WITH NOTICE OF THE NAMES OF THOSE SELLER EMPLOYEES TO WHOM
PURCHASER INTENDS TO MAKE EMPLOYMENT OFFERS TWO (2) DAYS PRIOR TO MAKING SUCH
OFFERS.

 

(B)           NO SELLER EMPLOYEE WILL BECOME A CONTINUING EMPLOYEE UNLESS HE OR
SHE (I) ACCEPTS PURCHASER’S OFFER OF EMPLOYMENT UNDER THE TERMS PROVIDED IN
PURCHASER’S OFFER, (II) PASSES ANY REQUIRED PRE-EMPLOYMENT SCREENING REQUIRED BY
PURCHASER, AND (III) ON THE TERMINATION DATE OF THE TSA, IS ACTIVELY AT WORK, ON
SICKNESS OR DISABILITY LEAVE, OR AN APPROVED LEAVE OF ABSENCE AND (IV) COMPLETED
ONE HOUR OF ACTUAL SERVICE WITH PURCHASER.

 

Section 14.4           Employee Benefits.

 

(a)           Purchaser will grant to the Continuing Employees credit for their
past service years as outlined in the data provided by Seller to Purchaser
pursuant to Section 14.1 for the following: (i) vesting and eligibility purposes
under any employee benefit programs maintained by Purchaser in which they are
available to participate and (ii) determining the duration and amount of their
benefits under any sick pay or sick leave policy or vacation policy, maintained
by Purchaser in which they are eligible to participate.  Seller must use
commercially reasonable efforts to provide Purchaser with all necessary
transition assistance, including any applicable service credit information

 

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relating to Continuing Employees, to enable Purchaser to develop and implement
compensation and benefit plans and programs for any Continuing Employees.

 

(b)           Effective as of each Seller Employee’s respective Hire Date, such
Seller Employee that becomes a Continuing Employee will cease to actively
participate or be eligible to actively participate in any Seller Plan except
where Seller Plan provides for continuation of benefits or conversion to
individual insurance polices upon termination of employment with Seller. 
Purchaser will not assume any Seller Plan or be liable in any respect for the
funding of, or contributions to, or liabilities under any Seller Plan.  Until
each Continuing Employee’s respective Hire Date, such Continuing Employee shall
remain the employee of Seller and Seller shall provide his or her wages and
employee benefits at Seller’s sole expense.  Without limiting the foregoing, or
Section 6.1(b) or Section 6.3 of this Agreement for all periods prior to the
Closing Date and from the Closing Date until each Seller Employee’s respective
Hire Date, under the TSA, Seller shall be responsible for (i) the base salaries
or wages and overtime payments of the Seller Employees along with any bonuses to
which such Seller Employee may be entitled, (ii) the costs of the Seller
Employees’ participation in the retirement, medical, dental and other employee
benefit plans sponsored by Seller, (iii) workers’ compensation coverage of the
Seller Employees, (iv) vacation and leave pay for the Seller Employees, (v) the
employer’s portion of any health, life, disability or other insurance provided
as a part of Seller’s employee benefit plans in effect after the Closing Date
and in which the Seller Employees participate, (vi) the employer’s portion of
all employee taxes (including Social Security, Medicare and unemployment taxes)
and any tax withholdings required of the employer, and (vii) all payroll
processing, payroll deduction, tax withholding and tax reporting services,
employee benefit administration, claims processing, personnel administration,
and all such related human resources services with respect to the Seller
Employees.

 

(c)           When used in this Agreement:

 

(i)            the term “Seller Plan” means any plan, program, policy, practice,
contract, agreement or other arrangement providing for compensation, severance,
change-in-control, termination pay, deferred compensation, retirement or pension
payments, bonuses, performance awards, retention payments, incentive
compensation, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each “employee benefit plan,”
within the meaning of Section 3(3) of Employee Retirement Income Security Act of
1974, as amended (“ERISA”) and any plans that would be “employee benefit plans”
within the meaning of Section 3(3) of ERISA if they were subject to ERISA (such
as foreign plans and plans for directors) which, in each case, is or ever has
been sponsored, maintained, contributed to, or required to be contributed to, by
Seller or any ERISA Affiliate of the Seller (present or former) for the benefit
of any present or former

 

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employee or officer, consultant or similar representative of Seller or any of
such ERISA Affiliates, and with respect to which Seller or any of such ERISA
Affiliates has or may have any liability or obligation on behalf of any of such
individuals.

