Exhibit
10.1


 




 





PURCHASE AND SALE
AGREEMENT


by and between


LODI HOLDINGS,
L.L.C., as Seller,


and


BUCKEYE GAS
STORAGE LLC, as Buyer







Dated as of July
24, 2007




 





















TABLE OF CONTENTS


	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I
  DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.1

  	
   

  	
  Certain
  Definitions

  	
   

  	
  1

  
	
  Section 1.2

  	
   

  	
  Interpretation

  	
   

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE II
  PURCHASE PRICE; CLOSING

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.1

  	
   

  	
  Purchase Price

  	
   

  	
  9

  
	
  Section 2.2

  	
   

  	
  Purchase Price
  Adjustments

  	
   

  	
  9

  
	
  Section 2.3

  	
   

  	
  Closing

  	
   

  	
  12

  
	
  Section 2.4

  	
   

  	
  Buyer Deliveries

  	
   

  	
  12

  
	
  Section 2.5

  	
   

  	
  Deliveries of
  Seller

  	
   

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE III
  REPRESENTATIONS AND WARRANTIES RELATING TO SELLER

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.1

  	
   

  	
  Due Organization
  and Power of Seller

  	
   

  	
  14

  
	
  Section 3.2

  	
   

  	
  Authorization
  and Validity of Agreement

  	
   

  	
  14

  
	
  Section 3.3

  	
   

  	
  Non-Contravention

  	
   

  	
  14

  
	
  Section 3.4

  	
   

  	
  LLC Interests

  	
   

  	
  15

  
	
  Section 3.5

  	
   

  	
  Governmental
  Approvals; Consents and Actions

  	
   

  	
  15

  
	
  Section 3.6

  	
   

  	
  Litigation

  	
   

  	
  16

  
	
  Section 3.7

  	
   

  	
  Finders; Brokers

  	
   

  	
  16

  
	
  Section 3.8

  	
   

  	
  Bankruptcy

  	
   

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
  REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANIES

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.1

  	
   

  	
  Due Organization
  and Capitalization of the Companies

  	
   

  	
  16

  
	
  Section 4.2

  	
   

  	
  Governmental
  Approvals; Consents and Actions

  	
   

  	
  16

  
	
  Section 4.3

  	
   

  	
  Financial
  Statements

  	
   

  	
  17

  
	
  Section 4.4

  	
   

  	
  Absence of
  Changes

  	
   

  	
  17

  
	
  Section 4.5

  	
   

  	
  Property

  	
   

  	
  18

  
	
  Section 4.6

  	
   

  	
  Contracts

  	
   

  	
  19

  
	
  Section 4.7

  	
   

  	
  No Undisclosed
  Liabilities

  	
   

  	
  20

  
	
  Section 4.8

  	
   

  	
  Litigation

  	
   

  	
  20

  
	
  Section 4.9

  	
   

  	
  Compliance with
  Laws

  	
   

  	
  21

  
	
  Section 4.10

  	
   

  	
  Intellectual
  Property

  	
   

  	
  21

  
	
  Section 4.11

  	
   

  	
  Tax Matters

  	
   

  	
  21

  
	
  Section 4.12

  	
   

  	
  Employee Benefit
  Plans

  	
   

  	
  22

  
	
  Section 4.13

  	
   

  	
  Environmental
  Matters

  	
   

  	
  22

  
	
  Section 4.14

  	
   

  	
  Insurance

  	
   

  	
  23

  
	
  Section 4.15

  	
   

  	
  Affiliate
  Transactions

  	
   

  	
  24

  
	
  Section 4.16

  	
   

  	
  Finders; Brokers

  	
   

  	
  24

  
	
  Section 4.17

  	
   

  	
  No Other
  Representations or Warranties

  	
   

  	
  24

  
	
  Section 4.18

  	
   

  	
  CONTRARY
  KNOWLEDGE OF BUYER

  	
   

  	
  24

  
						



 



 i
 









 


	
  ARTICLE V
  REPRESENTATIONS OF BUYER

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.1

  	
   

  	
  Due Organization
  and Power of Buyer

  	
   

  	
  25

  
	
  Section 5.2

  	
   

  	
  Authorization
  and Validity of Agreement; Non-Contravention

  	
   

  	
  25

  
	
  Section 5.3

  	
   

  	
  Governmental
  Approvals; Consents and Actions

  	
   

  	
  25

  
	
  Section 5.4

  	
   

  	
  Litigation

  	
   

  	
  26

  
	
  Section 5.5

  	
   

  	
  Independent
  Decision

  	
   

  	
  26

  
	
  Section 5.6

  	
   

  	
  Purchase for
  Investment

  	
   

  	
  26

  
	
  Section 5.7

  	
   

  	
  Financial
  Capacity; No Financing Condition

  	
   

  	
  26

  
	
  Section 5.8

  	
   

  	
  Finders; Brokers

  	
   

  	
  27

  
	
  Section 5.9

  	
   

  	
  No Knowledge of
  Seller’s Breach

  	
   

  	
  27

  
	
  Section 5.10

  	
   

  	
  No Other
  Representations or Warranties

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI
  AGREEMENTS OF BUYER AND SELLER

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.1

  	
   

  	
  Operation of the
  Business

  	
   

  	
  27

  
	
  Section 6.2

  	
   

  	
  Investigation of
  Business; Confidentiality

  	
   

  	
  30

  
	
  Section 6.3

  	
   

  	
  Efforts;
  Cooperation; No Inconsistent Action

  	
   

  	
  30

  
	
  Section 6.4

  	
   

  	
  Public
  Disclosures

  	
   

  	
  33

  
	
  Section 6.5

  	
   

  	
  Access to
  Records and Personnel

  	
   

  	
  33

  
	
  Section 6.6

  	
   

  	
  Employee Matters

  	
   

  	
  34

  
	
  Section 6.7

  	
   

  	
  Workforce
  Reduction Notices

  	
   

  	
  35

  
	
  Section 6.8

  	
   

  	
  Non-Solicitation

  	
   

  	
  35

  
	
  Section 6.9

  	
   

  	
  Amendments of
  Disclosure Schedules

  	
   

  	
  36

  
	
  Section 6.10

  	
   

  	
  Intercompany
  Liabilities; Indebtedness; Release of Liens

  	
   

  	
  36

  
	
  Section 6.11

  	
   

  	
  Resignations

  	
   

  	
  37

  
	
  Section 6.12

  	
   

