**Exhibit 10.5**

 

 

**DISTRIBUTION AGREEMENT**

** **

**DATED AS OF SEPTEMBER 9, 2005**

** **

**BETWEEN**

** **

**FOREST OIL CORPORATION**

** **

**AND**

** **

**SML WELLHEAD CORPORATION**

 

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**TABLE OFCONTENTS**

 
| ARTICLE I               |
|------------------------------|
|                         |
| DEFINITIONS                  |
|                         |   |   |
| Section 1.1             | General | 1 |
| Section 1.2             | References to Time | 12 |
|                         |   |   |
| ARTICLE II              |
|                         |   |   |
| PRELIMINARY TRANSACTIONS     |
|                         |
| Section 2.1             | Business Separation | 12 |
| Section 2.2             | Conveyancing and Assumption Agreements | 13 |
| Section 2.3             | Certificate of Incorporation; By-laws | 13 |
| Section 2.4             | Issuance of Stock | 13 |
| Section 2.5             | Other Agreements | 13 |
| Section 2.6             | Transfers Not Effected Prior to the  Distribution; Transfers Deemed Effective as of the Distribution Date | 13 |
|                         |   |   |
| ARTICLE III             |
|                         |   |   |
| THE DISTRIBUTION             |
|                         |
| Section 3.1             | Record Date and Distribution Date | 15 |
| Section 3.2             | The Agent | 15 |
| Section 3.3             | Delivery of Share Certificates to the Agent | 15 |
| Section 3.4             | The Distribution | 15 |
|                         |   |   |
| ARTICLE IV              |
|                         |   |   |
| CASH AMOUNT                  |
|                         |
| Section 4.1             | Estimated Cash Amount | 16 |
| Section 4.2             | Actual Cash Amount | 16 |
| Section 4.3             | Incremental Tax Amount | 16 |
| Section 4.4             | Dispute Resolution Procedure | 17 |
| Section 4.5             | Payment of Cash Amount | 17 |
|                         |   |   |
| ARTICLE V               |
|                         |   |   |
| SURVIVAL AND INDEMNIFICATION |
|                         |
| Section 5.1             | Survival of Agreements | 17 |
| Section 5.2             | Indemnification | 17 |
| Section 5.3             | Procedures for Indemnification for  Third-Party Claims | 18 |

 

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| Section 5.4                 | Reductions for Insurance Proceeds and Other  Recoveries     | 19     |
|----------------------------------|-------------------------------------------------------------|--------|
| Section 5.5                 | Remedies Cumulative                                         | 20     |
| Section 5.6                 | Tax Treatment of Indemnity and Other  Payments              | 20     |
| Section 5.7                 | Survival of Indemnities                                     | 20     |
|                             |                                                        |   |
| ARTICLE VI                  |
|                             |                                                        |   |
| CERTAIN ADDITIONAL COVENANTS     |
|                             |
| Section 6.1                 | Notices to Third Parties                                    | 20     |
| Section 6.2                 | Licenses and Permits                                        | 21     |
| Section 6.3                 | Intercompany Agreements                                     | 21     |
| Section 6.4                 | Further Assurances                                          | 21     |
| Section 6.5                 | Guarantee Obligations and Liens                             | 21     |
| Section 6.6                 | Insurance                                                   | 22     |
| Section 6.7                 | Cooperation                                                 | 24     |
|                             |                                                        |   |
| ARTICLE VII                 |
|                             |                                                        |   |
| ACCESS TO INFORMATION            |
|                             |
| Section 7.1                 | Provision of Corporate Records                              | 24     |
| Section 7.2                 | Access to Information                                       | 24     |
| Section 7.3                 | Production of Witnesses                                     | 26     |
| Section 7.4                 | Retention of Records                                        | 26     |
| Section 7.5                 | Confidentiality                                             | 26     |
| Section 7.6                 | Cooperation with Respect to Government  Reports and Filings | 27     |
| Section 7.7                 | Tax Sharing Agreement                                       | 27     |
|                             |                                                        |   |
| ARTICLE VIII                |
|                             |                                                        |   |
| NO REPRESENTATIONS OR WARRANTIES |
|                             |
| Section 8.1                 | No Representations or Warranties                            | 27     |
|                             |                                                        |   |
| ARTICLE IX                  |
|                             |                                                        |   |
| MISCELLANEOUS                    |
|                             |
| Section 9.1                 | Conditions to the Distribution                              | 27     |
| Section 9.2                 | Complete Agreement                                          | 29     |
| Section 9.3                 | Expenses                                                    | 29     |
| Section 9.4                 | Governing Law                                               | 29     |
| Section 9.5                 | Notices                                                     | 29     |
| Section 9.6                 | Amendment and Modification                                  | 30     |
| Section 9.7                 | Successors and Assigns; No Third-Party  Beneficiaries       | 31     |
| Section 9.8                 | Counterparts                                                | 31     |
| Section 9.9                 | Interpretation                                              | 31     |

 

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| Section 9.10 | Severability                                    | 31 |
|-------------------|-------------------------------------------------|----|
| Section 9.11 | References; Construction                        | 31 |
| Section 9.12 | Termination                                     | 31 |
| Section 9.13 | Consent to Jurisdiction and Service of  Process | 31 |
| Section 9.14 | Waivers                                         | 32 |
| Section 9.15 | Specific Performance                            | 32 |
| Section 9.16 | Waiver of Jury Trial                            | 32 |

 
| Exhibit A | - | Certificate of  Incorporation of Spinco |
|----------------|---|-----------------------------------------|
| Exhibit B | - | Bylaws of Spinco                        |
| Exhibit C | - | Certificate of Officers  of Forest      |
| Exhibit D | - | Certificate of Officers  of Spinco      |
| Exhibit E | - | Certificate of Officers  of the Company |

 

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**DISTRIBUTION AGREEMENT**

** **

THIS DISTRIBUTION AGREEMENT, dated as of September 9,2005, is between Forest Oil Corporation, a New York corporation (“Forest”), andSML Wellhead Corporation, a Delaware corporation and a wholly owned subsidiaryof Forest (“Spinco”).

 

WHEREAS, Forest, Spinco, Mariner Energy, Inc., aDelaware corporation (the “Company”), and MEI Sub, Inc., a Delawarecorporation and wholly owned subsidiary of the Company (“Merger Sub”), haveentered into an Agreement and Plan of Merger, dated as of September 9,2005 (the “Merger Agreement”), pursuant to which, at the Effective Time (assuch term and other capitalized terms are defined in Article I hereof),Merger Sub will merge with and into Spinco, with Spinco being the survivingcorporation, and Spinco becoming a wholly owned subsidiary of the Company (the “Merger”);

 

WHEREAS, this Agreement and the other TransactionAgreements set forth certain transactions that are conditions to consummationof the Merger;

 

WHEREAS, prior to the Distribution Date, and subjectto the terms and conditions set forth herein, Forest intends to transfer orcause to be transferred to Spinco all of the Spinco Assets, which representsubstantially all of Forest’s Offshore Gulf of Mexico assets, and Spincointends to assume all of the Spinco Liabilities, as contemplated by thisAgreement (the “Contribution”);

 

WHEREAS, subject to the conditions set forth in thisAgreement, all of the issued and outstanding shares of common stock of Spinco,par value $0.10 per share (“Spinco Common Stock”), will be distributed on a prorata basis (the “Distribution”) to the holders as of the Record Date of theoutstanding common stock of Forest, par value $0.10 per share (“Forest CommonStock”); and

 

WHEREAS, the parties to this Agreement intend that theContribution and the Distribution qualify under Sections 368(a) and355 of the Internal Revenue Code of 1986, as amended (the “Code”),respectively, and that the Merger qualify as a reorganization under Section 368(a) ofthe Code;

 

NOW, THEREFORE, in consideration of therepresentations, warranties, covenants and agreements set forth in thisAgreement, and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties, intending to belegally bound hereby, agree as follows:

 

# **ARTICLE IDEFINITIONS**

# ** **

 

Section 1.1                                      *General*.  As used inthis Agreement, the following terms shall have the following meanings (suchmeanings to be equally applicable to both the singular and plural forms of theterms defined):

 

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“Actual Cash Amount” shall have the meaning specifiedin Section 4.2.

 

“Affiliate” shall mean, with respect to any specifiedPerson, any other Person that directly or indirectly, controls, is controlledby or is under common control with, such specified Person.  For purposes of this definition, “control”(including, with correlative meanings, the terms “controlled by” and “undercommon control with”), as used with respect to any Person, shall mean thepossession, directly or indirectly, of the power to direct or cause thedirection of the management or policies of such Person, whether through theownership of voting securities, by contract or otherwise; provided, however,that for purposes of this Agreement, from and after the Distribution Date, nomember of either Group shall be deemed an Affiliate of any member of the otherGroup.

 

“Agent” shall mean the distribution agent to beappointed by Forest to distribute the shares of Spinco Common Stock pursuant tothe Distribution.

 

“Agreement” shall mean this Distribution Agreement.

 

“Assets” shall mean the Spinco Assets or the ForestAssets, as the case may be.

 

“Assumed Abandonment Liabilities” shall meanLiabilities arising from legal obligations to plug, abandon, remove, orotherwise retire (a) to the extent constituting Spinco Assets, all real orimmovable property, including without limitation  all platforms, pipelines and improvementslocated or situated on, related to, or used in connection with the Properties; (b) tothe extent constituting Spinco Assets, all equipment, personal or movableproperty, fixtures and improvements located on or to the extent reasonablynecessary in connection with the operation of the Properties, the Easements andall other Spinco Assets including without limitation all wells (whetherproducing or shut-in and whether for production, injection or disposal),flowlines, gathering systems, processing plants, piping, tanks, buildings, boatdocks, treatment facilities, injection facilities, disposal facilities,compression facilities, production units, tank batteries; and (c) allother assets constituting a Spinco Asset, in each case (with respect to each ofclauses (a), (b) and (c) above) to the extent such Liabilities areeither (i) described in the FAS 143 disclosure in respect of the SpincoAssets provided by Forest to the Company prior to the date hereof, (ii) arisingafter the Measurement Date, or (iii) not within the Knowledge of Forest asof the date hereof; provided, however, that the extent of an AssumedAbandonment Liability shall not be limited by the specific dollar amountscontained in the FAS 143 disclosure.

 

“Assumed Derivative Liabilities” shall meanLiabilities under the derivatives contracts set forth in Section 1.1(A) ofthe Disclosure Schedule.

 

“Assumed Environmental Liabilities” shall meanLiabilities, to the extent arising from the conduct of the Spinco Business(whether prior to or after the Measurement Date) (i) as the result of anEnvironmental Condition or (ii) as a result of a claim by a GovernmentalAuthority for property damage, damage to natural resources, remediation, orpayment or reimbursement of response costs incurred or expended by suchGovernmental Authority pursuant to Environmental Law; provided, that AssumedEnvironmental Liabilities shall not include any Liability (i) arising fromthe conduct of the Spinco Business prior to the Measurement Date that wasrequired to have been set forth on Section 4.10 of the Spinco DisclosureSchedule, but that was omitted from 

 

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such schedule, or (ii) in excess of $10.0 millionin the aggregate, as actually incurred by Spinco,  in connection with the conditions describedin clauses (ii) and (iv) of Section 4.10 of the SpincoDisclosure Schedule.

 

“Business” shall mean the Spinco Business or the ForestBusiness, as the case may be.

 

“Business Day” shall mean any day other than aSaturday, Sunday or a day on which banking institutions in the City of New Yorkare authorized or obligated by law or executive order to close.

