Exhibit 10.1

LOGO [g51591exacov_pg001.jpg]

AGREEMENT

FOR PURCHASE AND SALE

OF ASSETS

BY AND BETWEEN

FOREST OIL CORPORATION

As Seller,

FOREST OIL PERMIAN CORPORATION

As Seller

AND

SANDRIDGE EXPLORATION AND PRODUCTION, LLC

As Purchaser,

Dated as of November 25, 2009

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TABLE OF CONTENTS

 

ARTICLE I

   PURCHASE AND SALE    1

Section 1.1

   Purchase and Sale    1

Section 1.2

   Assets    1

Section 1.3

   Excluded Assets    3

ARTICLE II

   PURCHASE PRICE    4

Section 2.1

   Purchase Price    4

Section 2.2

   Performance Deposit    5

Section 2.3

   Allocation of the Purchase Price    5

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

   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

   Defect Adjustments    11

Section 3.5

   Casualty Loss    13

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    15

ARTICLE IV

   SELLER S REPRESENTATIONS AND WARRANTIES    15

Section 4.1

   Organization, Standing and Power    15

Section 4.2

   Authority and Enforceability    16

Section 4.3

   Claims Affecting the Assets    16

Section 4.4

   Claims Affecting the Sale    17

Section 4.5

   No Demands    17

Section 4.6

   Taxes    17

Section 4.7

   Leases    17

Section 4.8

   Non-Foreign Representation    18

Section 4.9

   Commitments for Expenditures    18

Section 4.10

   Brokers Fees    18

Section 4.11

   Gas Imbalances    18

ARTICLE V

   PURCHASER’S REPRESENTATIONS AND WARRANTIES    18

Section 5.1

   Organization, Standing and Power    18

 

 

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Section 5.2

   Authority and Enforceability    18

Section 5.3

   Independent Evaluation    19

Section 5.4

   Suits Affecting the Sale    19

Section 5.5

   Eligibility    19

Section 5.6

   Financing    19

ARTICLE VI

   ASSUMPTION OF OBLIGATIONS AND INDEMNIFICATION    20

Section 6.1

   Assumption and Retention of Certain Liabilities and Obligations by Purchaser
   20

Section 6.2

   Indemnification by Purchaser    20

Section 6.3

   Indemnification by Seller    20

Section 6.4

   Interpretation    21

Section 6.5

   Notices    22

ARTICLE VII

   SELLER’S OBLIGATIONS PRIOR TO CLOSING    23

Section 7.1

   Restrictions on Operations    23

Section 7.2

   Operated Assets    25

ARTICLE VIII

   ADDITIONAL AGREEMENTS OF THE PARTIES    25

Section 8.1

   Government Reviews and Filings    25

Section 8.2

   Confidentiality    25

Section 8.3

   Taxes    26

Section 8.4

   Receipts and Credits    28

Section 8.5

   Suspense Accounts    28

Section 8.6

   Hart-Scott-Rodino Filings    29

ARTICLE IX

   CONDITIONS TO CLOSING    29

Section 9.1

   Seller’s Conditions    29

Section 9.2

   Purchaser’s Conditions    30

ARTICLE X

   RIGHT OF TERMINATION AND ABANDONMENT    30

Section 10.1

   Termination    30

Section 10.2

   Liabilities Upon Termination    31

ARTICLE XI

   CLOSING MATTERS    31

Section 11.1

   Time and Place of Closing    31

Section 11.2

   Closing Obligations    32

ARTICLE XII

   POST-CLOSING OBLIGATIONS    33

Section 12.1

   Post-Closing Adjustments    33

Section 12.2

   Files and Records    34

 

 

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Section 12.3

   Further Assurances    34

Section 12.4

   Reviewed and Audited Financial Statements and Reserve Disclosures    34

ARTICLE XIII

   ENVIRONMENTAL MATTERS    34

Section 13.1

   Purchaser Acknowledgment Concerning Possible Contamination of the Assets   
34

Section 13.2

   Adverse Environmental Conditions    35

Section 13.3

   Disposal of Materials, Substances, and Wastes; Compliance with Law    36

ARTICLE XIV

   MISCELLANEOUS    36

Section 14.1

   Notices    36

Section 14.2

   Binding Effect    37

Section 14.3

   Counterparts    37

Section 14.4

   Expenses    37

Section 14.5

   Section Headings    38

Section 14.6

   Entire Agreement    38

Section 14.7

   Conditions    38

Section 14.8

   Governing Law    38

Section 14.9

   Assignment    38

Section 14.10

   Public Announcements    39

Section 14.11

   Notices After Closing    39

Section 14.12

   Waiver of Compliance with Bulk Transfer Laws    39

Section 14.13

   Waiver    39

Section 14.14

   Like-Kind Exchange    40

 