  	
  Compliance with
  Development Agreement

  	
   

  	
  37

  
	
  Section 6.13

  	
   

  	
  Exclusivity

  	
   

  	
  37

  
	
  Section 6.14

  	
   

  	
  D&O
  Insurance and Indemnities

  	
   

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII
  CONDITIONS

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.1

  	
   

  	
  Conditions
  Precedent to Obligations of Buyer and Seller

  	
   

  	
  38

  
	
  Section 7.2

  	
   

  	
  Conditions Precedent
  to Obligation of Seller

  	
   

  	
  38

  
	
  Section 7.3

  	
   

  	
  Conditions
  Precedent to Obligation of Buyer

  	
   

  	
  39

  
	
  Section 7.4

  	
   

  	
  Frustration of
  Closing Conditions

  	
   

  	
  39

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII
  TERMINATION

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.1

  	
   

  	
  Termination
  Events

  	
   

  	
  40

  
	
  Section 8.2

  	
   

  	
  Effect of Termination

  	
   

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX
  SURVIVAL; INDEMNIFICATION

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 9.1

  	
   

  	
  Survival

  	
   

  	
  41

  
	
  Section 9.2

  	
   

  	
  Indemnification
  by Seller

  	
   

  	
  41

  
	
  Section 9.3

  	
   

  	
  Indemnification
  by Buyer

  	
   

  	
  43

  
	
  Section 9.4

  	
   

  	
  Other
  Indemnification Matters

  	
   

  	
  44

  
	
   

  	
   

  	
   

  
	
  ARTICLE X
  TAX MATTERS

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 10.1

  	
   

  	
  Tax
  Indemnification

  	
   

  	
  45

  
	
  Section 10.2

  	
   

  	
  Preparation and
  Filing of Tax Returns

  	
   

  	
  45

  



 



 ii
 









 


	
  Section 10.3

  	
   

  	
  Procedures
  Relating to Indemnification of Tax Claims

  	
   

  	
  47

  
	
  Section 10.4

  	
   

  	
  Tax Refunds and
  Credits

  	
   

  	
  47

  
	
  Section 10.5

  	
   

  	
  Tax Treatment of
  Payments

  	
   

  	
  48

  
	
  Section 10.6

  	
   

  	
  Transfer Taxes

  	
   

  	
  48

  
	
  Section 10.7

  	
   

  	
  Purchase Price
  Allocation

  	
   

  	
  48

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI
  MISCELLANEOUS

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 11.1

  	
   

  	
  Notices

  	
   

  	
  49

  
	
  Section 11.2

  	
   

  	
  Expenses

  	
   

  	
  50

  
	
  Section 11.3

  	
   

  	
  Non-Assignability

  	
   

  	
  50

  
	
  Section 11.4

  	
   

  	
  Amendment;
  Waiver

  	
   

  	
  50

  
	
  Section 11.5

  	
   

  	
  No Third Party
  Beneficiaries

  	
   

  	
  50

  
	
  Section 11.6

  	
   

  	
  Governing Law

  	
   

  	
  50

  
	
  Section 11.7

  	
   

  	
  Consent to
  Jurisdiction

  	
   

  	
  51

  
	
  Section 11.8

  	
   

  	
  Entire Agreement

  	
   

  	
  51

  
	
  Section 11.9

  	
   

  	
  Severability

  	
   

  	
  51

  
	
  Section 11.10

  	
   

  	
  Counterparts

  	
   

  	
  51

  
	
  Section 11.11

  	
   

  	
  Further
  Assurances

  	
   

  	
  51

  
	
  Section 11.12

  	
   

  	
  Schedules, Annexes and Exhibits

  	
   

  	
  51

  
	
  Section 11.13

  	
   

  	
  Waiver of Jury
  Trial

  	
   

  	
  51

  
	
  Section 11.14

  	
   

  	
  Time

  	
   

  	
  52

  
	
  Section 11.15

  	
   

  	
  Disclosure

  	
   

  	
  52

  
	
  Section 11.16

  	
   

  	
  Limitation on
  Damages

  	
   

  	
  52

  
	
  Section 11.17

  	
   

  	
  Seller Guaranty

  	
   

  	
  52

  
	
  Section 11.18

  	
   

  	
  Buyer Guaranty

  	
   

  	
  52

  



 



 iii
 









 


	
  SCHEDULES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1.1

  	
   

  	
  Knowledge of
  Seller; Title Reports; Bonds

  	
   

  	
   

  
	
  Schedule 2.2

  	
   

  	
  Indebtedness of
  the Companies

  	
   

  	
   

  
	
  Schedule 3.3

  	
   

  	
  Non-Contravention;
  Permits and Third Party Approvals (Seller)

  	
   

  	
   

  
	
  Schedule 3.4

  	
   

  	
  Restrictions
  Affecting the LLC Interests

  	
   

  	
   

  
	
  Schedule 3.5

  	
   

  	
  Government
  Approvals, Consents and Actions Affecting Seller

  	
   

  	
   

  
	
  Schedule 3.6

  	
   

  	
  Litigation
  Affecting Seller or its Affiliates

  	
   

  	
   

  
	
  Schedule 4.1

  	
   

  	
  Capitalization
  of the Companies

  	
   

  	
   

  
	
  Schedule 4.2

  	
   

  	
  Governmental
  Approvals, Consents and Actions Affecting the Companies

  	
   

  	
   

  
	
  Schedule 4.3

  	
   

  	
  Financial
  Statements

  	
   

  	
   

  
	
  Schedule 4.4

  	
   

  	
  Absence of
  Certain Changes

  	
   

  	
   

  
	
  Schedule 4.5

  	
   

  	
  Property of the
  Companies

  	
   

  	
   

  
	
  Schedule 4.6

  	
   

  	
  Contracts

  	
   

  	
   

  
	
  Schedule 4.7

  	
   

  	
  Liabilities and
  Obligations of the Companies

  	
   

  	
   

  
	
  Schedule 4.8

  	
   

  	
  Litigation
  Affecting the Companies

  	
   

  	
   

  
	
  Schedule 4.9

  	
   

  	
  Compliance with
  Laws

  	
   

  	
   

  
	
  Schedule 4.10

  	
   

  	
  Intellectual
  Property

  	
   

  	
   

  
	
  Schedule 4.11

  	
   

  	
  Tax Matters

  	
   

  	
   

  
	
  Schedule 4.12

  	
   

  	
  Employee Benefit
  Plans

  	
   