 

“Cash Amount” shall mean an amount calculated asfollows:

 

#### (i)                                     Twohundred million dollars ($200 million); provided, however, that if thecondition described in Section 4.2 of the Spinco Disclosure Schedule hasnot been satisfied, such amount shall equal two hundred seventy-five milliondollars ($275 million); less

####  

#### (ii)                                  Allrevenue recognized by Forest in accordance with GAAP applied on a consistentbasis (or as otherwise agreed by Forest, Spinco and the Company), derived fromthe Spinco Assets during the Measurement Period (including, without limitation,oil and gas revenue, settled gains and losses from Assumed DerivativeLiabilities, gas processing revenue and gas marketing revenue, but excludinggains on sales of  property, plant andequipment related to the Spinco Assets); less

####  

#### (iii)                               Cash consideration ofany sale during the Measurement Period of property, plant and equipment relatedto the Spinco Assets recognized by Forest in accordance with GAAP; plus

####  

#### (iv)                              Thenet assets and liabilities described in Section 1.1(B) of theDisclosure Schedule; plus or minus, as determined below,

####  

#### (v)                                 Anamount equal to net gas balancing assets or liabilities, as the case may be,based on a gas price of $6.50 per mmbtu, of the Spinco Business as of theMeasurement Date (it being understood and agreed that if the net amount is positive,such amount shall be added to the Cash Amount, and if negative, shall bededucted from the Cash Amount); plus or minus, as determined below,

####  

#### (vi)                              Anamount equal to the net settlement amount in respect of settlements of gasimbalances effected during the Measurement Period (it being understood andagreed that if the net amount is positive, such amount shall be deducted fromthe Cash Amount, and if negative, shall be added to the Cash Amount); plus

####  

#### (vii)                           All capital and operatingexpenditures of Forest attributable to the Spinco Assets during the MeasurementPeriod calculated by Forest in accordance with GAAP, other than expenditures (A) inconnection with repairs or remediation to any Properties damaged in HurricaneIvan or Hurricane Lilly, (B) in connection with any environmentalLiabilities that do not constitute Assumed Environmental Liabilities or (C) amountsdescribed in paragraph (x) below; plus

 

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#### (viii)                        An amount equal to hypotheticalincome taxes, which amount shall be calculated by applying a rate of 35% to anamount calculated as follows:

####  

##### (a)                                  Item(ii) of the Cash Amount; less

#####  

##### (b)                                 Item(vii) of the Cash Amount; less

#####  

##### (c)                                  Item(x) of the Cash Amount; less

#####  

##### (d)                                 Item(xi) of the Cash Amount; plus

#####  

##### (e)                                  Capitalexpenditures in item (vii) of the Cash Amount to the extent they representtangible assets; less

#####  

(f)                                    Anamount representing estimated cost depletion computed at a rate of $1.20 permcfe produced during the Measurement Period, subject to the adjustment asprovided in Section 4.3; plus

 

#### (ix)                                Anamount equal to interest expense, which amount shall be calculated, for eachcalendar month during the Measurement Period (or partial month, if applicablewith respect to the last month of the Measurement Period), at a rate of 6.5%per annum on the aggregate amount of indebtedness of the Spinco Business basedon the average for such month, which indebtedness shall be assumed to haveequaled two hundred million dollars ($200 million) on the Measurement Date andto have been reduced on the last day of each calendar month after theMeasurement Date by net cash provided by operating activities, and increased bynet cash used in investing activities, in each case in accordance with GAAP;plus

####  

#### (x)                                   $1.6million per month (prorated for any partial month) for general andadministrative expenses, plus any Retention Benefits paid to Spinco Employeesduring the Measurement Period pursuant to Section 6.8(g) of theMerger Agreement; plus

####  

#### (xi)                                Acash amount for costs and expenses incurred by Forest or Spinco in connectionwith the Transaction Agreements and the transactions contemplated thereby(including, without limitation, fees and expenses of legal and financialadvisors), such costs and expenses not to exceed seven million dollars($7 million); plus or minus, as determined below,

####  

#### (xii)                             An amount equal to thechange in working capital accounts, other than cash (accounts receivable plusinventories plus other current assets less accounts payable and other currentliabilities, but excluding gas imbalances), excluding the effects ofFAS 143 and FAS 133, related to the Spinco Assets during the MeasurementPeriod (it being understood and agreed that working capital related to theSpinco Assets at the Measurement Date shall be assumed to be zero and that ifthe net amount is positive, such amount shall be added to the Cash Amount, andif negative, shall be deducted from the Cash Amount).

 

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“Claims Administration” shall mean the processing ofclaims made under the Policies, including the reporting of claims to theinsurance carrier, management and defense of claims, and providing forappropriate releases upon settlement of claims.

 

“Claims Made Policies” shall have the meaningspecified in Section 6.6(a).

 

“Code” shall have the meaning specified in theRecitals hereof.

 

“Company” shall have the meaning specified in theRecitals hereof.

 

“Company Common Stock” shall have the meaningspecified in the Merger Agreement.

 

“Company Consent” shall have the meaning specified inthe Merger Agreement.

 

“Contribution” shall have the meaning specified in theRecitals hereof.

 

“Disclosure Schedule” shall mean the schedule preparedand delivered by Forest to Spinco as of the date of this Agreement.

 

“Dispute Notification” shall have the meaningspecified in Section 4.4.

 

“Distribution” shall have the meaning specified in theRecitals hereof.

 

“Distribution Date” shall mean the date and time thatthe Distribution shall become effective.

 

“Easement” shall mean any easement, right of way,servitude, permit, license, franchise, right of ingress or egress, property useagreement or other estate or similar right or privilege.

 

“Effective Time” shall have the meaning specified inthe Merger Agreement.

 

“Employee Benefits Agreement” shall mean the EmployeeBenefits Agreement of even date herewith between Forest and Spinco.

 

“Environmental Condition” shall mean soil or watercontamination, other types of environmental damage or contamination, or otherconsequences of releases of Hazardous Materials in, on, under or migrating fromthe Spinco Assets, in each case in violation of Environmental Law.

 

“Environmental Law” shall have the meaning specifiedin the Merger Agreement.

 

“Estimated Cash Amount” shall have the meaningspecified in Section 4.1.

 

“Exchange Act” shall mean the Securities Exchange Actof 1934, as amended, together with the rules and regulations of the SECpromulgated thereunder.

 

“Forest” shall have the meaning specified in thepreamble hereof.

 

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“Forest Assets” shall mean, collectively, all of theright, title and interest of Forest and the Forest Subsidiaries in all theirrespective assets and properties, tangible or intangible, other than the SpincoAssets.

 

“Forest Business” shall mean all of the businesses andoperations conducted by Forest and the Forest Subsidiaries (other than theSpinco Business) at any time, whether prior to, on or after the DistributionDate.

 

“Forest Common Stock” shall have the meaning specifiedin the Recitals hereof.

 

“Forest Group” shall mean Forest and the ForestSubsidiaries.

 

“Forest Indemnitees” shall mean Forest, each Affiliateof Forest immediately after the Distribution Date and each of their respectivepresent and former Representatives and each of the heirs, executors, successorsand assigns of any of the foregoing.

 

“Forest Liabilities” shall mean, collectively, (i) allLiabilities of Forest and all Liabilities of the Forest Subsidiaries, includingthe Liabilities of Forest under the Transaction Agreements, and (ii) allLiabilities set forth on Section 1.1(C) of the Disclosure Schedule;provided that Forest Liabilities shall not include the Spinco Liabilities.

 

“Forest Subsidiaries” shall mean all direct andindirect Subsidiaries of Forest immediately after the Distribution Date.

 

“GAAP” shall have the meaning specified in the MergerAgreement.

 

“Governmental Authority” shall have the meaningspecified in the Merger Agreement.

 

“Group” shall mean the Forest Group or the SpincoGroup, as the case may be.

 

“Hazardous Material” shall have the meaning specifiedin the Merger Agreement.

 

“Indemnifiable Losses” shall mean all Losses,Liabilities, damages, claims, demands, judgments or settlements of any natureor kind, including all reasonable costs and expenses (legal, accounting orotherwise as such costs are incurred) relating thereto, suffered by anIndemnitee, including any reasonable costs or expenses of enforcing anyindemnity hereunder.

 

“Indemnifying Party” shall mean a Person that isobligated under this Agreement to provide indemnification.

 

“Indemnitee” shall mean a Person that may seekindemnification under this Agreement.

 

“Independent Accounting Firm” shall mean GrantThornton or BDO Seidman, LLP or, if either of such firms is not independent andavailable, such other independent accounting firm of national reputationmutually acceptable to Forest and Spinco (or, if Forest and Spinco are unableto agree upon such a firm, then either party shall select one such firm andthose two firms shall select a third firm, in which event “IndependentAccounting Firm” shall mean such third firm).

 

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“Information” shall mean all records, books,contracts, instruments, computer data and other data and information.

 

“Knowledge” of any Person or person shall mean theknowledge after due inquiry of the executive officers of such Person(including, with respect to Forest’s or Spinco’s knowledge, the head of theSpinco Business unit).

 

“Liability” or “Liabilities” shall mean all debts,liabilities and obligations whether absolute or contingent, matured orunmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,whenever arising, and whether or not the same would properly be reflected on abalance sheet.

 

“Liens” shall have the meaning specified in the MergerAgreement.

 

“Litigation Matters” shall mean actual, threatened orfuture litigation, investigations, claims or other legal matters that have beenor may be asserted against, or otherwise adversely affect, Forest and/or Spinco(or members of either Group).

 

“Losses” shall have the meaning specified in theMerger Agreement.

 

“Material Adverse Effect” shall have the meaningspecified in the Merger Agreement.

 

“Measurement Date” shall mean 12:01 a.m. Centraltime on July 1, 2005.

 

“Measurement Period” shall mean the period from theMeasurement Date through the Distribution Date.

 

“Merger” shall have the meaning specified in thepreamble hereof.

 

“Merger Agreement” shall have the meaning specified inthe Recitals hereof.

 

“Occurrence Basis Policies” shall have the meaningspecified in Section 6.6(a).

 

“Offshore Gulf of Mexico” shall have the meaningspecified in the Merger Agreement.

 

“Permitted Liens” shall have the meaning specified inthe Merger Agreement.

 

“Person or person” shall mean a natural person,corporation, company, partnership, limited partnership, limited liabilitycompany, or any other entity, including a Governmental Authority.

 

“Policies” shall mean all insurance policies,insurance contracts and claim administration contracts of any kind of Forestand its Subsidiaries (including members of the Spinco Group) and theirpredecessors which were or are in effect at any time at or prior to theDistribution Date, including primary, excess and umbrella, commercial generalliability, fiduciary liability, product liability, automobile, aircraft,property and casualty, business interruption, directors and officers liability,employment practices liability, workers’ compensation, crime, errors andomissions, special accident, cargo, employee dishonesty and operator’s extraexpense insurance policies and 

 

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captive insurance company arrangements, together withall rights, benefits and privileges thereunder.

 

“Privileged Information” shall mean, with respect toeither Group, Information regarding a member of such Group, or any of itsoperations, Assets or Liabilities (whether in documents or stored in any otherform or known to its employees or agents) that is or may be protected fromdisclosure pursuant to the attorney-client privilege, the work product doctrineor another applicable privilege, that a member of the other Group may come intopossession of or obtain access to pursuant to this Agreement or otherwise.

 

“Reconciliation Statement” shall have the meaningspecified in Section 4.2.

 

“Record Date” shall mean the close of business on thedate to be determined by the Board of Directors of Forest as the record datefor determining stockholders of Forest entitled to receive the Distribution,which date shall be a business day preceding the day of the Effective Time.