 

(ii)           the term “ERISA Affiliate” means, with respect to any entity, any
entity, trade or business that is a under common control with such entity,
within the meaning of Section 414(b), (c), (m) or (o) of the Code or
Section 4001 of ERISA.

 

SECTION 14.5           CONTROL OF SELLER EMPLOYEES.

 

Prior to the Hire Date, if any, of a Seller Employee, Seller has the right to
control and direct the Seller Employees as to the performance of duties and as
to the means by which such duties are performed, including the right to
terminate the employment of any Seller Employee, provided that Purchaser will
not be liable for any costs, expense, liabilities, severance benefits, or WARN
Act liability, if any, related to any such terminated Seller Employee.   
Notwithstanding the foregoing, prior to each Seller Employee’s respective Hire
Date, Seller has the right to direct such employee to perform reasonable
administrative duties on behalf of Seller in connection with the winding down of
Seller’s services with respect to the Assets and the termination of any Seller
Plan.  During the Transition Period, but prior to the Seller Employees’
respective Hire Dates, Seller will not permanently reassign, make compensation
changes, promote or relocate any Seller Employee, other than in the ordinary
course of business or as required by any Seller Plan or applicable law, without
the written consent of Purchaser.  Seller will be responsible for complying with
all safety, health and work-related laws, regulations and rules with respect to
the Seller Employees employed by Seller during the Transition Period.  Nothing
herein is intended to affect Seller’s status as employer of each Seller Employee
while employed by Seller or Seller’s control over such individual until his or
her respective Hire Date.

 

SECTION 14.6           SOLICITATION OF CONTINUING EMPLOYEES.

 

For the period beginning on each Continuing Employee’s Hire Date and ending on
the date that is two (2) years after the Closing Date, neither Seller nor any of
its Affiliates may, unless acting in accordance with Purchaser’s prior written
consent, solicit, encourage or otherwise induce such Continuing Employee to
leave the employment of Purchaser or become an employee of Seller or any of its
Affiliates.  Notwithstanding the foregoing, neither Seller nor its Affiliates
will be prohibited from hiring or contracting for the services of a Continuing
Employee who has terminated his or her employment relationship with Purchaser
without solicitation or inducement from Seller or its Affiliates.  A general
advertisement by Seller or its Affiliates for employment that is not targeted at
any Continuing Employee or group of Continuing Employees will not constitute a
breach of the obligations of Seller or its Affiliates under this Section 14.6.

 

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SECTION 14.7           WAIVER OF RESTRICTIONS ON CONTINUING EMPLOYEES.

 

ON OR BEFORE EACH CONTINUING EMPLOYEE’S HIRE DATE, IF ANY, SELLER MUST (I) TAKE
AND MUST CAUSE ITS AFFILIATES TO TAKE ANY NECESSARY ACTION TO WAIVE ANY
COVENANTS NOT TO COMPETE, CONFIDENTIALITY PROVISIONS OR SIMILAR RESTRICTIONS
UNDER AGREEMENTS BETWEEN SELLER AND/OR SUCH AFFILIATES AND THE CONTINUING
EMPLOYEE THAT MAY BE APPLICABLE TO ANY CONTINUING EMPLOYEE, BUT ONLY TO THE
EXTENT ANY OF THE FOREGOING WOULD PRECLUDE A CONTINUING EMPLOYEE FROM ACCEPTING
EMPLOYMENT WITH PURCHASER, AND (II) NOT RESTRAIN SUCH CONTINUING EMPLOYEE IN ANY
WAY IN PERFORMING HIS SERVICES FOR THE PURCHASER.

 

SECTION 14.8           NO THIRD PARTY BENEFICIARIES.

 

NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, THE PROVISIONS OF THIS
ARTICLE XIV ARE NOT INTENDED TO AND SHALL NOT CREATE OR CONFER ANY THIRD-PARTY
BENEFICIARY RIGHTS RESPECTING ANY SELLER EMPLOYEE OR CONTINUING EMPLOYEE.