  	
   

  
	
  Schedule 4.13

  	
   

  	
  Environmental
  Matters

  	
   

  	
   

  
	
  Schedule 4.14

  	
   

  	
  Insurance

  	
   

  	
   

  
	
  Schedule 4.15

  	
   

  	
  Affiliate
  Transactions

  	
   

  	
   

  
	
  Schedule 5.2

  	
   

  	
  Authorization
  and Validity of Agreement; Non-Contravention (Buyer)

  	
   

  	
   

  
	
  Schedule 5.3

  	
   

  	
  Governmental
  Approvals, Consents and Actions Affecting Buyer

  	
   

  	
   

  
	
  Schedule 5.4

  	
   

  	
  Litigation
  Affecting Buyer

  	
   

  	
   

  
	
  Schedule 6.1

  	
   

  	
  Operation of the
  Business and Description of the Expansion

  	
   

  	
   

  
	
  Schedule 6.6

  	
   

  	
  Employee
  Compensation and Benefits

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  Form of Opinion
  of Morgan Lewis & Bockius LLP

  	
   

  	
   

  
	
  EXHIBIT B

  	
   

  	
  Form of Opinion
  of Andrews Kurth LLP

  	
   

  	
   

  
	
  EXHIBIT C

  	
   

  	
  The 2007/2008
  Expansion Budget

  	
   

  	
   

  
	
  EXHIBIT D

  	
   

  	
  Interruptible
  Storage Services Risk Limits

  	
   

  	
   

  



 



 iv















PURCHASE AND SALE
AGREEMENT


This Purchase and Sale Agreement, dated as of July 24,
2007 (hereinafter this “Agreement”), is made by and between Lodi
Holdings, L.L.C., a Delaware limited liability company (the “Seller”),
and Buckeye Gas Storage LLC, a Delaware limited liability company (the “Buyer”).


WITNESSETH:


WHEREAS, Seller owns all of the outstanding limited
liability company interests in Lodi Gas Storage, L.L.C., a Delaware limited
liability company (“Lodi Gas”); and Lodi Gas owns all of the outstanding
limited liability company interests in Lodi Development, L.L.C., a Delaware
limited liability company (“Lodi Development”) (Lodi Gas and Lodi
Development sometimes collectively referred to as the “Companies” and
individually as a “Company”);


WHEREAS, Lodi Gas is engaged in the business of
storage of natural gas and activities relating thereto in the State of
California (the “Business”) and Lodi Development holds record title to
certain assets which will be affected by the Expansion (as such term is defined
in Section 6.1 below); and


WHEREAS, Buyer desires to purchase from Seller, and
Seller desires to sell to Buyer, on the terms and subject to the conditions of
this Agreement, all of the limited liability company interests in Lodi Gas that
are outstanding at the time of the Closing (the “Lodi Gas LLC Interests”).


NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:


ARTICLE I

DEFINITIONS


Section 1.1      Certain
Definitions.  As used in this Agreement,
the following terms will have the respective meanings set forth below:


“Action” shall have the meaning specified in Section
3.5.


“Adjustment Amount” shall have the meaning
specified in Section 2.2(c)(iv).


“Adjustment Statement” shall have the meaning
specified in Section 2.2(c)(i).


“Affiliate” of a Person shall mean any other
Person that directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, the first
mentioned Person.


“Agent” shall have the meaning specified in Section
6.13.













“Agreement” shall have the meaning specified in
the Preamble.


“Allocable Tax” shall have the meaning
specified in Section 10.2(b).


“Books and Records” shall have the meaning
specified in Section 6.5(a).


“Business” shall have the meaning specified in
the Recitals.


“Business Day” shall mean any day other than a
Saturday, a Sunday or a day banks in the States of New York and California are
authorized or required to be closed.


“Buyer” shall have the meaning specified in the
Preamble.


“Buyer Consents” shall have the meaning
specified in Section 2.2(a)(i).


“Buyer Indemnified Parties” shall have the
meaning specified in Section 9.2(a).


“Buyer Material Adverse Effect” shall mean a
Material Adverse Effect that would impair or impact Buyer’s ability to perform
its obligations hereunder.


“California Act” shall mean Section 854(a) of
the California Public Utilities Code.


“CERCLA” shall have the meaning specified in Section
4.13(i).


“Company” and “Companies” shall have the
meanings specified in the Recitals.


“Closing” shall have the meaning specified in Section
2.3.


“Closing Date” shall have the meaning specified
in Section 2.3.


“Closing Date Purchase Price” shall have the
meaning specified in Section 2.1(a).


“Closing Cash” shall have the meaning specified
in Section 2.2(c)(i).


“Closing Expansion Expenditures” shall have the
meaning specified in Section 2.2(c)(i).


“Closing Indebtedness” shall have the meaning
specified in Section 2.2(a)(ii).


“Closing Net Working Capital” shall have the
meaning specified in Section 2.2(c)(i).


“COBRA” shall have the meaning specified in Section
6.6(c).


“Code” shall mean the Internal Revenue Code of
1986, as amended.


“Company Indebtedness Payoff Amount” shall have
the meaning specified in Section 2.2(a)(ii).


“Confidentiality Agreement” shall have the
meaning specified in Section 6.2.



 2
 









“Contingent Purchase Price” shall have the
meaning specified in Section 2.1(a).


“Contracts” shall have the meaning specified in
Section 4.6(a).


“Control” and its derivative expressions shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.


“CPUC” shall mean the California Public
Utilities Commission.


“Current Assets” as of a specified date shall mean
the current assets of the Companies as reflected on a consolidated balance
sheet of the Companies as of such date as determined under GAAP and applied in
a manner consistent with preparation of the Financial Statements, but
excluding, however, (a) cash and cash equivalents and (b) intercompany accounts
between the Companies, on the one hand, and Seller, on the other, in each case.


“Current Liabilities” as of a specified date
shall mean the current liabilities, excluding (a) intercompany accounts between
the Companies, on the one hand, and Seller, on the other, and (b) other current
liabilities, if any, which Seller will pay under the terms of this Agreement,
in each case, of the Companies reflected on a consolidated balance sheet of the
Companies of such date as determined under GAAP, subject to the foregoing
exclusions, applied in a manner consistent with preparation of the Financial
Statements, and provided that “fuel
liability” shall be valued at the greater of (i) historical cost in accordance
with GAAP or (ii) the market value thereof as determined by the then open fuel
volume multiplied by the PG&E Citygate closing mid price on the date of
determination.