 

“Registration Statements” shall mean the RegistrationStatement on Form 10 (or, if such form is not appropriate, the appropriateform pursuant to the Exchange Act) to be filed by Spinco with the SEC to effectthe registration of the Spinco Common Stock pursuant to the Exchange Act inconnection with the Distribution, the Registration Statement on Form S-4to be filed by the Company with the SEC to effect the registration under theSecurities Act of the issuance of the shares of Company Common Stock into whichshares of Spinco Common Stock will be converted pursuant to the Merger and theRegistration Statement on Form S-1 to be filed by the Company with the SECto effect the registration under the Securities Act of the resale of the sharesof Company Common Stock by certain selling stockholders.

 

“Representative” shall mean, with respect to any Person,any of such Person’s directors, officers, employees, agents, consultants,advisors, accountants, attorneys and representatives.

 

“Requisite Approval” shall have the meaning specifiedin the Merger Agreement.

 

“Retention Benefits” shall have the meaning specifiedin the Merger Agreement.

 

“Review Period” shall have the meaning specified in Section 4.2.

 

“SEC” shall mean the U.S. Securities and ExchangeCommission.

 

“Securities Act” shall mean the Securities Act of1933, as amended, together with the rules and regulations of the SECpromulgated thereunder.

 

“Spinco” shall have the meaning specified in thepreamble hereof.

 

“Spinco Assets” shall mean, collectively, all of theright, title and interest of Forest and the Forest Subsidiaries prior to the Contributionin and to:

 

(a)                                  (i) allreal property interests of Forest and the Forest Subsidiaries in the OffshoreGulf of Mexico, including without limitation the leasehold estates in and tothe oil, gas and mineral leases described on Schedule 1.1(D)(a)(i) (andany extensions, renewals, 

 

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ratifications or amendments to such interests whether or not suchextensions, renewals, ratifications or amendments are described on Schedule 1.1(D)(a)(i) (collectively,the “Properties,” or singularly, a “Property”)), (ii) the overridingroyalty interests and reversionary interests described on Schedule 1.1(D)(a)(ii) and(iii) the other assets described on Schedule 1.1(D)(a)(iii);

 

(b)                                 allreal or immovable property and rights incident to or used in conjunction withthe Properties, including (i) all rights with respect to the use andoccupation of the surface of and the subsurface depths under the Properties; (ii) allrights with respect to any pooled, communitized or unitized acreage by virtueof any Property being a part thereof, including all production from such poolor unit allocated to any such Property; (iii) all platforms, pipelines andimprovements located or situated on, related to, or used in connection with theProperties; and (iv) all surplus, materials stocks and inventory listed onSchedule 1.1(D)(b)(iv);

 

(c)                                  allEasements to the extent related to or used in connection with the Properties;

 

(d)                                 alloil, gas, condensate and other hydrocarbons produced from or attributable tothe Properties from and after the Measurement Date or in storage on theMeasurement Date (the “Hydrocarbons”) and all equipment, personal or movableproperty, fixtures, inventory and improvements located on or to the extentreasonably necessary in connection with the operation of the Properties and theEasements or with the production, treatment, sale, or disposal of theHydrocarbons, byproducts or waste produced therefrom or attributable thereto,including all wells (whether producing, shut in or abandoned, and whether forproduction, injection or disposal), wellhead equipment, pumps, pumping units,flowlines, gathering systems, interests in processing plants, platforms,pipelines, vessels, computer software and hardware, piping, tanks, buildings,boat docks, treatment facilities, injection facilities, disposal facilities,compression facilities, spare parts, tools, production units, heaters,separators, dehydrators, tank batteries, abandoned property, offices and officeequipment and supplies at Forest’s Metairie and Lafayette offices, and othermaterials, supplies, equipment, facilities, appurtenances and machinery;

 

(e)                                  allcontracts and instruments, including but not limited to those listed on Schedule 1.1(D)(e)(i),to the extent the same relate to the Properties after the Measurement Date(collectively, the “Contracts”);

 

(f)                                    anyand all books and records (including without limitation those referred to in Section 7.1),files, muniments of title, reports, intellectual property (including withoutlimitation patents, trade secrets and copyrights), state and MMS complianceinformation, logs core samples, geological, geophysical (to the extent notsubject to third party consents or restriction on transfer) and engineeringdata and information (including blueprints, maps, diagrams, annotated logs,cross sections and all data room material) and interpretive data, analysis andsimilar information, whether or not of a proprietary nature (including withoutlimitation seismic processing methods) to the extent related to the Properties;

 

(g)                                 therights of Spinco and its Subsidiaries under this Agreement and the otherTransaction Agreements;

 

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(h)                                 allnoncash consideration of any sale after the Measurement Date of property, plantand equipment related to the assets described in paragraphs (a) through (g) above;

 

(i)                                     anyand all proceeds, benefits, refunds, settlements, income or revenue accruingand attributable to the Spinco Assets prior to the Measurement Date to theextent they are in connection with any Assumed Abandonment Liability, anyAssumed Environmental Liability or any Assumed Derivative Liability;

 

(j)                                     anyand all proceeds from the settlements of contract disputes with purchasers ofHydrocarbons or byproducts from the Properties, insofar as said disputes areattributable to periods after the Measurement Date;

 

(k)                                  anyand all rights, titles, claims and interests of Forest and its Subsidiaries toor under any policy or agreement of insurance or indemnity, any bond, or to anyinsurance proceeds or awards, to the extent attributable to pre-MeasurementDate events and to the extent they are in connection with any AssumedAbandonment Liability or any Assumed Environmental Liability;

 

(l)                                     anyand all claims and causes of action of Forest and its Subsidiaries arising fromacts, omissions or events, or damages to or destruction of property, occurringprior to the Measurement Date to the extent they are in connection with anyAssumed Abandonment Liability or any Assumed Environmental Liability; and

 

(m)                               allaccounts receivable, inventories and other current assets (other than cash)attributable to the assets described in paragraphs (a) through (l) abovefrom and after the Measurement Date.

 

Notwithstanding the foregoing, the Spinco Assets shallnot include, and there is excepted, reserved and excluded from the Contributioncontemplated hereby:  (a) thosecertain interests in and to the Properties described on Schedule 1.1(D)(x)and the assets described in paragraphs (b) through (i) above relatedto such Properties (the “Excluded Properties”), (b) all furniture,fixtures and equipment located in and all contracts relating to, Forest’soffice at 707 Seventeenth Street, Suite 3600, Denver, Colorado 80202, (c) subjectto Section 7.1, all corporate, financial, legal and Tax records of Forestand the Forest Subsidiaries which are related to the Forest Business, (d) anyand all business models, analyses, memoranda or similar documents generated by Forestor its advisers during or in the context of the consideration, negotiations orapprovals of any of the Transaction Agreements, (e) any and all proceeds,benefits, refunds, settlements, income or revenue accruing and attributable tothe Spinco Assets prior to the Measurement Date (other than in connection withany Assumed Abandonment Liability, any Assumed Environmental Liability or anyAssumed Derivative Liability), (f) any and all claims of Forest and itsSubsidiaries for refunds of or loss carry forwards with respect to Taxesattributable to the Spinco Assets for any period prior to the DistributionDate, (g) any and all proceeds from the settlements of contract disputeswith purchasers of Hydrocarbons or byproducts from the Properties, insofar assaid disputes are attributable to periods prior to the Measurement Date, (h) anyand all rights to use Forest’s name, marks trade dress or insignia, or to usethe name of any other Forest Subsidiary, (i) any and all rights, titles,claims and interests of Forest and the Forest Subsidiaries to or under anypolicy or agreement of insurance or indemnity, any bond, or to any insuranceproceeds or 

 

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awards, to the extent attributable to pre-MeasurementDate events and to the extent that Forest has remediated or otherwise resolvedwithout liability to Spinco any associated Spinco Liability (other than inconnection with any Assumed Abandonment Liability or any Assumed EnvironmentalLiability), (j) any employment, consulting, office lease or accounting servicecontracts listed on Schedule 1.1(D)(y), and (k) any and all claims andcauses of action of Forest and the Forest Subsidiaries arising from acts,omissions or events, or damages to or destruction of property, occurring priorto the Measurement Date (other than in connection with any Assumed AbandonmentLiability or any Assumed Environmental Liability).

 

“Spinco Business” shall mean the business conducted byForest and its Subsidiaries on the Measurement Date related to the Spinco Assets.

 

“Spinco Common Stock” shall have the meaning specifiedin the Recitals hereof.

 

“Spinco Disclosure Schedule” shall have the meaningspecified in the Merger Agreement.

 

“Spinco Group” shall mean Spinco and the SpincoSubsidiaries.

 

“Spinco Indemnitees” shall mean Spinco, the Company,each Affiliate of Spinco and the Company immediately after the DistributionDate and each of their respective present and former Representatives and eachof the heirs, executors, successors and assigns of any of the foregoing.

 

“Spinco Liabilities” shall mean (i) allLiabilities of the Spinco Business to the extent arising after the MeasurementDate and attributable to the conduct of the Spinco Business after theMeasurement Date, including without limitation the liabilities of Spinco underthe Transaction Agreements, (ii) the Assumed Environmental Liabilities, (iii) theAssumed Abandonment Liabilities and (iv) the Assumed DerivativeLiabilities, but excluding (x) Taxes (which shall be governed by the TaxSharing Agreement) and (y) the Liabilities set forth on Schedule 1.1(E).

 

“Spinco Subsidiaries” shall mean all direct andindirect Subsidiaries of Spinco.

 

“Subsidiary” shall have the meaning specified in theMerger Agreement.

 

“Taxes” shall mean all taxes, charges, fees, duties,levies, imposts, rates or other assessments imposed by any federal, state,local or foreign Taxing Authority, including, but not limited to, income, grossreceipts, excise, property, sales, use, license, capital stock, transfer,franchise, payroll, withholding, social security, value added or other taxes(including any interest, penalties or additions attributable thereto); and “Tax”shall mean any of such Taxes.

 

“Tax Sharing Agreement” shall mean the Tax SharingAgreement of even date herewith among Forest, Spinco and the Company.

 

“Taxing Authority” shall mean any GovernmentalAuthority or any quasi-governmental or private body having jurisdiction overthe assessment, determination, collection or imposition of any Tax (includingthe United States Internal Revenue Service or any successor thereto, including,but not limited to its agents, representatives and attorneys).

 

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“Third-Party Claim” shall mean any claim, suit,derivative suit, arbitration, inquiry, proceeding or investigation by or beforeany court, any governmental or other regulatory or administrative agency orcommission or any arbitration tribunal asserted by a Person who or which isneither a party hereto nor an Affiliate of a party hereto.

 

“Transaction Agreements” shall mean this Agreement,the Employee Benefits Agreement, the Merger Agreement, the Tax SharingAgreement and the Transition Services Agreement.

 

“Transition Services Agreement” shall mean theTransition Services Agreement of even date herewith between Forest and Spinco.

 

Section 1.2                                      *References to Time*. All references in this Agreement to times of the day shall be to NewYork City time.

 

# **ARTICLE IIPRELIMINARY TRANSACTIONS**

# ** **

Section 2.1                                      *Business Separation.*

 

### (a)                                  Onor prior to the Distribution Date, Forest shall take or cause to be taken allactions necessary to cause the transfer, assignment, delivery and conveyance toSpinco of all of the Spinco Assets, free and clear of all Liens other thanPermitted Liens, and Spinco shall assume, and thereafter timely pay, performand discharge when due, all of the Spinco Liabilities.

###  

### (b)                                 Theseparation of the Forest Assets and the Spinco Assets, as contemplated by thisAgreement shall be effected in a manner that does not unreasonably disrupteither the Forest Business or the Spinco Business.  Subject to Section 2.6, to the extentthe separation of any of the Assets cannot be achieved in a reasonablypracticable manner, Spinco and Forest will enter into appropriate arrangementsregarding the shared Asset, subject to Company Consent not to be unreasonablywithheld.  Any costs related to the useof a shared Asset that is not separated as of the Distribution Date shall beallocated in a reasonable manner as agreed by Spinco and Forest, subject toCompany Consent not to be unreasonably withheld.