 

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SCHEDULES

 

Schedule A-1

   Description of Leases and Land

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 AFEs

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 4.6

   Tax Partnerships

Schedule 4.11

   Gas Imbalances

 

 

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AGREEMENT FOR PURCHASE

AND SALE OF ASSETS

This Agreement for Purchase and Sale of Assets (the “Agreement”), dated as of
November 25, 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 SandRidge Exploration and Production,
LLC, a Delaware limited liability company (“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 November 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:

(a) All right, title and interest of Seller and its affiliates (as used in this
Section and Section 1.3, “affiliates” means any person or entity which, directly
or indirectly, controls, is controlled by or is under common control with
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

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hereto (the “Leases”), and any other rights and interests of any type in, on, or
under or relating to the lands also described on Schedules A-1 or A-2 or in any
of the Leases (the “Land”), whether such Asset is incorrectly described or
inadvertently omitted, and including any and all right, title and interest of
Seller and its affiliates 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, injection and disposal wells, water wells,
and abandoned 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 and its affiliates 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, Land, or
Wells (“Unit Agreements”);

(c) Subject to any and all applicable consents to assign and other limitations
on Seller’s or its affiliates’ rights to assign, all right, title and interest
of Seller and its affiliates in, to and under or derived from all contracts,
agreements, and instruments to the extent that they relate to or affect any of
the Assets, including 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, contracts, and
instruments, including without limitation the agreements, contracts, and
instruments described in Schedule A-3 attached hereto;

(d) All right, title and interest of Seller and its affiliates 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, and all contract rights, to the extent used or
useful in connection with the exploration, development, operation or maintenance
of the Leases, Land, Wells, or Unit Agreements, or in connection with the
producing, treating, processing, storing, gathering, transporting or marketing
of oil, gas and other hydrocarbons and other products produced in association
with or attributable to such, Leases, Land, Wells, or Unit Agreements;

 

 

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(e) All of Seller’s and its affiliates’ right, title and interest in and to any
production imbalances or balancing agreements relating to any of the Leases,
Land, Wells or Unit Agreements, or otherwise arising by virtue of the fact that
Seller or its affiliates 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; and

(f) Copies of all accounting records related to periods of time from and after
the Effective Time, books and files relating to any of the interests 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, Land, Wells, and Unit Agreements), contracts, property tax records,
including property tax returns specific to the Assets for the preceding tax
year, electric logs, core data, pressure data, decline curves, graphical
production curves, and a non-exclusive license to all geophysical data owned by
Seller or its affiliates (collectively, the “Records”); provided, however, that
the Records shall not include payroll and personnel records nor any geophysical
and interpretive data or reports and shall not include any Records that Seller
or its affiliates are not contractually permitted to assign; and provided,
further, that Seller and its affiliates shall be entitled to retain copies of
all records and other files that Seller or its affiliates 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 and its affiliates corporate minute books, accounting and
financial records, and other business records that relate to Seller’s or its
affiliates’ 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 and its affiliates (A) under any policy
or agreement of insurance or indemnity, (B) under any bond or (C) to any
insurance or condemnation 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;

 

 

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

(e) all claims of Seller and its affiliates 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 and its affiliates computer software, patents, trade
secrets, copyrights, names, trademarks, logos and other intellectual property;

(h) all documents and instruments of Seller and its affiliates that may be
protected by an attorney-client privilege;

(i) all data that cannot be disclosed to Purchaser as a result of
confidentiality arrangements under agreements with Third Parties and for which a
waiver or consent has not been obtained from such 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
Assets or 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 Eight Hundred Million Dollars ($800,000,000.00) (the “Preliminary Purchase
Price”), subject to adjustment as set forth in Section 2.4 below.