“Damages” shall have the meaning specified in Section
9.2(a).


“De Minimis Buyer Losses” shall have the
meaning specified in Section 9.2(b)(ii).


“Development Agreement” shall have the meaning
specified in Section 6.12.


“Disclosed Contracts” shall have the meaning
specified in Section 4.6(a).


“Disclosure Schedules” shall have the meaning
specified in Section 6.9.


“Employee Benefit Plan” shall mean any
employment, compensation, vacation, bonus, qualified or nonqualified deferred
compensation, incentive compensation, stock purchase, stock option, stock
appreciation right or other stock-based incentive, severance,
change-in-control, or termination pay, hospitalization or other medical,
disability, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, retirement or fringe benefit plan, practice, program,
agreement, arrangement, or employee benefit plan or remuneration within the
meaning of Section 3(3) of ERISA and any related or separate contracts, plans,
trusts, programs, policies and arrangements (whether or not within the meaning
of Section 3(3) or ERISA) that (i) is contributed to or maintained or sponsored
by the Companies or to which the Companies have or may have any liability,
contingent or otherwise, either directly or as a result of an ERISA Affiliate,
or (ii) provides benefits of economic value to any present or former employee, 



 3
 









consultant or director of
the Companies or an ERISA Affiliate, or present or former beneficiary,
dependent or assignee of any such present or former employee, consultant or
director.


“Employees” shall have the meaning specified in
Section 6.6(a).


“Enumerated Actions” shall have the meaning
specified in Section 6.1.


“Environmental Laws” shall have the meaning
specified in Section 4.13(i).


“EPA” shall have the meaning specified in Section
4.13(ii).


“ERISA” shall mean the Employee Retirement Income
Security Act of 1974, as amended.


“ERISA Affiliate” shall mean any person that,
together with either Company, is or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA.


“Estimated Cash” shall have the meaning
specified in Section 2.2(a).


“Estimated Expansion Expenditures” shall have
the meaning specified in Section 2.2(a).


“Estimated Net Working Capital” shall have the
meaning specified in Section 2.2(a).


“Estimated Net Working Capital Adjustment”
shall mean Estimated Net Working Capital less the Target Net Working Capital,
which value shall be expressed as a negative number if the Target Net Working
Capital exceeds the Estimated Net Working Capital.


“Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.


“Expansion” shall have the meaning specified in
Section 6.1.


“Final Adjustment Statement” shall have the
meaning specified in Section 2.2(c)(iii).


“Final Cash” shall have the meaning specified
in Section 2.2(c)(iii).


“Final Expansion Expenditures” shall have the
meaning specified in Section 2.2(c)(iii).


“Final Net Working Capital” shall have the
meaning specified in Section 2.2(c)(iii).


“Final Purchase Price” shall have the meaning
specified in Section 2.1(a).


“Financial Statements” shall have the meaning
specified in Section 4.3(a).


“Firm Storage Service Agreement” shall mean an
agreement pursuant to which Lodi Gas provides firm gas storage services
pursuant to its tariff on file with the CPUC.


“GAAP” shall mean United States generally
accepted accounting principles as of the date hereof applied on a consistent
basis during the periods involved.



 4
 









“Governmental Entity” shall mean any federal,
state, local, domestic or foreign government or any court of competent
jurisdiction, regulatory or administrative agency or commission or other
governmental entity or instrumentality, whether federal, state, local, domestic
or foreign.


“Hart-Scott Act” shall have the meaning
specified in Section 3.5.


“Hazardous Substances” shall have the meaning
specified in Section 4.13(ii).


“Indebtedness” shall mean any of the following,
except in each case for the financing of insurance premiums under that certain
commercial insurance premium finance and security agreement, dated as of April
24, 2007, between Lodi Gas and Canawill, Inc. and the items listed in Section
3 of Schedule 1.1: (a) any indebtedness for borrowed money, (b) any
obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) any obligations to pay the deferred purchase price of property or services,
except trade accounts payable and other Current Liabilities arising in the
ordinary course of business, (d) any obligations, contingent or otherwise,
under acceptance credit, letters of credit or similar facilities, (e) all
interest, fees, prepayment penalties, yield maintenance premiums and similar
payments payable upon extinguishment of any of the foregoing, and (f) any
guaranty of any of the foregoing.


“Initial Purchase Price” shall have the meaning
specified in Section 2.1(a).


“Intellectual Property” shall have the meaning
specified in Section 4.10.


“Interest Rate” shall mean the Prime Rate minus
two percent (2%).


“Interruptible Storage Service Agreement” shall
mean an agreement pursuant to which Lodi Gas provides interruptible gas storage
services pursuant to its tariff on file with the CPUC.


“Knowledge” shall mean the actual and current
knowledge of (a) as to Seller, any of the Persons listed in Section 1 of
Schedule 1.1 and (b) as to Buyer, any officer, director or manager of
Buyer or any Affiliate of Buyer, in each case without any personal or
individual liability therefor in any circumstance.


“Law” means any statute, law, ordinance, rule
or regulation.


“Lien” means, with respect to any asset, (a)
any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge
or security interest in, on or of such asset, (b) the interest of a vendor or a
lessor under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.


“LLC Interests” shall mean all of the limited
liability company interests in the Companies that are outstanding at the time
of the Closing.


“Loan Agreement” shall mean the Loan Agreement
dated as of November 20, 2006, by and between Lodi Gas and JPMorganChase Bank,
N.A., as amended.



 5
 









“Lodi Development” shall have the meaning
specified in the Recitals.


“Lodi Development LLC Interests” shall mean all
of the limited liability company interests in Lodi Development that are
outstanding at the time of the Closing.


“Lodi Gas” shall have the meaning specified in
the Recitals.


“Lodi Gas LLC Interests” shall have the meaning
specified in the Recitals.


“Lodi Management” shall mean Lodi Management
LLC, a Delaware limited liability company.


“Lodi Policies” shall have the meaning
specified in Section 4.14.


“Material Adverse Effect” shall mean, with
respect to a Person, a material adverse effect on the assets, business,
properties, financial condition or results of operations of such Person, taken
as a whole, excluding any effect related to or resulting from: (a) any event
affecting the United States or global economy or capital or financial markets
generally, (b) any change in conditions in the United States or California
natural gas storage business generally, including any changes in market prices
for commodities, goods or services within such business and (c) any change in
Law or GAAP, or in the authoritative interpretations thereof or in regulatory
guidance related thereto.