###  

### (c)                                  Onor prior to the Distribution Date, Forest and Spinco will use theircommercially reasonable efforts to amend, in form and substance reasonablysatisfactory to the Company, all contractual arrangements between or among Forest,Spinco, their respective Affiliates and any other Person (other than thecontractual arrangements relating to the Distribution and the Merger) thateither (i) relate to the Forest Business but relate predominantly to theSpinco Business or (ii) relate solely to the Spinco Business, but, bytheir terms, contain provisions relating to a member of the Forest Group, sothat, after the Distribution Date, such contractual arrangements (x) willrelate solely to the Spinco Business and (y) will eliminate any provisionsrelating to a member of the Forest Group and, in either event, will inure tothe benefit of the Spinco Group on substantially the same economic terms assuch arrangements exist as of the date hereof. On or prior to the Distribution Date, Forest and Spinco will use theircommercially reasonable efforts to amend, in form and substance reasonablysatisfactory to the 

 

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### Company, allcontractual arrangements between or among Forest, Spinco, their respectiveAffiliates and any other Person (other than the contractual arrangementsrelating to the Distribution and the Merger) that either (i) relate to theSpinco Business but relate predominantly to the Forest Business or (ii) relatesolely to the Forest Business, but, by their terms, contain provisions relatingto a member of the Spinco Group, so that, after the Distribution Date, suchcontractual arrangements (x) will relate solely to the Forest Business and(y) will eliminate any provisions relating to a member of the Spinco Groupand, in either event, will inure to the benefit of the Forest Group onsubstantially the same economic terms as such arrangements exist as of the datehereof.  If, in any case, such amendmentcannot be obtained, or if an attempted amendment thereof would be ineffectiveor would adversely affect the rights of Forest or Spinco thereunder, Forest andSpinco will, subject to Section 2.6, cooperate in negotiating a mutuallyagreeable arrangement, in form and substance reasonably satisfactory to theCompany, under which Forest or Spinco, as applicable, will obtain the benefitsand assume the obligations thereunder.

###  

### (d)                                 Foresthereby represents and warrants to Spinco and the Company that at the time ofthe Distribution and at the Measurement Date, the Spinco Assets, together withthe Assets set forth on Schedule 1.1(D)(x), constitute all of Forest’s,Spinco’s and their respective Subsidiaries’ business and assets in the OffshoreGulf of Mexico and property related thereto, and Forest, Spinco or suchSubsidiary owns the Spinco Assets free and clear of all Liens other thanPermitted Liens.

 

Section 2.2                                      *Conveyancing and Assumption Agreements*.  In connection with the transfer of the SpincoAssets and the assumption of the Spinco Liabilities contemplated by Section 2.1,Forest and Spinco shall execute, or cause to be executed by the appropriateentities, conveyancing and assumption instruments in such forms (as specialwarranty deeds, where applicable) as shall be reasonably acceptable to Forest,Spinco and the Company.

 

Section 2.3                                      *Certificate of Incorporation; By-laws*.  The Certificate of Incorporation and Bylawsof Spinco immediately prior to the Distribution Date will be in the formsattached as *Exhibits A* and *B*, respectively.

 

Section 2.4                                      *Issuance of Stock*. Prior to the Distribution Date, the parties hereto shall take all stepsnecessary so that the number of shares of Spinco Common Stock outstanding andheld by Forest shall equal 50,637,010; provided, however, that if the conditiondescribed in Section 4.2 of the Spinco Disclosure Schedule has notbeen satisfied, such number of shares shall equal 51,368,707.

 

Section 2.5                                      *Other Agreements*. Each of Forest and Spinco shall, prior to the Distribution Date, enterinto, and cause the appropriate members of the Group of which it is a member toenter into, the other Transaction Agreements.

 

Section 2.6                                      *Transfers Not Effected Prior to the Distribution; Transfers DeemedEffective as of the Distribution Date*.  To the extent that any transfers contemplatedby this Article II shall not have been consummated on or prior to theDistribution Date, the parties shall use their commercially reasonable effortsto effect such transfers as promptly following theDistribution Date as shall be practicable. Nothing herein shall be deemed to require the transfer 

 

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of any Assets or the assumption of any Liabilitieswhich by their terms or operation of law cannot be transferred or assumed; provided,however, that Forest and Spinco shall and shall cause their respectiveSubsidiaries to use commercially reasonable efforts to obtain any necessaryconsents or approvals for the transfer of all Assets and the assumption of allLiabilities contemplated to be transferred or assumed pursuant to this Article II.  In the event that any such transfer of Assetsor assumption of Liabilities has not been consummated, effective on or beforethe Distribution Date, the party retaining such Asset or Liability shallthereafter hold such Asset in trust for the use and benefit of the partyentitled thereto (at the expense of the party entitled thereto) and retain suchLiability for the account of the party by whom such Liability is to be assumedpursuant hereto, and take such other action as may be reasonably requested bythe party to which such Asset is to be transferred, or by whom such Liabilityis to be assumed, as the case may be, in order to place such party, to theextent reasonably possible, in the same position as would have existed had suchAsset or Liability been transferred or assumed as contemplated hereby.  As and when any such Asset becomestransferable or such Liability can be assumed, such transfer or assumptionshall be effected forthwith.  Without limiting the generality of theforegoing, the parties shall use commercially reasonable efforts to allowSpinco or the Company to retain operatorship of any Property or other SpincoAsset following the Distribution Date. Subject to the foregoing, the parties agree that, as of the DistributionDate (or such earlier time as any such Asset may have been acquired orLiability assumed), each party hereto shall be deemed to have acquired completeand sole beneficial ownership over all of the Assets, together with all rights,powers and privileges incident thereto, and shall be deemed to have assumed inaccordance with the terms of this Agreement all of the Liabilities, and allduties, obligations and responsibilities incident thereto, which such party isentitled to acquire or required to assume pursuant to the terms of thisAgreement.  If the transfer of anyseismic licenses to Spinco in connection with the Contribution is subject to atransfer, assignment or consent fee, Forest and the Forest Subsidiaries shall providenotice to Spinco and the Company of the existence of such fee and, if requestedby the Company, shall cooperate reasonably (without the obligation to incur anyexpense) with Spinco and the Company to minimize the amount of such fee, whichshall (if such transfer was requested by the Company) be paid by Spinco.  Spinco shall not, without Company Consent,bear the costs of any transfer, assignment or consent fees, or fees inconnection with filings with the MMS or with any state agency or authority, inconnection with the transfer of any Spinco Assets in the Contribution, otherthan seismic licenses as provided in the immediately preceding sentence; andother than any transfer, assignment or consent fees payable to any TaxingAuthority, which shall be governed by the Tax Sharing Agreement.  Notwithstanding any other provision in thisAgreement, with respect to all seismic licenses for which the Company does notrequest that Spinco pay an applicable transfer, assignment or consent fee orthat cannot otherwise be transferred to Spinco in accordance with this Section 2.6,Forest shall retain all rights and obligations under such seismic licenses andshall owe no further obligation to the Company or Spinco with respectthereto.  Further, notwithstanding any otherprovision in this Agreement, with respect to computer software that Forestcurrently uses for any of the Forest Assets, Forest shall not be obligated totransfer such software to Spinco to the extent such transfer would adverselyaffect Forest’s ability to continue use of such software for the ForestAssets.  The parties acknowledge andagree that the payment of any transfer or assignment fees by Forest, Spinco,the Company or any of their respective Subsidiaries in connection with thetransfer of any assets to Spinco or in connection with the Merger shall notconstitute costs and expenses incurred in connection with the TransactionAgreements and the 

 

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transactions contemplated thereby for purposes ofparagraph (xi) of the definition of Cash Amount.

 

# **ARTICLE IIITHE DISTRIBUTION**

# ** **

 

Section 3.1                                      *Record Date and Distribution Date*.  Subject to the satisfaction of the conditionsset forth in Section 9.1, the Board of Directors of Forest, consistentwith the Merger Agreement and New York law, shall establish the Record Date andthe Distribution Date and any appropriate procedures in connection with theDistribution.  The Distribution Dateshall be no earlier than the Business Day on which the Effective Time occurs.

 

Section 3.2                                      *The Agent*.  Prior tothe Distribution Date, Forest shall enter into an agreement with the Agentproviding for, among other things, the Distribution to the holders of ForestCommon Stock in accordance with this Article III.

 

Section 3.3                                      *Delivery of Share Certificates to the Agent*.  Prior to the Distribution Date, Forest shalldeliver to the Agent a share certificate representing (or authorize the relatedbook-entry transfer of) all of the outstanding shares of Spinco Common Stock tobe distributed in connection with the Distribution.  After the Distribution Date and EffectiveTime, upon the request of the Agent, Spinco shall provide all certificates forshares (or book-entry transfer authorizations) of Spinco Common Stock that theAgent shall require in order to effect the Distribution.

 

Section 3.4                                      *The Distribution.*

 

### (a)                                  Subjectto the terms and conditions of this Agreement, Spinco shall instruct the Agentto distribute on a pro rata basis, as of the Distribution Date, a total of50,637,010 shares of Spinco Common Stock in respect of the outstanding sharesof Forest Common Stock held by holders of record of Forest Common Stock on theRecord Date; provided, however, that if the condition described in Section 4.2of the Spinco Disclosure Schedule has not been satisfied, such number ofshares shall equal 51,368,707.  Allshares of Spinco Common Stock distributed in the Distribution shall be dulyauthorized, validly issued, fully paid, non-assessableand free of preemptive rights.

###  

### (b)                                 Notwithstandinganything herein to the contrary, no certificate or scrip representingfractional shares of Spinco Common Stock shall be distributed in theDistribution.  All fractional shares ofSpinco Common Stock that a holder of Forest Common Stock would otherwise beentitled to receive as a result of the Distribution shall be aggregated and ifa fractional share results from such aggregation, such fractional share shallbe treated in accordance with the procedure set forth in the followingsentence.  Spinco shall instruct theAgent to aggregate all fractional shares of Spinco Common Stock, sell suchshares in the public market and distribute to holders of Forest Common Stockwho otherwise would have been entitled to such fractional shares of SpincoCommon Stock a pro rata portion of the net proceeds of such sale.

 

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### (c)                                  Subjectto the terms and conditions of this Agreement, on the Distribution Date and inconnection with the Contribution, Spinco shall pay to Forest the Estimated CashAmount determined pursuant to Section 4.1 (if such amount is positive), orForest shall pay to Spinco the Estimated Cash Amount determined pursuant to Section 4.1(if such amount is negative), in either case by wire transfer in immediatelyavailable funds to a bank previously designated by the payee.

###  

# **ARTICLE IVCASH AMOUNT**

# ** **

Section 4.1                                      *Estimated Cash Amount*. At least ten (10) Business Days prior to the Distribution Date, Forestshall prepare and deliver to the Company a calculation of Forest’s estimate ofthe Cash Amount (the “Estimated Cash Amount”), together with a statementsetting forth in reasonable detail the basis and calculation thereof.