 

ARTICLE XV

 

MISCELLANEOUS

 

SECTION 15.1           NOTICES.

 

All communications required or permitted under this Agreement shall be in
writing and any communication or delivery hereunder shall be deemed to have been
duly made if actually delivered or if mailed by registered or certified mail,
postage prepaid, or if sent by overnight courier service, charges prepaid, or if
sent by telecopy or facsimile machine, addressed to the party being notified as
set forth below.  Any party may, by written notice so delivered to the other,
change the address to which delivery shall thereafter be made.  Notices to
Seller and Purchaser shall be made at the addresses set forth below:

 

(a)           If to Seller, to:

 

Forest Oil Corporation

707 17th Street, Suite 3600

Denver, CO  80202

FAX:  (303) 812-1445

ATTN:  General Counsel

 

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(b)           If to Purchaser, to:

 

Linn Energy Holdings, LLC

600 Travis Street, Suite 5100

Houston, Texas  77002

FAX:  281-840-4001

ATTN: Charlene A. Ripley, Senior Vice President, General Counsel and Corporate
Secretary

 

All notices shall be deemed given at the time of receipt by the party to which
such notice is addressed.

 

SECTION 15.2           BINDING EFFECT.

 

This Agreement shall bind and inure to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns.

 

SECTION 15.3           COUNTERPARTS.

 

This Agreement may be executed in any number of counterparts, which taken
together shall constitute one and the same instrument and each of which shall be
considered an original for all purposes.

 

SECTION 15.4           EXPENSES.

 

All expenses incurred by Seller in connection with or related to the
authorization, preparation or execution of this Agreement, the conveyances and
the Schedules hereto, and all other matters related to the Closing, including
without limitation, all fees and expenses of counsel, engineers, accountants and
financial advisors employed by Seller shall be borne solely and entirely by
Seller; and all such expenses incurred by Purchaser shall be borne solely and
entirely by Purchaser.

 

SECTION 15.5           SECTION HEADINGS.

 

The Section headings contained in this Agreement are for convenient reference
only and shall not in any way affect the meaning or interpretation of this
Agreement.

 

SECTION 15.6           ENTIRE AGREEMENT.

 

This Agreement, the documents to be executed hereunder, and the Schedules
attached hereto constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written of the
parties pertaining to the subject matter hereof, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as specifically set forth herein or in documents
delivered pursuant hereto.  No supplement, amendment, alteration, modification,
waiver or termination of this Agreement shall be binding unless executed in
writing by the parties hereto.  All of the Schedules referred to in this

 

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Agreement are hereby incorporated in this Agreement by reference and constitute
a part of this Agreement.

 

SECTION 15.7           CONDITIONS.

 

The inclusion in this Agreement of conditions to Seller’s and Purchaser’s
obligations at Closing shall not, in and of itself, constitute a covenant of
either Seller or Purchaser to satisfy the conditions to the other party’s
obligations at Closing.

 

SECTION 15.8           GOVERNING LAW.

 

THE VALIDITY OF THE VARIOUS CONVEYANCES AFFECTING THE TITLE TO REAL PROPERTY
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
JURISDICTION IN WHICH SUCH PROPERTY IS SITUATED.  THIS AGREEMENT, THE OTHER
DOCUMENTS DELIVERED PURSUANT HERETO AND THE LEGAL RELATIONS AMONG THE PARTIES
HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF TEXAS AND THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF
TEXAS SHALL BE THE SOLE VENUE FOR THE RESOLUTION OF ANY DISPUTES ARISING
HEREUNDER.

 

SECTION 15.9           ASSIGNMENT.

 

Neither Party may assign all or any portion of its respective rights or delegate
any portion of its respective duties hereunder without the prior written consent
of the other Party.

 

SECTION 15.10         PUBLIC ANNOUNCEMENTS.

 

Prior to making any public announcement or statement with respect to the
transactions contemplated by this Agreement, the party desiring to make such
public announcement or statement shall consult with the other party hereto and
attempt to obtain approval of the other party or parties hereto to the text of a
public announcement or statement to be made solely by Seller or Purchaser, as
the case may be; provided, however, if Seller or Purchaser is required by law to
make such public announcement or statement, then the same may be made without
the approval of the other party; provided further, however, neither party may
identify the other party by name in any such announcement or statement or filing
with the Securities and Exchange Commission without the other party’s prior
written consent.