“Most Recent Balance Sheet” shall have the meaning
specified in Section 4.3(a).


“Net Working Capital” as of a specified date
shall mean Current Assets less Current Liabilities, as reflected on a
consolidated balance sheet of the Companies prepared as of such date (expressed
as a negative value if Current Liabilities exceed Current Assets).


“Neutral Auditor” shall mean KPMG, LLP.


“Notes” means the Senior Secured Notes issued
(or contemplated to be issued) pursuant to the Note Purchase Agreement.


“Note Purchase Agreement” means Note Purchase
Agreement dated as of November 20, 2006, by and among Lodi Gas and the other
parties signatory thereto, as such agreement is amended from time to time,
together with all other instruments and agreements executed and delivered by
Lodi Gas pursuant to the terms of such Note Purchase Agreement.


“Order” means any judicial judgment, decision,
decree, order, settlement, injunction, writ, stipulation, determination or
award, in each case to the extent binding and finally determined.


“Paid Indebtedness” shall have the meaning specified
in Section 2.2(a)(i).


“Payoff Letters” shall have the meaning
specified in Section 2.2(a)(ii).



 6
 









“Pending Audit” means the Tax audit of Seller
relating to calendar year 2004 currently being pursued by the Internal Revenue
Service.


“Permit” means any license, franchise,
registration, permit, order, approval, consent, waiver, variance, exemption or
any other authorization of or from any Governmental Entity.


“Permitted Liens” shall have the meaning
specified in Section 4.5(a).


“Person” shall mean an individual, corporation,
partnership, limited liability company, association, trust, incorporated
organization, other entity or group (as defined in Section 13(d)(3) of the
Exchange Act).


“Pre-Closing Period” shall have the meaning
specified in Section 10.1(a).


“Prime Rate” shall mean the annual rate of
interest published from time to time as the “Prime Rate” in the “Money
Rates” section of The Wall Street Journal.


“Proposal” shall have the meaning specified in Section
6.13.


“Purchase Price Allocation” shall have the
meaning specified in Section 10.7.


“RCRA” shall have the meaning specified in Section
4.13(i).


“Real Property” shall have the meaning
specified in Section 4.5(b).


“Real Property Agreements” shall have the
meaning specified in Section 4.5(c).


“Release” shall have the meaning specified in Section
4.13(ii).


“Remaining Indebtedness” shall have the meaning
specified in Section 2.2(a)(i).


“Required Consents” shall have the meaning
specified in Section 7.1(b).


“Resolution Period” shall have the meaning specified
in Section 2.2(c)(iii).


“SARA” shall have the meaning specified in Section
4.13(i).


“Securities Act” shall have the meaning
specified in Section 5.6.


“Seller” shall have the meaning specified in
the Preamble.


“Seller Consents” shall have the meaning
specified in Section 2.2(a)(i).


“Seller Indemnified Parties” shall have the
meaning specified in Section 9.3(a).


“Seller’s Threshold” shall have the meaning
specified in Section 9.2(b)(ii).


“Services Agreement” shall have the meaning
specified in Section 6.6(a).



 7
 









“Straddle Period” shall have the meaning
specified in Section 10.1(a).


“Subsidiary” or “Subsidiaries” of any
Person shall mean any corporation, limited liability company, partnership,
joint venture or other legal entity of which such Person (either alone or
through or together with any other Subsidiary), owns, directly or indirectly,
50% or more of the stock or other equity or membership interests the holder of
which is generally entitled to vote for the election of the board of directors,
managers or other governing body of such entity.


“Survival Period” shall have the meaning
specified in Section 9.1(a).


“Target Net Working Capital Amount” shall mean
$0.00.


“Tax Claim” shall have the meaning specified in
Section 10.3(a).


“Taxes” shall have the meaning specified in Section
4.11(a).


“Taxing Authority” shall mean any Governmental
Entity serving as a Tax authority.


“Tax Return” shall mean any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.


“Third-Party Approvals” means any approval,
consent, waiver, variance, exemption or any other authorization of or from any
Person that is not a Governmental Entity or an Affiliate of the Person seeking
such Third-Party Approval.


“Title Reports” shall mean those title
commitments, policies and/or other reports identified in Section 2 of Schedule
1.1.


“Transfer Taxes” shall have the meaning
specified in Section 10.6.


“WARN” shall have the meaning specified in Section
6.7.


Section
1.2      Interpretation.  When reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless
otherwise indicated.  The headings
contained in this Agreement are for convenience of reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement.  For purposes of this
Agreement, (a) words in the singular will be deemed to include the plural and
vice versa and words of one gender shall be deemed to include the other gender
as the context requires, (b) the terms “hereof”, “herein”, “herewith” and “hereunder”
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular provision of this
Agreement, (c) the words “include”, “includes” and “including” shall be deemed
to be followed by the words “without limitation” and (d) captions to articles,
sections and subsections of, and schedules and exhibits to, this Agreement are
included for convenience and reference only and shall not constitute a part of
this Agreement or affect the meaning or construction of any provision
hereof.  This Agreement shall be
construed without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be
drafted.



 8
 









ARTICLE II

PURCHASE PRICE; CLOSING


Section
2.1      Purchase Price.


(a)           Amount
of Purchase Price.  The purchase
price for the LLC Interests shall be the sum of (x) the difference resulting
from (i) Four Hundred Twenty Eight Million Dollars ($428,000,000) minus (ii)
the Company Indebtedness Payoff Amount, as defined in Section 2.2(a)(ii)
below (the “Initial Purchase Price”), plus (y) a contingent payment of Twelve
Million Dollars ($12,000,000) as contemplated by Section 2.1(c) (the “Contingent
Purchase Price”).  The Initial
Purchase Price shall be adjusted pursuant to Section 2.2(a) (as so
adjusted, the “Closing Date Purchase Price”) and shall be further adjusted
pursuant to Section 2.2(c) hereof (the Initial Purchase Price, as so
finally adjusted, plus any Contingent Purchase Price that Buyer has paid to
Seller, being the “Final Purchase Price”).


(b)           Payment
of Closing Date Purchase Price.  At
the Closing, Buyer shall pay to Seller an amount equal to the Closing Date
Purchase Price, such payment to be made by wire transfer of immediately
available funds, in United States Dollars, to such bank account as shall be
designated by Seller in writing at least one Business Day prior to Closing.