 

Section 4.2                                      *Actual Cash Amount*. On or prior to the sixtieth (60th) calendar day after the DistributionDate, Forest shall prepare and deliver to Spinco and the Company a revisedcalculation of the Cash Amount based to the extent applicable on the actualoperations of Spinco during the Measurement Period (the “Actual Cash Amount”), together with astatement setting forth in reasonable detail the basis and calculationthereof.  In preparing the Actual CashAmount, Forest shall consult with the Company and its Representatives.  During the ninety (90) calendar daysafter receipt by Spinco of the Actual Cash Amount statement (the “Review Period”), Spinco shall reviewthe Actual Cash Amount statement in order to determine whether the Actual CashAmount statement should be adjusted.  IfSpinco so determines, Spinco shall, within five (5) Business Days afterthe end of the Review Period, deliver to Forest a reconciliation of thecalculation of the Actual Cash Amount to Spinco’s proposed adjustment (the “Reconciliation Statement”), togetherwith a statement setting forth in reasonable detail the basis of itscalculation.  Unless Forest delivers theDispute Notification referred to in Section 4.4 below, the ReconciliationStatement shall be deemed to be final, binding and conclusive on the partieshereto.

 

Section 4.3                                      *Incremental Tax Amount*. On or prior to June 30, 2006, Forest shall prepare and deliver toSpinco and the Company a calculation of estimated income taxes included in thecalculation of the Actual Cash Amount, revised only to reflect actualdepreciation, depletion, and amortization deductions to be claimed by Forestwith respect to Spinco Assets during the Measurement Period, together with astatement setting forth in reasonable detail the basis and calculation thereof.Within 15 Business Days of receipt of the calculation, (a) if the revisedcalculation exceeds the hypothetical income taxes included in the calculationof the Actual Cash Amount, then Spinco shall pay to Forest an amount equal tosuch excess and (b) if the revised calculation is less than thehypothetical income taxes included in the calculation of the Actual CashAmount, then Forest shall pay to Spinco an amount equal to suchdifference.  In either case, paymentshall be made in cash by wire transfer in immediately available funds to a bankpreviously designated by Forest or Spinco, as the case may be.

 

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Section 4.4                                      *Dispute Resolution Procedure*.  Within five (5) Business Days afterreceipt of the Reconciliation Statement, Forest shall notify Spinco of anydispute thereof, specifying the amount in dispute thereof and, in reasonabledetail, the basis for and its calculation thereof (the “Dispute Notification”). Thereafter, Forest and Spinco shallattempt to resolve the dispute, and any such resolution shall be final, bindingand conclusive on the parties hereto.  IfForest and Spinco are unable to reach a resolution within thirty(30) Business Days after the receipt by Spinco of the DisputeNotification, Forest and Spinco shall submit the items remaining in dispute forresolution to the Independent Accounting Firm. The Independent Accounting Firm shall, within thirty (30) BusinessDays after such submission, determine and report to Forest and Spinco upon suchremaining disputed items, and such report shall be final, binding and conclusiveon the parties hereto.  The fees anddisbursement of the Independent Accounting Firm shall be allocated between Forestand Spinco in the same proportion that the aggregate amount of such remainingdisputed items so submitted to the Independent Accounting Firm that isunsuccessfully disputed by each such party (as finally determined by theIndependent Accounting Firm) bears to the total amount of such remainingdisputed items so submitted.

 

Section 4.5                                      *Payment of Cash Amount*. Not later than three (3) Business Days following the date on whichthe Cash Amount is deemed to be final, binding and conclusive, (a) if theCash Amount exceeds the Estimated Cash Amount, then Spinco shall pay to Forestan amount equal to such excess, with interest accrued thereon from theDistribution Date to the payment date at the rate of 6.5% per annum, and (b) ifthe Cash Amount is less than the Estimated Cash Amount, then Forest shall payto Spinco an amount equal to such difference, with interest accrued thereonfrom the Distribution Date to the payment date at the rate of 6.5% per annum,in either case in cash by wire transfer in immediately available funds to abank previously designated by Forest or Spinco, as the case may be.

 

# **ARTICLE VSURVIVAL AND INDEMNIFICATION**

## * *

Section 5.1                                      *Survival of Agreements*. All representations, warranties, covenants and agreements of the partieshereto contained in this Agreement shall survive the Distribution Date.

 

Section 5.2                                      *Indemnification.*

 

### (a)                                  Exceptas specifically otherwise provided in the other Transaction Agreements, Spincoshall indemnify, defend and hold harmless the Forest Indemnitees from andagainst all Indemnifiable Losses arising out of or due to the failure of anymember of the Spinco Group (i) to pay or satisfy any Spinco Liabilities,whether such Indemnifiable Losses relate to events, occurrences orcircumstances occurring or existing, or whether such Indemnifiable Losses areasserted, before, on or after the Distribution Date, or (ii) to performany of its obligations under this Agreement.

###  

### (b)                                 Exceptas specifically otherwise provided in the other Transaction Agreements, Forestshall indemnify, defend and hold harmless the Spinco Indemnitees from andagainst all 

 

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### IndemnifiableLosses arising out of or due to the failure of any member of the Forest Group (i) topay or satisfy any Forest Liabilities, whether such Indemnifiable Losses relateto events, occurrences or circumstances occurring or existing, or whether suchIndemnifiable Losses are asserted, before, on or after the Distribution Date, (ii) totransfer to Spinco or any member of the Spinco Group all of the Spinco Assets,or (iii) to perform any of its obligations under this Agreement.  In addition to and without limiting thegenerality of the foregoing, Forest shall indemnify, defend and hold harmlessthe Spinco Indemnitees from and against all Indemnifiable Losses (includingIndemnifiable Losses arising from the Spinco Indemnitees’ efforts to collectfrom other potentially responsible parties) in excess of $10.0 million in theaggregate, as actually incurred by Spinco, arising in connection with theconditions described in clauses (ii) and (iv) of Section 4.10 ofthe Spinco Disclosure Schedule, provided that Spinco shall have usedcommercially reasonable efforts to collect from other potentially responsibleparties their share of costs associated with such conditions, including withoutlimitation the pursuit of litigation against such potentially responsibleparties at Forest’s reasonable request.

###  

### (c)                                  Notwithstandinganything to the contrary set forth herein, indemnification relating to anyarrangements between any member of the Forest Group and any member of theSpinco Group (which arrangements, if entered into on or after the date hereof,shall have been executed subject to Company Consent) for the provision afterthe Distribution Date of goods and services in the ordinary course shall begoverned by the terms of such arrangements and not by this Section or asotherwise set forth in this Agreement and the other Transaction Agreements.

###  

### (d)                                 Indemnificationfor matters subject to the Tax Sharing Agreement is governed by the terms,provisions and procedures of the Tax Sharing Agreement and not by this Article V.

###  

Section 5.3                                      *Procedures for Indemnification for Third-Party Claims.*

 

### (a)                                  Forestshall, and shall cause the other Forest Indemnitees to, notify Spinco inwriting promptly after learning of any Third-Party Claim for which any ForestIndemnitee intends to seek indemnification from Spinco under thisAgreement.  Spinco shall, and shall causethe other Spinco Indemnitees to, notify Forest in writing promptly afterlearning of any Third-Party Claim for which any Spinco Indemnitee intends toseek indemnification from Forest under this Agreement.  The failure of any Indemnitee to give suchnotice shall not relieve any Indemnifying Party of its obligations under this Article Vexcept to the extent that such Indemnifying Party is actually prejudiced bysuch failure to give notice.  Such noticeshall describe such Third-Party Claim in reasonable detail considering theInformation provided to the Indemnitee and shall indicate the amount (estimatedif necessary) of the Indemnifiable Loss that has been claimed against or may besustained by such Indemnitee.

###  

### (b)                                 Exceptas otherwise provided in paragraph (c) of this Section 5.3, anIndemnifying Party may, by notice to the Indemnitee and to Forest, if Spinco isthe Indemnifying Party, or to the Indemnitee and Spinco, if Forest is the IndemnifyingParty, at any time after receipt by such Indemnifying Party of such Indemnitee’snotice of a Third-Party Claim, undertake (itself or through another member ofthe Group of which the Indemnifying Party is a member) the defense orsettlement of such Third-Party Claim, at such Indemnifying Party’s own expenseand by counsel reasonably satisfactory to the Indemnitee.  If an Indemnifying Party undertakes thedefense of any Third-Party Claim, such Indemnifying Party shall control the 

 

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### investigation anddefense or settlement thereof, and the Indemnitee may not settle or compromisesuch Third-Party Claim, except that such Indemnifying Party shall not (i) requireany Indemnitee, without its prior written consent, to take or refrain fromtaking any action in connection with such Third-Party Claim, or make any publicstatement, which such Indemnitee reasonably considers to be against itsinterests, or (ii) without the prior written consent of the Indemnitee andof Forest, if the Indemnitee is a Forest Indemnitee, or the Indemnitee and ofSpinco, if the Indemnitee is a Spinco Indemnitee, consent to any settlementthat does not include as a part thereof an unconditional release of therelevant Indemnitees from liability with respect to such Third-Party Claim orthat requires the Indemnitee or any of its Representatives or Affiliates tomake any payment that is not fully indemnified under this Agreement or to besubject to any non-monetary remedy. Subject to the Indemnifying Party’s control rights, as specified herein,the Indemnitees may participate in such investigation and defense, at their ownexpense.  Following the provision ofnotices to the Indemnifying Party, until such time as an Indemnifying Party hasundertaken the defense of any Third-Party Claim as provided herein, suchIndemnitee shall control the investigation and defense or settlement thereof,without prejudice to its right to seek indemnification hereunder.

###  

### (c)                                  Ifan Indemnitee reasonably determines that there may be legal defenses availableto it that are different from or in addition to those available to itsIndemnifying Party which make it inappropriate for the Indemnifying Party toundertake the defense or settlement thereof, then such Indemnifying Party shallnot be entitled to undertake the defense or settlement of such Third-PartyClaim; and counsel for the Indemnifying Party shall be entitled to conduct thedefense of such Indemnifying Party and counsel for the Indemnitee (selected bythe Indemnitee) shall be entitled to conduct the defense of such Indemnitee, inwhich case the reasonable fees, costs and expenses of such counsel for theIndemnitee (but not more than one counsel reasonably satisfactory to theIndemnifying Party) shall be paid by such Indemnifying Party, it beingunderstood that both such counsel shall cooperate with each other to conductthe defense or settlement of such action as efficiently as possible.

###  

### (d)                                 Inno event shall an Indemnifying Party be liable for the fees and expenses ofmore than one counsel for all Indemnitees (in addition to local counsel and itsown counsel, if any) in connection with any one action, or separate but similaror related actions, in the same jurisdiction arising out of the same generalallegations or circumstances.

###  

### (e)                                  Ifthe Indemnifying Party undertakes the defense or settlement of a Third-PartyClaim, the Indemnitee shall make available to the Indemnifying Party and itscounsel all information and documents reasonably available to it which relateto any Third-Party Claim, and otherwise cooperate as may reasonably be requiredin connection with the investigation, defense and settlement thereof, subjectto the terms and conditions of a mutually acceptable joint defense agreement.

 

Section 5.4                                      *Reductions for Insurance Proceeds and Other Recoveries*.  The amount that any Indemnifying Party is ormay be required to pay to any Indemnitee pursuant to this Article V shallbe reduced (retroactively or prospectively) by any insurance proceeds or otheramounts actually recovered from third parties by or on behalf of suchIndemnitee in respect of the related Indemnifiable Losses.  The existence of a claim by an Indemnitee forinsurance or against a third party in respect of any Indemnifiable Loss shall not,however, delay or reduce any 

 

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payment pursuant to the indemnification provisionscontained herein and otherwise determined to be due and owing by anIndemnifying Party.  Rather theIndemnifying Party shall make payment in full of such amount so determined tobe due and owing by it and, if, and to the extent that, there exists a claimagainst any third party (other than an insurer) in respect of suchIndemnifiable Loss, the Indemnitee shall assign such claim against such thirdparty to the Indemnifying Party. Notwithstanding any other provisions of this Agreement, it is theintention of the parties hereto that no insurer or any other third party shallbe (i) entitled to a benefit it would not be entitled to receive in theabsence of the foregoing indemnification provisions or (ii) relieved ofthe responsibility to pay any claims for which it is obligated.  If an Indemnitee shall have received thepayment required by this Agreement from an Indemnifying Party in respect of anyIndemnifiable Losses and shall subsequently actually receive insurance proceedsor other amounts in respect of such Indemnifiable Losses, then such Indemniteeshall hold such insurance proceeds in trust for the benefit of such IndemnifyingParty and shall pay to such Indemnifying Party a sum equal to the amount ofsuch insurance proceeds or other amounts actually received, up to the aggregateamount of any payments received from such Indemnifying Party pursuant to thisAgreement in respect of such Indemnifiable Losses.