 

 

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Section 2.2 Performance Deposit.

Within one Business Day of execution of this Agreement, Purchaser shall pay to
Seller by wire transfer a deposit in the amount of Forty Million Dollars
($40,000,000.00) (“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 plus any interest earned thereon shall be
applied in accordance with the provisions of Article X.

Section 2.3 Allocation of the Purchase Price.

The Preliminary Purchase Price shall be allocated among the Assets in accordance
with the allocations set forth on Schedule B. Any adjustments to the purchase
price under Section 2.4 shall correspondingly (as appropriate) adjust the
allocations set forth on Schedule B. Seller and Purchaser agree such allocations
have been established for use where appropriate under this Agreement, including
for Seller to provide any required preferential purchase right notifications and
in calculating adjustments to the Purchase Price.

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 from 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) 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.

 

 

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(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.

(v) Intentionally left blank

(vi) The amount of any Defect 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 Defect 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.

 

 

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

(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.

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, (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 plus any 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

 

 

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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. 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
after it is prepared. All environmental reports prepared by or for Purchaser
shall be maintained in strict confidence by Purchaser and shall be used by
Purchaser solely in connection with the evaluation of the Properties or in any
dispute with Seller involving the Properties. If Closing does not occur, all
copies of such reports shall be promptly delivered to Seller.

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 Assets 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 greater 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.

 

 

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(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:

(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,

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

(iii) arrangements can be made by Seller which are acceptable to Purchaser in
order for Purchaser to receive the same economic and operational benefits as if
all such waivers and consents had been obtained;

(3) liens for current period property, ad valorem, severance, production and
other similar 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;

 

 

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(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 are not such as 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;

(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.

 

 

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

Section 3.4 Defect 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 5:00 P.M., Denver time, on
December 21, 2009 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,

(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 Defect Adjustment, as determined in
Section 3.4(c), below, is less than one hundred thousand dollars ($100,000)
shall not be a Defective Interest. For purposes of determining Defect
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) Subject to Seller’s right to withdraw a Defective Interest from this
transaction and adjust the Purchase Price accordingly, 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 “Defect Adjustment”) but only to the extent that
the total amount of all Defect Adjustments

 

 

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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 amount is a deductible. If
Seller and Purchaser cannot agree to the amount of a Defect 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 Defect Adjustment or Title Benefit. If the amount of such
adjustment is not determined pursuant to this Agreement by the Closing, the
undisputed portion of the Purchase Price with respect to the Asset affected
shall be paid by Purchaser at the Closing and, subject to this Section 3.4(b),
upon determination of the amount of such adjustment, any unpaid portion thereof
(if a Title Benefit) shall be paid by Purchaser to Seller or shall be netted
against the aggregate amount of any disputed Title Defect Adjustments that also
are determined after Closing.

(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 Defect 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 Defect 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 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 Defect 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.

(d) If any claimed Title Defect has not been resolved on the date of Closing,
Seller may elect to not convey the affected Asset at Closing, the Allocated
Value applicable to such Asset shall reduce the total consideration (prior to
adjustments) to be paid at Closing by Purchaser to Seller, and the following
provisions shall apply:

(i) Seller shall continue to use its commercially reasonable efforts to cure the
claimed Title Defect applicable to such Asset, and if so cured on or before
March 31, 2010, the Asset shall thereupon be conveyed to Purchaser by
Purchaser’s paying cash in the amount of the Allocated Value with respect to
such Asset and the Closing shall thereupon be deemed to have occurred as to such
Asset, with effect from the original date of Closing, or

 

 

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(ii) If the claimed Title Defect is not cured or waived on or before March 31,
2010, Seller and Purchaser shall terminate this Agreement as to the Asset
affected by the unwaived Title Defect.

If pursuant to the foregoing provisions of this Section 3.4, any Asset is
conveyed from Seller to Purchaser hereunder after the date of initial Closing
hereunder, all of the remaining terms and provisions hereof shall apply thereto
including without limitation the purchase price adjustments pursuant to
Section 2.4, except that, other than the necessity for eliminating the claimed
Title Defects, all other conditions to Closing shall have been deemed satisfied
as of the date of Closing.

(e) 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, 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.

Section 3.6 Identification of Additional Defective Interests.