(c)           Payment
of the Contingent Purchase Price. 
Within five (5) Business Days after the date on which the CPUC issues an
order granting authority for the construction and operation of the Kirby Hills
Phase II natural gas storage facility as requested in A.07-05-009, filed with
the CPUC on May 8, 2007, Buyer shall pay to Seller the Contingent Purchase
Price by wire transfer of immediately available funds, in United States
Dollars, to such bank account as shall be designated by Seller in writing at
least one Business Day prior to the date of such payment.  In the event the CPUC grants such authority
prior to Closing, then Buyer shall pay the Contingent Purchase Price to Seller
at Closing by wire transfer of immediately available funds, in United States
Dollars, to such bank account as shall be designated by Seller in writing at
least one Business Day prior to Closing.


Section
2.2      Purchase Price Adjustments.


(a)           Closing Purchase Price Adjustments and Procedures


(i)            Schedule 2.2 sets forth, as of the date of this
Agreement, an itemized list (including lender and amount outstanding) of all
Indebtedness of the Companies.  Prior to
Closing, Seller shall use commercially reasonable efforts to obtain consents or
waivers from any lender listed in Schedule 2.2 whose consent or waiver
is required for the transfer of the LLC Interests, and so that Seller will have
no further obligation or commitment after Closing with respect to such
Indebtedness (collectively, “Seller Consents”).  Prior to the Closing, Buyer shall use
commercially reasonable efforts to cooperate with Seller in Seller’s efforts to
obtain the Seller Consents.  Prior to the
Closing, Buyer shall use commercially reasonable efforts to obtain consents or
waivers from any third party whose relationship with Buyer requires Buyer to
obtain such third party’s consent or waiver prior to the purchase by Buyer of
the LLC Interests subject to the Indebtedness of the Companies (collectively, “Buyer
Consents”).  Indebtedness of the
Companies in respect of which both all required Seller Consents and all
required Buyer Consents 



 9
 









have been obtained at least five (5) Business
Days prior to the Closing Date is referred to herein as “Remaining
Indebtedness”.  Indebtedness of the
Companies in respect of which either a Seller Consent or a Buyer Consent was so
required but has not been obtained at least five (5) Business Days prior to the
Closing Date is referred to herein as “Paid Indebtedness”.


(ii)           Not more than ten (10) Business Days nor less than five
(5) Business Days prior to the Closing Date, Seller shall deliver to Buyer a
certificate of an authorized officer setting forth:  (A) Seller’s good faith estimate, as of the
Closing Date, of (1) Net Working Capital (“Estimated Net Working Capital”),
(2) amounts actually expended by the Companies in connection with the Expansion
during the period from January 1, 2007 until the Closing in accordance with Section
6.1 hereof, but only to the extent such amounts are not included in Net
Working Capital as of the Closing Date (“Estimated Expansion Expenditures”),
and (3) the cash and cash equivalents of the Companies (“Estimated Cash”);
and (B) an itemized list (including lender, amount outstanding and whether such
Indebtedness is Paid Indebtedness or Remaining Indebtedness) of all
Indebtedness of the Companies to be outstanding as of the Closing Date (the “Closing
Indebtedness”).  Seller shall also
deliver to Buyer, simultaneously with such certificate, payoff letters executed
by each of the lenders or other financing sources with respect to such Closing
Indebtedness in form and substance reasonably satisfactory to Buyer (the “Payoff
Letters”).  Each Payoff Letter shall
contain the payoff amount, including principal, accrued but unpaid interest,
fees, prepayment costs or penalties, make-whole premiums or similar costs
(including a per diem amount or calculation through the Closing Date) of the
Closing Indebtedness to which it relates and shall authorize Seller and Buyer,
following the payment in full of such Closing Indebtedness, to file any
financing statements or take any other actions necessary to terminate any
outstanding Liens relating to such Closing Indebtedness.  The aggregate amount necessary to repay all
the Indebtedness of the Companies as of the Closing Date as set forth in the
Payoff Letters is referred to herein as the “Company Indebtedness Payoff
Amount”.


(iii)          The Closing Date Purchase Price shall equal the Initial
Purchase Price, increased or decreased, as appropriate, by the amount of the
Estimated Net Working Capital Adjustment, and increased by the amount of
Estimated Expansion Expenditures and the amount of Estimated Cash.


(iv)          At the Closing, Buyer shall pay, or cause to be paid on
behalf of the Companies, to the Persons named in the Payoff Letters associated
with the Paid Indebtedness, an aggregate dollar amount based on the payoff
amounts set forth in such Payoff Letters, such payment to be made by Buyer by
wire transfer of immediately available funds to the account designated by each
such Person, or as otherwise instructed by each Person, in the Payoff
Letters.  At the Closing, Buyer may, but
shall not be obligated to, pay, or cause to be paid, to the Persons named in
the Payoff Letters associated with the Remaining Indebtedness, an aggregate dollar
amount based on the Payoff Letters in order to extinguish the Remaining
Indebtedness.


(b)           Adjustment Methodology.  The purchase price adjustments hereunder
shall be calculated as of the Closing Date, without giving effect to any of the
transactions hereunder, in accordance with GAAP or as otherwise specified
herein.



 10
 









(c)           Final Purchase Price Adjustment and Procedures.


(i)            Within ninety (90) days after the Closing Date, Seller
shall prepare and deliver to Buyer a statement (the “Adjustment Statement”)
which shall set forth Seller’s calculation, as of the Closing Date, of (A) Net
Working Capital (“Closing Net Working Capital”), (B) amounts actually
expended by the Companies in connection with the Expansion during the period
from January 1, 2007 until the Closing in accordance with Section 6.1
hereof, but only to the extent such amounts are not included in Net Working
Capital as of the Closing Date (“Closing Expansion Expenditures”), and
(C) the cash and cash equivalents of the Companies (“Closing Cash”).  Buyer shall provide Seller and its
independent accountant and financial advisor, at no expense to Seller, with all
reasonable accounting services, assistance and access during normal business
hours to the working papers, accounting and other books and records of the
Business and the appropriate personnel of the Business to the extent required
to complete its preparation of the Adjustment Statement.