 

Section 5.5                                      *Remedies Cumulative*. The remedies provided in this Article V shall be cumulative andshall not preclude assertion by any Indemnitee of any other rights or theseeking of any other remedies against any Indemnifying Party.  However, the procedures set forth in Section 5.3shall be the exclusive procedures governing any indemnity action brought underthis Agreement, except as otherwise specificallyprovided in any of the other Transaction Agreements.

 

Section 5.6                                      *Tax Treatment of Indemnity and Other Payments*.  For all Tax purposes, the parties agree totreat any payment to the other party required by this Agreement (including anypayment with respect to the Cash Amount) as either a contribution by Forest toSpinco or a distribution by Spinco to Forest, as the case may be, occurringimmediately prior to the Distribution, except as otherwise mandated byapplicable law.

 

Section 5.7                                      *Survival of Indemnities*. The obligations of each of Forest and Spinco under this Article Vshall survive the sale or other transfer by it of any of its Assets or Businessor the assignment by it of any of its Liabilities, with respect to anyIndemnifiable Loss of the other related to such Assets, Business orLiabilities.

 

# **ARTICLE VICERTAIN ADDITIONAL COVENANTS**

 

Section 6.1                                      *Notices to Third Parties*. In addition to the actions described in Section 6.2, the members ofthe Forest Group and the members of the Spinco Group shall cooperate to makeall other filings and give notice to and obtain consents from all third partiesthat may reasonably be required to consummate the transactions contemplated bythis Agreement and the other Transaction Agreements, including, withoutlimitation, to cause a member of the Spinco Group to succeed Forest as operatorof any of the Spinco Assets (both of record and under contractualarrangements).

 

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Section 6.2                                      *Licenses and Permits*. Each party hereto shall cause the appropriate members of its Group toprepare and file with the appropriate licensing and permitting authoritiesapplications for the transfer or issuance, as may be necessary or advisable inconnection with the transactions contemplated by this Agreement and the otherTransaction Agreements, to its Group of all material governmental licenses andpermits required for the members of its Group to operate its Business after theDistribution Date.  The members of theSpinco Group and the members of the Forest Group shall cooperate and usecommercially reasonable efforts to secure the transfer or issuance of thelicenses and permits.

 

Section 6.3                                      *Intercompany Agreements*. Except as set forth on Section 6.3 of the Disclosure Schedule, allcontracts, licenses, agreements, commitments and other arrangements, formal andinformal, between any member of the Forest Group, on the one hand, and anymember of the Spinco Group, on the other hand, in existence as of theDistribution Date, pursuant to which any member of either Group makes paymentsin respect of Taxes to any member of the other Group or provides to any memberof the other Group goods or services (including management, administrative,legal, financial, accounting, data processing, insurance and technicalsupport), or the use of any Assets of any member of the other Group, or thesecondment of any employee, or pursuant to which rights, privileges or benefitsare afforded to members of either Group as Affiliates of the other Group, shallterminate as of the close of business on the day prior to the DistributionDate, except as specifically provided herein or in the other TransactionAgreements.  From and after theDistribution Date, no member of either Group shall have any rights under anysuch contract, license, agreement, commitment or arrangement with any member ofthe other Group, except as specifically provided herein or in the otherTransaction Agreements.

 

Section 6.4                                      *Further Assurances*. In addition to the actions specifically provided for elsewhere in thisAgreement, each of the parties hereto shall use commercially reasonable effortsto take, or cause to be taken, all actions, and to do, or cause to be done, allthings reasonably necessary, proper or advisable under applicable laws,regulations and agreements to consummate and make effective the transactionscontemplated by this Agreement and the other Transaction Agreements.  Without limiting the foregoing, each partyhereto shall cooperate with the other party, and execute and deliver, or usecommercially reasonable efforts to cause to be executed and delivered, allinstruments, and to make all filings with, and to obtain all consents,approvals or authorizations of, any governmental or regulatory authority or anyother Person under any permit, license, agreement, indenture or otherinstrument, and take all such other actions as such party may reasonably berequested to take by any other party hereto from time to time, consistent withthe terms of this Agreement and the other Transaction Agreements, in order toeffectuate the provisions and purposes of this Agreement.

 

Section 6.5                                      *Guarantee Obligations and Liens.*

## * *

### (a)                                  Forestand Spinco shall use their commercially reasonable efforts, and shall causetheir respective Groups to use their commercially reasonable efforts:  (x) to terminate, or to cause a memberof the Spinco Group to be substituted in all respects for any member of the ForestGroup in respect of, all obligations of any member of the Forest Group underany Spinco Liabilities for which such member of the Forest Group may be liable,as guarantor, original tenant, primary obligor or otherwise, and (y) toterminate, or to cause Spinco Assets to be 

 

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### substituted in allrespects for any Forest Assets in respect of, any liens or encumbrances on ForestAssets which are securing any Spinco Liabilities.  If such a termination or substitution is noteffected by the Distribution Date:  (i) Spincoshall indemnify and hold harmless the Forest Indemnitees for any IndemnifiableLoss arising from or relating thereto, and (ii) without the prior writtenconsent of Forest, from and after the Distribution Date, Spinco shall not, andshall not permit any member of the Spinco Group to, renew or extend the termof, increase its obligations under, or transfer to a third party, any loan,lease, contract or other obligation for which a member of the Forest Group isor may be liable or for which any Forest Asset is or may be encumbered unlessall obligations of the Forest Group and all liens and encumbrances on any ForestAsset with respect thereto are thereupon terminated by documentation reasonablysatisfactory in form and substance to Forest.

###  

### (b)                                 Forestand Spinco shall use their commercially reasonable efforts, and shall causetheir respective Groups to use their commercially reasonable efforts:  (x) to terminate, or to cause a memberof the Forest Group to be substituted in all respects for any member of SpincoGroup in respect of, all obligations of any member of the Spinco Group underany Forest Liabilities for which such member of the Spinco Group may be liable,as guarantor, original tenant, primary obligor or otherwise, and (y) toterminate, or to cause Forest Assets to be substituted in all respects for anySpinco Assets in respect of, any liens or encumbrances on Spinco Assets whichare securing any Forest Liabilities.  Ifsuch a termination or substitution is not effected by the DistributionDate:  (i) Forest shall indemnifyand hold harmless the Spinco Indemnitees for any Indemnifiable Loss arisingfrom or relating thereto, and (ii) without the prior written consent ofSpinco, from and after the Distribution Date, Forest shall not, and shall notpermit any member of the Forest Group to, renew or extend the term of, increaseits obligations under, or transfer to a third party, any loan, lease, contractor other obligation for which a member of the Spinco Group is or may be liableor for which any Spinco Asset is or may be encumbered unless all obligations ofthe Spinco Group and all liens and encumbrances on any Spinco Asset withrespect thereto are thereupon terminated by documentation reasonablysatisfactory in form and substance to Spinco.

 

Section 6.6                                      *Insurance.*

 

### (a)                                  *Rights Under Policies*.  Notwithstanding any other provision of thisAgreement, from and after the Distribution Date, Spinco and the SpincoSubsidiaries will have no rights with respect to any Policies, except that (i) Forestwill use commercially reasonable efforts to assist Spinco in asserting claimsfor any loss, liability or damage with respect to the Spinco Assets or SpincoLiabilities under Policies with third-party insurers which are “occurrencebasis” insurance policies (“Occurrence Basis Policies”) arising out of insuredincidents occurring from the date coverage thereunder first commenced until theDistribution Date to the extent that the terms and conditions of any suchOccurrence Basis Policies and agreements relating thereto so allow and (ii) Forestwill use commercially reasonable efforts to assist Spinco to continue toprosecute claims with respect to Spinco Assets or Spinco Liabilities properlyasserted with an insurer prior to the Distribution Date under Policies withthird-party insurers which are insurance policies written on a “claims made”basis (“Claims Made Policies”) arising out of insured incidents occurring fromthe date coverage thereunder first commenced until the Distribution Date to theextent that the terms and conditions of any such Claims Made Policies andagreements relating thereto so allow; provided, that in the case of bothclauses (i) and (ii) above, 

 

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### (A) all of Forest’sand each Forest Subsidiary’s reasonable costs and expenses incurred inconnection with the foregoing are promptly paid by Spinco, (B) Forest andthe Forest Subsidiaries may, at any time, without liability or obligation toSpinco or any Spinco Subsidiary (other than as set forth in Section 6.6(c)),amend, commute, terminate, buy-out, extinguish liability under or otherwisemodify any Occurrence Basis Policies or Claims Made Policies (and such claimsshall be subject to any such amendments, commutations, terminations, buy-outs,extinguishments and modifications), and (C) any such claim will be subjectto all of the terms and conditions of the applicable Policy.  Forest’s obligation to use commerciallyreasonable efforts to assist Spinco in asserting claims under applicablePolicies will include using commercially reasonable efforts in assisting Spincoto establish its right to coverage under such Policies (so long as all of Forest’sreasonable costs and expenses in connection therewith are promptly paid bySpinco).  In the event that the terms andconditions of any Policy do not allow Spinco the right to assert or prosecute aclaim as set forth in clause (i) or (ii) above, then in suchcase, Forest shall use commercially reasonable efforts to pursue such claimunder such Policy and Spinco shall promptly pay all of Forest’s and each ForestSubsidiary’s reasonable costs and expenses incurred in connection therewith.

###  

### (b)                                 *Assistance by Forest*.  Until the second anniversary of theDistribution Date, Forest will use commercially reasonable efforts to assistSpinco in connection with any efforts by Spinco to acquire insurance coveragewith respect to the Spinco Business for incidents occurring prior to theDistribution Date; provided, that all of Forest’s reasonable costs and expensesincurred in connection with the foregoing are promptly paid by Spinco.

###  

### (c)                                  *Forest Actions*.  In the event that after the DistributionDate, Forest or any Forest Subsidiary proposes to amend, commute, terminate,buy-out, extinguish liability under or otherwise modify any Policies underwhich Spinco has rights to assert claims pursuant to Section 6.6(a) ina manner that would adversely affect any such rights of Spinco (i) Forestwill give Spinco prior written notice thereof (it being understood that thedecision to take any such action will be in the sole discretion of Forest) and (ii) Forestwill pay to Spinco its equitable share (which shall be determined by Forest ingood faith based on the amount of premiums paid or allocated to the Spincobusiness in respect of the applicable Policy) of any net proceeds actuallyreceived by Forest from the insurer under the applicable Policy as a result ofsuch action by Forest (after deducting Forest’s reasonable costs and expensesincurred in connection with such action).

###  

### (d)                                 *Administration*.  From and after the Distribution Date:

###  

#### (i)                                     Forestor a Forest Subsidiary, as appropriate, will be responsible for the ClaimsAdministration with respect to claims of Forest and the Forest Subsidiariesunder the Policies; and

####  

#### (ii)                                  Spincoor a Spinco Subsidiary, as appropriate, will be responsible for the ClaimsAdministration with respect to claims of Spinco and the Spinco Subsidiariesunder the Policies.