(a) 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

 

 

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preferential right as a Defective Interest. 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. If Seller or Purchaser receives 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.

(b) 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.

(c) 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 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.

Section 3.7 Termination Due to Title Matters and Conditions.

If, prior to Closing, the aggregate amount of the value of (a) all Defect
Adjustments asserted in good faith under this Article III and (b) all
adjustments for Conditions asserted in good faith pursuant to Section 13.2(a),
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.

 

 

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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), Sellers 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 Sellers’ Net Revenue Interest in any Asset is greater
than that set forth in Schedule B or Sellers’ Working Interest in any Asset less
than that set forth in Schedule B (without a corresponding decrease in the Net
Revenue Interest). Any matters that may constitute Title Benefits, but of which
Purchaser has not been specifically notified by Sellers in accordance with the
foregoing, shall be deemed to have been waived by Sellers for all purposes.

(b) Subject to Section 3.4(a), the aggregate amount of undisputed Title Benefits
shall be netted against the aggregate amount of undisputed Defect Adjustments
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 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
Sellers or shall be netted against the aggregate amount of any disputed Title
Defect Adjustments that also are determined after Closing.

ARTICLE IV

SELLER’S REPRESENTATIONS AND WARRANTIES

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 has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Forest Oil Permian Corporation is
a corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware and has all requisite corporate

 

 

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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-1 and Schedule A-2 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, 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. Schedule C lists all actions, suits, claims, proceedings,
agency enforcement actions or investigations pending affecting the Assets or the
ownership or operation thereof to the knowledge of Seller.

 

 

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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.

(b) Except as set forth on Schedule 4.6, (i) none of the Assets is deemed to be
held by a “tax partnership” for federal (and any corresponding state or local)
income tax purposes, and (ii) with respect to any Assets excepted from clause
(i), such “tax partnership” has in effect an election under Section 754 of the
Internal Revenue Code of 1986, as amended (and any corresponding state or local
income tax statue).

(c) Seller is not engaged, and has not held itself out as being engaged, in the
business of selling the Assets or property similar to 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.

 

 

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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 Internal Revenue
Code and Income Tax Regulations). If requested by Purchaser, a non-foreign
affidavit or certificate of non-foreign status confirming such representation
will be provided at Closing.

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.

Section 4.10 Broker’s Fees.

Seller has not made any agreement with respect to any broker’s or finder’s fees
arising out of or in any way related to the transactions contemplated by this
Agreement for which Purchaser will have any liability.

Section 4.11 Gas Imbalances.

Except as disclosed on Schedule 4.11, to Seller’s knowledge there are no gas
imbalances with co-owners in any well, unit, field or contract area or with any
gatherer, processor or transporter.

ARTICLE V

PURCHASER’S REPRESENTATIONS AND WARRANTIES

Section 5.1 Organization, Standing and Power.

Purchaser is a Delaware limited liability company duly organized, validly
existing and in good standing under the laws of the state of its organization
and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Purchaser is
duly qualified to carry on its business in each state identified in Schedule A-1
and Schedule A-2 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

 

 

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(a) conflict with or result in a breach of any provision of its certificate of
organization or operating agreement,

(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.

To Purchaser’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
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.

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.

 

 

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ARTICLE VI

ASSUMPTION OF OBLIGATIONS AND INDEMNIFICATION

Section 6.1 Assumption of Certain Liabilities and Obligations by Purchaser.

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 Land or 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,
regardless of whether any such well or facility was listed on any exhibit
hereto, and regardless of whether any such obligation arises from the failure of
Seller to properly or timely plug and abandon any such well or facility) and
restore the surface of the Land and 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.

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,

(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 six (6) months 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)

(i) 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

 

 

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

provided, however, that such release, 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 ten percent (10%) of the Purchase Price. Provided,
notwithstanding the foregoing, such release, indemnity, defense and hold
harmless obligations shall remain effective indefinitely for suits, judgments,
damages, claims, liabilities, losses, costs and expenses (including, without
limitation, court costs and reasonable attorney’s fees) that (x) arise out of
any breach by Seller of any representation or warranty made under Section 4.1 or
the first two sentences of subsection (a) of Section 4.2 or (y) relate to the
matters disclosed on Schedule C.

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 limited in amount to the Allocated Value for each
interest, 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, 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.