 

SECTION 15.11         NOTICES AFTER CLOSING.

 

Each of the parties hereto shall notify the others of its receipt, after the
Closing Date, of any instrument, notification or other documents affecting the
Assets while owned by such other party or parties.

 

SECTION 15.12         WAIVER OF COMPLIANCE WITH BULK TRANSFER LAWS.

 

Purchaser waives compliance with any applicable bulk transfer laws relating to
the transactions contemplated by this Agreement.

 

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SECTION 15.13         WAIVER.

 

The parties agree that to the extent required by applicable law, rule or order
to be operative the disclaimers of certain warranties contained in this
Section and in the conveyancing documents to be delivered pursuant to this
Agreement are “conspicuous” disclaimers for the purposes of any such applicable
law, rule or order.  SELLER EXPRESSLY DISCLAIMS AND NEGATES ANY WARRANTY AS TO
THE CONDITION OF ANY PERSONAL PROPERTY, EQUIPMENT, FIXTURES AND ITEMS OF MOVABLE
PROPERTY COMPRISING ANY PART OF THE ASSETS, INCLUDING:

 

(a)           ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY;

 

(b)           ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE;

 

(c)           ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES
OF MATERIALS,

 

(d)           ANY RIGHTS OF PURCHASER UNDER APPLICABLE STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION, AND

 

(e)           ANY CLAIM BY PURCHASER FOR DAMAGE BECAUSE OF DEFECTS, WHETHER
KNOWN OR UNKNOWN, IT BEING EXPRESSLY UNDERSTOOD BY PURCHASER THAT SAID PERSONAL
PROPERTY, FIXTURES, EQUIPMENT, AND ITEMS ARE BEING CONVEYED TO PURCHASER “AS
IS”, “WHERE IS”, WITH ALL FAULTS, AND IN THEIR PRESENT CONDITION AND STATE OF
REPAIR AND THAT PURCHASER WILL MAKE, PRIOR TO CLOSING, SUCH INSPECTIONS THEREOF
AS PURCHASER DEEMS APPROPRIATE.

 

Except as otherwise expressly set forth herein, Seller also expressly disclaims
and negates any implied or express warranty as to the accuracy of any of the
information furnished with respect to the existence or extent of reserves or the
value of the Assets based thereon or the condition or state of repair of any of
the Assets (it being understood that all estimates of quantities of oil and gas
reserves on which Purchaser has relied or is relying have been derived by
individual evaluation of Purchaser).  Purchaser EXPRESSLY WAIVES THE PROVISIONS
OF CHAPTER XVII, SUBCHAPTER E, SECTION 17.41 THROUGH 17.63, INCLUSIVE (OTHER
THAN SECTION 17.555, WHICH IS NOT WAIVED), VERNON’S TEXAS CODE ANNOTATED,
BUSINESS AND COMMERCE CODE (the “Deceptive Trade Practices Act”).

 

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Section 15.14         Bonds.

 

Except for bonds, letters of credit and guarantees related primarily to the
Excluded Assets, Schedule 15.14 identifies the bonds, letters of credit and
guarantees posted by Seller in conjunction with ownership or operation of the
Assets as of the date of this Agreement.

 

The signature page follows

 

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SELLER:

FOREST OIL CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Glen J. Mizenko

 

 

Name:

Glen J. Mizenko

 

 

Title:

Senior Vice President Business Development and Engineering

 

 

 

SELLER:

FOREST OIL PERMIAN CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Glen J. Mizenko

 

 

Name:

Glen J. Mizenko

 

 

Title:

Vice President Business Development

 

 

 

 

 

 

 

 

 

PURCHASER:

LINN ENERGY HOLDINGS, LLC

 

 

 

 

 

By:

/s/ Mark E. Ellis

 

 

Name:

Mark E. Ellis

 

 

Title:

President and Chief Operating Officer

 

 

 

 

 

 

 

 

 

PURCHASER:

LINN OPERATING, INC.

 

 

 

 

 

By:

/s/ Mark E. Ellis

 

 

Name:

Mark E. Ellis

 

 

Title:

President and Chief Operating Officer

 

 

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