####  

### (e)                                  *Insurance Premiums*.  Subject to clause (B) of theproviso to Section 6.6(a), from and after the Distribution Date, Forestwill pay, if so directed by Spinco, all premiums 

 

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### (retrospectively-ratedor otherwise) as required under the terms and conditions of the respectivePolicies in respect of periods prior to the Distribution Date, whereupon Spincowill upon the request of Forest, promptly reimburse Forest for that portion ofsuch premiums paid by Forest as are reasonably determined by Forest (andreasonably approved by Spinco) to be attributable to the Spinco Business.

###  

### (f)                                    *Agreement for Waiver of Conflict and Shared Defense*.  In the event that a Policy provides coveragefor both Forest and/or a Forest Subsidiary, on the one hand, and Spinco and/ora Spinco Subsidiary, on the other hand, relating to the same occurrence, Forestand Spinco agree to defend jointly and to waive any conflict of interestnecessary to the conduct of that joint defense.

###  

### (g)                                 Nothingin this Section 6.6 will be construed to limit or otherwise alter in anyway the indemnity obligations of the parties to this Agreement, including thosecreated by this Agreement, by operation of law or otherwise.

 

Section 6.7                                      *Cooperation*.  Spincoand its Affiliates shall cooperate and assist Forest, at Forest’s expense, inall reasonable efforts by Forest to pursue claims related to any gas imbalanceat High Island 469.

 

# **ARTICLE VIIACCESS TO INFORMATION**

 

Section 7.1                                      *Provision of Corporate Records*.  Prior to or as promptly as practicable afterthe Distribution Date, Forest shall deliver or make available to Spinco allcorporate books and records (including Tax records) of the Spinco Group in itspossession and complete and accurate copies of all relevant portions of allcorporate books and records of the Forest Group relating directly andpredominantly to the Spinco Assets, the Spinco Business, or the SpincoLiabilities.  Forest may retain completeand accurate copies of such books and records. From and after the Distribution Date, all such books, records and copiesshall be the property of Spinco.  Priorto or as promptly as practicable after the Distribution Date, Spinco shalldeliver or make available to Forest all corporate books and records (includingTax records) of the Forest Group in its possession and complete and accuratecopies of all relevant portions of all corporate books and records of theSpinco Group relating directly and predominantly to the Forest Assets, the ForestBusiness, or the Forest Liabilities. Spinco may retain complete and accurate copies of such books andrecords.  From and after the DistributionDate, all such books, records and copies shall be the property of Forest.  The costs and expenses incurred in theprovision of records or other information to a party shall be paid for(including reimbursement of costs incurred by the receiving party) by thedelivering party.

 

Section 7.2                                      *Access to Information*. From and after the Distribution Date, each of Forest and Spinco shallafford to the other and to the other’s Representatives reasonable access andduplicating rights during normal business hours to all Information withinthe possession or control of such party’s Group relating to the other party’sGroup’s pre-Distribution business, Assets or Liabilities or relating to orarising in connection with the relationship between the 

 

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Groups on or prior to the Distribution Date, to the extentsuch access is reasonably required for a reasonable purpose (including, withoutlimitation, for the purpose of calculating the Cash Amount pursuant to Article IVof this Agreement), subject to the provisions below regarding PrivilegedInformation.  Without limiting theforegoing, Information may be requested under this Section 7.2 for audit,accounting, regulatory, claims, litigation and Tax purposes, as well as forpurposes of fulfilling disclosure and reporting obligations.

 

In furtherance of the foregoing:

 

### (a)                                  Eachparty hereto acknowledges that:  (i) eachof Forest and Spinco (and the members of the Forest Group and the Spinco Group,respectively) has or may obtain Privileged Information; (ii) there areand/or may be a number of Litigation Matters affecting each or both of Forestand Spinco; (iii) both Forest and Spinco have a common legal interest inLitigation Matters, in the Privileged Information and in the preservation ofthe confidential status of the Privileged Information, in each case relating tothe pre-Distribution business of the Forest Group or the Spinco Group orrelating to or arising in connection with the relationship between the Groupson or prior to the Distribution Date; and (iv) both Forest and Spincointend that the transactions contemplated hereby and by the Merger Agreementand the other Transaction Agreements and any transfer of Privileged Informationin connection therewith shall not operate as a waiver of any potentiallyapplicable privilege.

###  

### (b)                                 Eachof Forest and Spinco agrees, on behalf of itself and each member of the Groupof which it is a member, not to disclose or otherwise waive any privilegeattaching to any Privileged Information relating to the pre-Distributionbusiness of the other Group or relating to or arising in connection with therelationship between the Groups on or prior to the Distribution Date, withoutproviding prompt written notice to and obtaining the prior written consent ofthe other, which consent shall not be unreasonably withheld; provided, however,that Forest and Spinco shall not be required to give any such notice or obtainany such consent and may make such disclosure or waiver with respect toPrivileged Information if such Privileged Information relates solely to thepre-Distribution business of the Forest Group in the case of Forest or theSpinco Group in the case of Spinco.  Inthe event of a disagreement between any member of the Forest Group and anymember of the Spinco Group concerning the reasonableness of withholding suchconsent, no disclosure shall be made prior to a resolution of such disagreementby a court of competent jurisdiction, provided that the limitations in thissentence shall not apply in the case of disclosure required by law and socertified as provided in the first sentence of this paragraph.

###  

### (c)                                  Uponany member of the Forest Group or any member of the Spinco Group receiving anysubpoena or other compulsory disclosure notice from a court, other governmentalagency or otherwise which requests disclosure of Privileged Information, ineach case relating to pre-Distribution business of the Spinco Group or the ForestGroup, respectively, or relating to or arising in connection with therelationship between the Groups on or prior to the Distribution Date, therecipient of the notice shall promptly provide to the other Group (followingthe notice provisions set forth herein) a copy of such notice, the intendedresponse, and all materials or information relating to the other Group thatmight be disclosed.  In the event of adisagreement as to the intended response or disclosure, unless and until thedisagreement is resolved as provided in paragraph (b) of thisSection, the parties shall cooperate to assert all defenses to 

 

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### disclosure claimedby either party’s Group, and shall not disclose any disputed documents orinformation until all legal defenses and claims of privilege have been finallydetermined, except as otherwise required by a court order requiring suchdisclosure.

 

Section 7.3                                      *Production of Witnesses*. Subject to Section 7.2, after the Distribution Date, each of Forestand Spinco shall, and shall cause each member of its respective Group to makeavailable to Spinco or Forest or any member of the Spinco Group or of the ForestGroup, as the case may be, upon written request, such Group’s directors,officers, employees and agents as witnesses to the extent that any such Personmay reasonably be required in connection with any Litigation Matters,administrative or other proceedings in which the requesting party may from timeto time be involved and relating to the pre-Distribution business of the ForestGroup or the Spinco Group or relating to or in connection with the relationshipbetween the Groups on or prior to the Distribution Date.  The costs and expenses incurred in theprovision of such witnesses shall be paid by the party requesting theavailability of such persons.

 

Section 7.4                                      *Retention of Records*. Except as otherwise agreed in writing, or as otherwise provided in theother Transaction Agreements, each of Forest and Spinco shall, and shall causethe members of the Group of which it is a member to, retain all Information insuch party’s Group’s possession or under its control, relating directly andpredominantly to the pre-Distribution business, Assets or Liabilities of theother party’s Group until such Information is at least ten years old oruntil such later date as may be required by law, except that if, prior to theexpiration of such period, any member of either party’s Group wishes to destroyor dispose of any such Information that is at least three years old, prior todestroying or disposing of any of such Information, (a) the party whoseGroup is proposing to dispose of or destroy any such Information shall provideno less than 30 days’ prior written notice to the other party, specifyingthe Information proposed to be destroyed or disposed of, and (b) if, priorto the scheduled date for such destruction or disposal, the other partyrequests in writing that any of the Information proposed to be destroyed ordisposed of be delivered to such other party, the party whose Group isproposing to dispose of or destroy such Information promptly shall arrange forthe delivery of the requested Information to a location specified by, and atthe expense of, the requesting party.

 

Section 7.5                                      *Confidentiality*. Subject to Section 7.2, which shall govern Privileged Information,from and after the Distribution Date, each of Forest and Spinco shall hold, andshall use reasonable best efforts to cause its Affiliates and Representativesto hold, in strict confidence all Information concerning the other party’sGroup obtained by it prior to the Distribution Date or furnished to it by suchother party’s Group pursuant to this Agreement or the other TransactionAgreements and shall not release or disclose such Information to any otherPerson, except its Affiliates and Representatives, who shall be advised of theprovisions of this Section 7.5, and each party shall be responsible for abreach by any of its Affiliates or Representatives; provided, however, that anymember of the Forest Group or the Spinco Group may disclose such Information tothe extent that (a) disclosure is compelled by judicial or administrativeprocess or, based on advice of such Person’s counsel, by other requirements oflaw, or (b) such party can show that such Information was (i) in thepublic domain through no fault of such Person or (ii) lawfully acquired bysuch Person from another source after the time that it was furnished to suchPerson by the other party’s Group, and not acquired from such source subject toany confidentiality obligation on the part of such source known to theacquiror.  Notwithstanding the foregoing,each of Forest and Spinco shall be deemed to have satisfied its 

 

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obligations under this Section 7.5 with respectto any Information (other than Privileged Information) if it exercises the samecare with regard to such Information as it takes to preserve confidentialityfor its own similar Information.

 

Section 7.6                                      *Cooperation with Respect to Government Reports and Filings*.  Forest, on behalf of itself and each memberof the Forest Group, agrees to provide any member of the Spinco Group, andSpinco, on behalf of itself and each member of the Spinco Group, agrees toprovide any member of the Forest Group, with such cooperation and Informationas may be reasonably requested by the other in connection with the preparationor filing of any government report or other government filing contemplated bythis Agreement or in conducting any other government proceeding relating to thebusiness of the Forest Group or the Spinco Group, Assets or Liabilities ofeither Group or relating to or in connection with the relationship between theGroups prior to, on or after the Distribution Date.  Each party shall promptly forward copies ofappropriate notices, forms and other communications received from or sent toany government authority which relate to the Forest Group, in the case of theSpinco Group, or the Spinco Group, in the case of the Forest Group.  Each party shall make its employees andfacilities available during normal business hours and on reasonable priornotice to provide explanation of any documents or Information providedhereunder.

 

Section 7.7                                      *Tax Sharing Agreement*. None of the provisions of this Article VII are intended tosupercede any provision in the Tax Sharing Agreement with respect to mattersrelated to Taxes.

 

# **ARTICLE VIIINO REPRESENTATIONS OR WARRANTIES**

 

Section 8.1                                      *No Representations or Warranties*.  Except as expressly set forth herein or inany other Transaction Agreement, Spinco and Forest understand and agree that nomember of the Forest Group is representing or warranting to Spinco or anymember of the Spinco Group in any way as to the Spinco Assets, the SpincoBusiness or the Spinco Liabilities. Except as expressly set forth herein or in any other TransactionAgreement, Forest and Spinco understand and agree that no member of the SpincoGroup is representing or warranting to Forest or any member of the Forest Groupin any way as to the Forest Assets, the Forest Business or the ForestLiabilities.