 

 

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(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.

(c) Except as set forth in Section 3.5, Section 8.2, Section 8.3, and Article X
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 representation,
warranty or covenant, or otherwise.

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.

 

 

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

ARTICLE VII

SELLER’S OBLIGATIONS PRIOR TO CLOSING

Section 7.1 Restrictions on Operations.

(a) From the date hereof until the Closing Date, 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 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;

 

 

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(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;

(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 Closing, 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;

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

(vi) pay all costs and expenses in connection with the operation of the Assets
in a manner consistent with Seller’s historic practice, including, without
limitation, all property, ad valorem, severance, production and other similar
taxes except as such may be contested by Seller in good faith.

 

 

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Section 7.2 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 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
Purchaser, to the extent permitted or approved pursuant to the applicable
operating agreement. Seller agrees to provide Purchaser those services listed in
the Transition Services Agreement (“TSA”) 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 Purchasers 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 November 10, 2009 (the
“November Confidentiality Agreement”); provided, however, that the parties agree
the interviewing of, or offer of employment to, employees of Seller by Purchaser
shall not constitute a breach of Purchaser’s or its affiliates’ obligations
under the November Confidentiality Agreement or the Confidentiality Agreement
between the parties dated August 12, 2009.

 

 

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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 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 other than
property tax returns specific to the Assets, as provided for in Section 1.2(f).

(b) Seller and Purchaser shall report the information required by Section 1060
of the Internal Revenue Code of 1986, as amended (or any corresponding state or
local income tax statute), in a manner consistent with

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

(ii) the requirements of such Section 1060.

(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
the calendar year the Assets were owned by each party. 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 in 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 (other than income, franchise and
similar 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

 

 

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the extent such liabilities exceed the amounts of such taxes 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 (other than income, franchise and similar 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. For the avoidance of doubt, all income, franchise and similar
taxes attributable to the ownership, operation, or disposition of the Assets for
any period through the Closing Date shall remain the sole responsibility and
obligation of Seller.

(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

 

 

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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 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. Seller will assist Buyer in
establishing the applicability of the Texas and New Mexico isolated or
occasional sale exemptions and any other exemption that is applicable to the
sale of the Assets.

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.

 

 

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Section 8.6 Hart-Scott-Rodino Filings.

The parties hereto acknowledge that they are subject to the Hart-Scott-Rodino
Act and the rules and regulations of the Federal Trade Commission thereunder.
Purchaser shall prepare all necessary filings in connection with the
transactions contemplated by this Agreement under such act, rules and
regulations.

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.

(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, and

(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.

 

 

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(e) The transaction contemplated hereby shall have been approved by all
applicable governmental authorities under the Hart-Scott-Rodino Act.

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

(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.

(d) The transaction contemplated hereby shall have been approved by all
applicable governmental authorities under the Hart-Scott-Rodino Act.

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;

 

 

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(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 January 31, 2010;

(d) by Purchaser if, through no fault of Purchaser, the Closing does not occur
on or before January 31, 2010;

(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) or (c) above, or 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
opportunities and not as a penalty. 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. If this Agreement is terminated pursuant to
Section 10.1(b), (d) or (e) above, or as a result of the negligence, fault or
willful failure of Seller to perform its obligations hereunder, Seller shall
return the Performance Deposit to Purchaser plus any interest earned thereon. 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 December 31, 2009, or
at such other time as the parties may determine.

 

 

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(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) if requested by Purchaser, 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 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).

 

 

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(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.

(h) 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 sixty (60) 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 sixty (60) 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 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,

 

 

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in either event by wire transfer in immediately available funds or, if the
amount of such difference is less than Twenty-Five Thousand 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.

Section 12.4 Reviewed and Audited Financial Statements and Reserve Disclosures.

From time to time after Closing, Seller shall provide Purchaser such
cooperation, information and assistance as shall be requested by Purchaser to
enable Purchaser and its independent registered public accounting firm to
produce (a) an audited profit and loss statement and audited reserve
disclosures, in each case for the fiscal year ended December 31, 2008 as
required by Rule 3-05 of Regulation S-X promulgated by the Securities and
Exchange Commission (“Rule 3-05”), (b) reviewed profit and loss statements and
reviewed reserve disclosures, in each case for the nine-month periods ended
September 30, 2008 and September 30, 2009 and the year-to-date period ending at
the Effective Time as required by Rule 3-05, and (c) such other financial
statements as may be required by contract, law, rule or regulation, including,
without limitation, the provision of management representation letters related
to the operation of the Assets during such periods.