(ii)           After receipt of the Adjustment Statement, Buyer shall
have twenty (20) days to review the factual basis, mathematical calculations
and accounting methods used therein.  On
or prior to the 20th day after receipt of the Adjustment Statement, Buyer shall
deliver written notice to Seller specifying in detail any disputed items and
the basis therefor.  Any such notice
shall include only objections based on (A) errors of fact underlying the
determination of Closing Net Working Capital, Closing Expansion Expenditures
and Closing Cash, (B) mathematical errors in the computation of Closing Net
Working Capital, Closing Expansion Expenditures and Closing Cash, and (C)
Closing Net Working Capital, Closing Expansion Expenditures and Closing Cash
not having been determined in accordance with this Agreement.  If Buyer fails to so notify Seller of any
such disputes on or prior to the 20th day after receipt of the Adjustment
Statement, all calculations and valuations of Closing Net Working Capital,
Closing Expansion Expenditures and Closing Cash set forth on the Adjustment
Statement shall be deemed accepted by Buyer and shall be final, binding,
conclusive and nonappealable for all purposes of this Agreement.


(iii)          If Buyer so notifies Seller of any disputed items on the
Adjustment Statement in accordance with the above provisions, Seller and Buyer
shall, over the twenty (20) days following the date of such notice (the “Resolution
Period”), attempt to resolve their differences and any written resolution
by them as to any disputed item shall be final, binding, conclusive and
nonappealable for all purposes of this Agreement.  If at the conclusion of the Resolution
Period, Seller and Buyer have not reached an agreement on the disputed items,
then all items remaining in dispute shall be submitted by Seller and Buyer to
the Neutral Auditor.  All fees and
expenses relating to the work, if any, to be performed by the Neutral Auditor
shall be borne 50% by Buyer and 50% by Seller. 
Except as provided in the preceding sentence, all other costs and
expenses incurred by the parties in connection with resolving any dispute
hereunder before the Neutral Auditor shall be borne by the party incurring such
cost and expense.  The Neutral Auditor
shall act as an arbitrator to determine only those items still in dispute at
the end of the Resolution Period.  In no
event shall the Neutral Auditor’s determination be outside of the range of
amounts claimed by the respective parties with respect to those items in
dispute.  The parties shall instruct the
Neutral Auditor to render its reasoned written decision as soon as practicable
but in no event later than forty-five (45) days after its engagement (which
engagement shall be made no later than ten (10) Business Days after the end of
the Resolution 



 11
 









Period). 
Such decision shall be set forth in a written statement delivered to
Seller and Buyer and shall be final, binding, conclusive and nonappealable for
all purposes hereunder.  The term “Final
Adjustment Statement” shall mean the definitive Adjustment Statement agreed
to (or deemed agreed to) by Seller and Buyer in accordance with Section
2.2(c)(ii) or this Section 2.2(c)(iii), or the definitive Adjustment
Statement resulting from the determination made by the Neutral Auditor in
accordance with this Section 2.2(c)(iii), in each case setting forth the
final determination of Closing Net Working Capital (“Final Net Working
Capital”), Closing Expansion Expenditures (“Final Expansion Expenditures”)
and Closing Cash (“Final Cash”).


(iv)          If the Final Net Working Capital is greater than Estimated
Net Working Capital, Buyer shall pay to Seller an amount equal to such excess,
and if the Final Net Working Capital is less than the Estimated Net Working
Capital, Seller shall pay to Buyer an amount equal to such deficiency.  If the Final Expansion Expenditures are
greater than the Estimated Expansion Expenditures, Buyer shall pay to Seller an
amount equal to such excess, and if the Final Expansion Expenditures are less
than the Estimated Expansion Expenditures, Seller shall pay to Buyer an amount
equal to such deficiency.  If the Final Cash
is greater than the Estimated Cash, Buyer shall pay to Seller an amount equal
to such excess, and if the Final Cash is less than the Estimated Cash, Seller
shall pay to Buyer an amount equal to such deficiency.  Amounts owing by the parties pursuant to the
foregoing shall be aggregated or netted, as applicable, so that only one such
payment shall be made.  Any payments
required pursuant to this Section 2.2(c)(iv) (the “Adjustment Amount”)
shall be made by wire transfer of immediately available funds to the account
designated by Seller or Buyer, as the case may be, in United States Dollars,
within five (5) Business Days after (a) the Adjustment Statement has been
accepted or deemed accepted by Buyer pursuant to Section 2.2(c)(ii), (b)
any proposed change made by Buyer has been agreed upon by the parties during
the Resolution Period or (c) a final determination has been made by the Neutral
Auditor as described in Section 2.2(c)(iii), as applicable.  Payments due shall be paid to the applicable
party together with interest at the Interest Rate from and including the
Closing Date to but excluding the date of payment.


Section
2.3      Closing.  Unless this Agreement shall have been
terminated and the transactions contemplated hereby shall have been abandoned
pursuant to Article VIII hereof, the closing of the transactions
contemplated by this Agreement (the “Closing”) shall take place at the
offices of Andrews Kurth LLP in Houston, Texas, at 8:00 a.m., Houston, Texas
time, on the third Business Day after all of the conditions to the Closing set
forth in Article VII hereof are satisfied or waived, or such other date,
time and place as shall be agreed upon by Seller and Buyer (the actual date and
time of the Closing being the “Closing Date”).


Section
2.4      Buyer Deliveries.  At the Closing, Buyer shall deliver to
Seller:


(a)           a certificate confirming the good standing of Buyer from
the Secretary of State of the State of Delaware, dated within ten (10) Business
Days of the Closing Date;


(b)           a copy of the certificate of formation of Buyer, as
amended, certified as of a date not earlier than ten (10) Business Days prior
to the Closing Date;


(c)           a cross receipt acknowledging receipt of the LLC
Interests;



 12















(d)           a certificate from an authorized officer of Buyer, dated
as of the Closing Date, to the effect that the conditions set forth in Section
7.2(a) and (b) have been satisfied;


(e)           evidence of approval of all the Governmental Entities
required of Buyer;


(f)            an amount equal to the Closing Date Purchase Price as
provided in Section 2.1;


(g)           a written opinion from Morgan, Lewis & Bockius LLP,
addressed to Seller, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit A;


(h)           a copy of completed Form BOE-100-B (Statement of Change in
Control and Ownership of Legal Entities) that Buyer will submit to the State of
California Board of Equalization; and


(i)            such other agreements, consents, documents and
instruments as are reasonably required to be delivered by Buyer at the Closing
Date pursuant to this Agreement or otherwise reasonably required in connection
herewith, including all such other instruments as Seller or its counsel may
reasonably request in connection with the purchase of the LLC Interests
contemplated hereby.