 

# **ARTICLE IX**

# ** **

# **MISCELLANEOUS**

## * *

Section 9.1                                      *Conditions to the Distribution*.  The obligations of Forest pursuant to thisAgreement to effect the Distribution shall be subject to the fulfillment (orwaiver by Forest with Company Consent) at or prior to the Distribution Date ofthe following conditions:

 

### (a)                                  Allmaterial consents, approvals and authorizations of any Governmental Authoritylegally required for the making of the Distribution and the consummation of theother 

 

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### transactionscontemplated by the Transaction Agreements shall have been obtained and be ineffect in all material respects at the Distribution Date;

###  

### (b)                                 Anywaiting period applicable to the Distribution or the Merger (including anyextended waiting period arising as a result of a request for additionalinformation by either the Federal Trade Commission or the Antitrust Division ofthe Department of Justice) under the Hart-Scott-Rodino Antitrust ImprovementsAct of 1976, as amended, and the rules and regulations promulgatedthereunder, shall have expired or been terminated and no court of competentjurisdiction or other Governmental Authority shall have issued any decree,judgment, injunction, writ, rule or other order that is in effectrestraining, enjoining, prohibiting or otherwise imposing any materialrestrictions or limitations on the Distribution or the Merger;

###  

### (c)                                  TheRegistration Statements shall have become effective in accordance with theExchange Act and the Securities Act and shall not be the subject of any stoporder or proceedings seeking a stop order; all necessary permits andauthorizations under state securities or “blue sky” laws, the Securities Actand the Exchange Act relating to the issuance and trading of shares of SpincoCommon Stock to be issued in connection with the Distribution and the Merger,respectively, shall have been obtained and shall be in effect; and such sharesof Spinco Common Stock and such other shares required to be reserved forissuance in connection with the Merger shall have been approved for listing onthe New York Stock Exchange, Inc., subject to official notice of issuance;

###  

### (d)                                 TheRequisite Approval shall have been obtained;

###  

### (e)                                  Noaction, proceeding or investigation by any Governmental Authority with respectto the Distribution or the Merger shall be pending that seeks to restrain, enjoin,prohibit or delay the making of the Distribution, the consummation of theMerger or the consummation of the other transactions contemplated by the MergerAgreement or to impose any material restrictions or requirements thereon or onany of the parties with respect thereto;

###  

### (f)                                    Noaction shall have been taken, and no statute, rule, regulation or executiveorder shall have been enacted, entered, promulgated or enforced by anyGovernmental Authority with respect to the Distribution or the Merger that, individuallyor in the aggregate, would (i) restrain, prohibit or delay the making ofthe Distribution or the consummation of the Merger or (ii) impose anymaterial restrictions or requirements thereon or on any of the parties withrespect thereto;

###  

### (g)                                 Forestshall have received an opinion of Weil, Gotshal & Manges LLP to theeffect that the Contribution will constitute a reorganizationunder Section 368(a) of the Code and the Distribution will qualifyunder Section 355 of the Code.  Inrendering such opinion, Weil, Gotshal & Manges LLP may require andrely upon representations contained in certificates of officers of Forest,Spinco and the Company substantially in the forms attached as *Exhibits C*, *D*and *E*hereto;

###  

### (h)                                 TheCompany shall have performed in all material respects its covenants andagreements contained in the Merger Agreement required to be performed at orprior to the Distribution Date;

 

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### (i)                                     Therepresentations and warranties of the Company contained in the Merger Agreementshall have been true and correct in all respects when made and as of theDistribution Date as if made at such time (except to the extent suchrepresentations and warranties address matters as of a particular date), exceptin each case (i) where the failure to be true and correct, individually orin the aggregate, would not have a Material Adverse Effect on the Company or (ii) tothe extent specifically contemplated by the Merger Agreement;

###  

### (j)                                     Forestshall have received the bondholder consent referenced in Section 3.2 ofthe Forest Disclosure Schedule to the Merger Agreement; and

###  

### (k)                                  Spincoand the Company shall have irrevocably confirmed to Forest and each other thateach condition of the Merger Agreement to Spinco’s and the Company’s respectiveobligations to effect the Merger has been fulfilled or will be fulfilled at theEffective Time or is or has been waived by Spinco or the Company, as the casemay be.

 

Section 9.2                                      *Complete Agreement*. This Agreement, the Exhibits and the Disclosure Schedule hereto,the other Transaction Agreements and other documents referred to herein shallconstitute the entire agreement between the parties hereto with respect to thesubject matter hereof and shall supersede all previous negotiations, commitmentsand writings with respect to such subject matter.  The Disclosure Schedule deliveredpursuant hereto is expressly made a part of, and incorporated by referenceinto, this Agreement.  In the case of anyconflict between the terms of this Agreement and the terms of any otherTransaction Agreement, the terms of such other Transaction Agreement shall beapplicable.

 

Section 9.3                                      *Expenses*.  Except asotherwise set forth herein or in the Merger Agreement, whether or not theDistribution or the other transactions contemplated by this Agreement areconsummated, all costs and expenses incurred in connection with this Agreementand the transactions contemplated hereby (including costs and expensesattributable to the separation of the Assets as contemplated herein) shall bepaid by the party incurring such costs or expenses.

 

Section 9.4                                      *Governing Law*.  ThisAgreement shall be governed by and construed in accordance with the laws of theState of Delaware, without reference to its conflicts of laws principles.

 

Section 9.5                                      *Notices.*  All noticesand other communications required or permitted to be given hereunder shall bein writing and shall be deemed given upon (a) a transmitter’s confirmationof a receipt of a facsimile transmission (but only if followed by confirmeddelivery of a standard overnight courier the following business day or ifdelivered by hand the following business day), (b) confirmed delivery of astandard overnight courier or when delivered by hand or (c) the expirationof five business days after the date mailed by certified or registeredmail (return receipt requested), postage prepaid, to the parties at thefollowing addresses (or at such other addresses for a party as shall bespecified by like notice):

 

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If to Forest or any member of the Forest Group, to:

 

Forest OilCorporation

1600 Broadway, Suite 2200

Denver, Colorado80202Attention:  General CounselFacsimile:  (303) 812-1510

 

with a copy (which shallnot constitute effective notice) to:

 

Vinson &Elkins L.L.P.

666 Fifth Avenue,26th FloorNew York, NY 10103-0040Attention:  Alan P. BadenFacsimile:  (917) 849-5337

 

If to Spinco or any member of the Spinco Group priorto the Distribution Date, to:

 

SML WellheadCorporation

c/o Forest OilCorporation

1600 Broadway, Suite 2200

Denver, Colorado80202Attention:  General CounselFacsimile:  (303) 812-1510

 

If to Spinco or any member of the Spinco Group afterthe Distribution Date, to:

 

SML WellheadCorporation

c/o Mariner Energy, Inc.

2101 CityWestBlvd.

Building 4, Suite 900

Houston, TX 77042Attention:  General CounselFacsimile:  (713) 954-5555

 

with a copy (which shallnot constitute effective notice) to:

 

Baker Botts L.L.P.

910 LouisianaStreet

Houston, Texas77002Attn:  Kelly B. RoseFacsimile:  (713) 229-7996

 

or to such other address as any party hereto may havefurnished to the other parties by a notice in writing in accordance with thisSection.  Any notices or othercommunications required or permitted to be given hereunder to the Company shallbe given pursuant to the terms of the Merger Agreement.

 

Section 9.6                                      *Amendment and Modification*. This Agreement may be amended, modified or supplemented only by awritten agreement signed by all of the parties hereto, with a Company Consent.

 

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Section 9.7                                      *Successors and Assigns; No Third-Party Beneficiaries*.  This Agreement and all of the provisionshereof shall be binding upon and inure to the benefit of the parties hereto andtheir successors and permitted assigns, but neither this Agreement nor any ofthe rights, interests and obligations hereunder shall be assigned by any partyhereto without the prior written consent of the other party and CompanyConsent.  Except for the provisions ofSections 5.2 and 5.3 relating to indemnities, which are also for thebenefit of the Indemnitees, this Agreement is solely for the benefit of Forest,Spinco and the Company and their respective Subsidiaries, Affiliates,successors and assigns, and is not intended to confer upon any other Personsany rights or remedies hereunder.  Forthe avoidance of doubt, the parties agree that the Company shall be a thirdparty beneficiary of this Agreement.

 

Section 9.8                                      *Counterparts*.  ThisAgreement may be executed in counterparts, each of which shall be deemed anoriginal, but all of which together shall constitute one and the sameinstrument.

 

Section 9.9                                      *Interpretation*.  The Article andSection headings contained in this Agreement are solely for the purpose ofreference, are not part of the agreement of the parties hereto and shall not inany way affect the meaning or interpretation of this Agreement.

 

Section 9.10                                *Severability*.  If any provision of this Agreement or theapplication thereof to any person or circumstance is determined by a court ofcompetent jurisdiction to be invalid, void or unenforceable, the remainingprovisions hereof, or the application of such provision to persons orcircumstances other than those as to which it has been held invalid orunenforceable, shall remain in full force and effect and shall in no way beaffected, impaired or invalidated thereby, so long as the economic or legalsubstance of the transactions contemplated hereby is not affected in any manneradverse to any party.

 

Section 9.11                                *References;Construction*.  References toany “Article,” “Exhibit,” “Schedule” or “Section,” without more, are toArticles, Exhibits, Schedules and Sections to or of this Agreement.  Unless otherwise expressly stated, clausesbeginning with the term “including” or similar words set forth examples onlyand in no way limit the generality of the matters thus exemplified.

 

Section 9.12                                *Termination*.  Notwithstanding any provision hereof,following termination of the Merger Agreement, this Agreement may be terminatedand the Distribution abandoned at any time prior to the Distribution Date byand in the sole discretion of the Board of Directors of Forest.  In the event of such termination, no partyhereto or to any other Transaction Agreement (other than the Merger Agreement)shall have any Liability to any Person by reason of this Agreement or any otherTransaction Agreement (other than the Merger Agreement).

 

Section 9.13                                *Consent toJurisdiction and Service of Process*. Each of the parties to this Agreement hereby irrevocably andunconditionally (i) agrees to be subject to, and hereby consent andsubmits to, the jurisdiction of the courts of the State of Delaware and of thefederal courts sitting in the State of Delaware, (ii) to the extent suchparty is not otherwise subject to service of process in the State of Delaware,hereby appoints the Corporation Trust Company as such party’s agent in theState of Delaware for acceptance of legal process and (iii) agrees thatservice 

 

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made on any such agent set forth in (ii) aboveshall have the same legal force and effect as if served upon such partypersonally within the State of Delaware.

 

Section 9.14                                *Waivers*.  Except as provided in this Agreement, noaction taken pursuant to this Agreement, including, without limitation, anyinvestigation by or on behalf of any party, shall be deemed to constitute awaiver by the party taking such action of compliance with any representations,warranties, covenants or agreements contained in this Agreement.  The waiver by any party hereto of a breach ofany provision hereunder shall not operate or be construed as a waiver of anyprior or subsequent breach of the same or any other provision hereunder.

 

Section 9.15                                *SpecificPerformance*.  The partieshereto agree that irreparable damage would occur in the event any provision ofthis Agreement was not performed in accordance with the terms hereof and thatthe parties shall be entitled to specific performance of the terms hereof, inaddition to any other remedy at law or in equity.

 

Section 9.16                                *Waiver ofJury Trial*.  Each of theparties hereto irrevocably and unconditionally waives all right to trial byjury in any litigation, claim, action, suit, arbitration, inquiry, proceeding,investigation or counterclaim (whether based in contract, tort or otherwise)arising out of or relating to this Agreement or the actions of the partieshereto in the negotiation, administration, performance and enforcement thereof.

 

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IN WITNESS WHEREOF, the parties hereto have causedthis Agreement to be duly executed as of the date first above written.

 
|   | FOREST OIL CORPORATION   |
|--------|--------------------------|
|   |                     |
|   |                     |
|   | By:                      |   |   |
|   |                     | Name: |
|   |                     | Title: |
|   |                     |
|   |                     |
|   | SML WELLHEAD CORPORATION |
|   |                     |
|   |                     |
|   | By:                      |   |   |
|   |                     | Name: |
|   |                     | Title: |

 

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