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

 

 

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materials located on or under the Assets or associated with the Assets.
Equipment and sites 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 5:00 P.M., Denver time, on December 21, 2009 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 one hundred thousand
dollars ($100,000) (net to Seller's interest). Environmental conditions may not
be aggregated by type or category among more than one well or facility for
purposes of meeting this de minimis threshold of $100,000.

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

 

 

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(b) Seller will have until 5:00 P.M., Denver Time, on December 29, 2009 if it
determines that a Condition may exist with respect to an Asset, 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 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);

(iii) indemnify the Purchaser for the Condition not to exceed the Allocated
Value of the Asset; or

(c) If Seller and Purchaser agree to an adjustment under subsection (b) (i), the
adjustment will be the cost to remediate the Condition, but only to the level
required by the Environmental Laws in effect at the Effective Time, not to
exceed the Allocated Value of the Asset, but only to the extent that the total
value of all Conditions exceeds one percent (1%) of the Preliminary Purchase
Price. For avoidance of doubt, Seller and Purchaser agree that the foregoing
threshold amount is a deductible.

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

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

MISCELLANEOUS

Section 14.1 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

 

 

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overnight courier service, charges prepaid, or if sent by telecopy or facsimile
machine with confirmation of a successful transmission, 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
(b) If to Purchaser, to:      SandRidge Exploration and Production, LLC      123
Robert S. Kerr Avenue      Oklahoma City, OK 73102      FAX: (405) 429-5983     
ATTN: General Counsel

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

Section 14.2 Binding Effect.

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

Section 14.3 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 14.4 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.

 

 

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Section 14.5 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 14.6 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
Agreement are hereby incorporated in this Agreement by reference and constitute
a part of this Agreement.

Section 14.7 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 14.8 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 14.9 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.

 

 

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Section 14.10 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; provided further that, unless either party is otherwise ordered
by the Securities and Exchange Commission, the New York Stock Exchange or other
governmental or regulatory body having jurisdiction, no public announcement of
the transactions contemplated by this Agreement shall be made prior to 2:05 pm
(Denver time) on Monday, November 30.

Section 14.11 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 14.12 Waiver of Compliance with Bulk Transfer Laws.

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

Section 14.13 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;

 

 

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(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”).

Section 14.14 Like-Kind Exchange.

Seller and Purchaser hereby agree that this transaction may be completed as a
like-kind exchange and that each party will assist in completing the sale as a
like-kind exchange. As a like-kind exchange, Seller and Purchaser agree that
either party shall have the right at any time prior to Closing to assign all or
a portion of its rights under this Agreement to a Qualified Intermediary (as
that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury
Regulations) or an Exchange Accommodation Titleholder (as that term is defined
in Rev. Proc. 2000-37, 2000-2 C.B. 308) in order to accomplish the transaction
in a manner that will comply, either in whole or in part, with the requirements
of a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986. In the event either party assigns its rights under this Agreement pursuant
to this Section 14.14, such party agrees to notify the other party in writing of
such assignment at or before Closing. Seller and Purchaser acknowledge and agree
that any assignment of this Agreement shall not increase the costs, expenses or
liabilities of a party as a result of the other party’s assignment of this
Agreement to a Qualified Intermediary or Exchange Accommodation Titleholder,
shall not release either party from any of their respective liabilities and
obligations to each other under this Agreement, and that neither party
represents to the other that any particular tax treatment will be given to
either party as a result thereof.

The signature page follows

 

 

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SELLER:   FOREST OIL CORPORATION   By:  

 

    Name:   Glen J. Mizenko     Title:   Senior Vice President Business      
Development and Engineering SELLER:   FOREST OIL PERMIAN CORPORATION   By:  

 

    Name:   Glen J. Mizenko     Title:   Vice President Business Development
PURCHASER:   SANDRIDGE EXPLORATION AND PRODUCTION, LLC   By:  

 

    Name:   Tom L. Ward     Title:   Chief Executive Officer

 

 

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