Section
2.5      Deliveries of Seller.  At the Closing, Seller shall deliver to
Buyer:


(a)           certificates from the Secretary of State of the State of
Delaware dated within ten (10) Business Days of the Closing Date confirming the
due organization and good standing of Seller and the Companies;


(b)           certificates from the Secretary of State of the State of
California dated within ten (10) Business Days of the Closing Date confirming
the due qualification and good standing of the Companies;


(c)           duly executed assignments of the Lodi Gas LLC Interests in
a form reasonably satisfactory to Buyer, free and clear of all Liens, other
than Liens specifically identified in Schedule 3.4;


(d)           a cross receipt acknowledging receipt of the Closing Date
Purchase Price payable at Closing pursuant to Section 2.1;


(e)           a certificate from an authorized officer of Seller, dated
as of the Closing Date, to the effect that the conditions set forth in Section
7.3(a) through Section 7.3(c) have been satisfied;


(f)            resignations or terminations of all of the officers,
directors and managers of the Companies, effective as of the Closing Date;


(g)           the original minute books, membership records, and all
other company, business, tax and financial files and records, and seals (if
any) of the Companies;



 13
 









(h)           evidence of the approvals of the Governmental Entities
required of Seller and/or the Companies, and the receipt of any Third-Party
Approvals and Permits set forth in Schedule 3.3;


(i)            a written opinion from Andrews Kurth LLP, addressed to
Buyer, dated as of the Closing Date, substantially in the form attached hereto
as Exhibit B;


(j)            a duly completed and executed certification of
non-foreign and non-disregarded entity status pursuant to Section
1.1445-2(b)(2) of the Treasury regulations;


(k)           a certificate from an authorized representative of Seller,
dated as of the Closing Date, attaching a complete copy of the limited
liability company agreement of each of the Companies as in effect on the
Closing Date;


(l)            a duly completed and executed California Real Estate
Withholding Certificate (Form 593-C) with respect to the Real Property and the
real property interests that are the subject of the Real Property Agreements;
and


(m)          such other agreements, consents, documents and instruments
as are reasonably required to be delivered by Seller at or prior to the Closing
Date pursuant to this Agreement or otherwise reasonably required in connection
herewith, including all such other instruments as Buyer or its counsel may
reasonably request in connection with the purchase of the LLC Interests
contemplated hereby.


ARTICLE III

REPRESENTATIONS AND WARRANTIES RELATING TO SELLER


Seller represents and warrants to Buyer that:


Section
3.1      Due Organization and Power of Seller.  Seller is duly organized, validly existing
and in good standing under the laws of Delaware and has the requisite limited
liability company power and authority to conduct its business as it is now
being conducted, and to own, lease and operate its assets and properties.  Seller is duly authorized, qualified or
licensed to do business as a foreign limited liability company and is in good
standing in every jurisdiction wherein, by reason of its ownership of its LLC
Interests, the failure to be so qualified would prevent or delay the Closing.


Section
3.2      Authorization and Validity of
Agreement.  This Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite limited liability company action by Seller, and Seller has
full limited liability company power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.  This Agreement has been duly executed and
delivered by Seller and constitutes a valid and legally binding obligation of
Seller enforceable in accordance with its terms except as enforceability may be
limited by bankruptcy, insolvency or other similar Laws affecting the
enforcement of creditors’ rights generally and subject to general principles of
equity.


Section 3.3      Non-Contravention.  The execution and delivery by Seller of this
Agreement does not, and the consummation by Seller of the transactions
contemplated hereby 



 14
 









will not, (a) violate or conflict with any provision
of the certificate of formation or limited liability company agreement of
Seller or (b) assuming that all Permits and Third-Party Approvals set forth in Schedule
3.3 hereto, or in the documents identified therein, have been obtained or
made, (i) violate any Law or Order to which Seller is subject or (ii)
constitute a breach or violation of, or default under, or trigger any “change
of control” rights or remedies under, or give rise to any Lien (other than
Permitted Liens), acceleration of remedies, any buy-out right or any rights of
first offer or refusal or of termination under any indenture, mortgage, lease,
note, or other material contract or other instrument to which Seller is a party
or by which Seller’s assets are bound, except with respect to clause (b) for
any such violation, conflict, breach, default or creation of Lien (A) which
would not have a Material Adverse Effect on Seller or otherwise materially
adversely affect Seller’s ability to consummate the transactions contemplated
hereby or (B) that has been waived, cured or consented to on or prior to the
Closing Date.


Section
3.4      LLC Interests.


(a)           The Lodi Gas LLC Interests being sold by Seller to Buyer
have been validly issued and are fully paid and nonassessable as of the Closing
Date.  The Lodi Development LLC Interests
held by Lodi Gas have been validly issued and are fully paid and nonassessable
as of the Closing Date.  Seller has good and marketable title to
such Lodi Gas LLC Interests, free and clear of all Liens, defects in title and
restrictions on transfer, other than as identified in Schedule 3.4;
and Lodi Gas has good and marketable title to the Lodi Development LLC
Interests, free and clear of all Liens, defects in title and restrictions on
transfer, other than as identified in Schedule 3.4.  Seller will have the full limited liability
company power, right and authority to transfer and convey such Lodi Gas LLC
Interests to Buyer at the Closing.


(b)           Except as set forth in Schedule 3.4, there are no
outstanding options, warrants or other rights of any kind relating to the sale,
issuance or voting of the LLC Interests which have been issued, granted or
entered into by Seller or any securities convertible into or evidencing the
right to purchase such LLC Interests.


(c)           Upon Closing, Buyer shall have good and marketable title to such Lodi Gas
LLC Interests, free and clear of any Liens (except those created by Buyer and
its Affiliates), restrictions on transfer and voting or preemptive rights,
other than as identified in Schedule 3.4.


Section
3.5      Governmental Approvals; Consents and
Actions.  Except as set forth in Schedule
3.5 hereto, no claim, action, litigation, suit, arbitration, proceeding,
investigation, or other legal or administrative proceeding (each, an “Action”)
or Order is pending or, to the Knowledge of Seller, threatened against Seller
which would have a Material Adverse Effect on it.  Except as set forth in Schedule 3.5
hereto and except for the requirements of the California Act and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “Hart-Scott
Act”), no Permit from any Governmental Entity or any Third-Party Approval
is required on the part of Seller in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for such Permits or Third-Party Approvals the failure to obtain which
would not have a Material Adverse Effect on Seller and which would not
materially adversely affect Seller’s ability to consummate the transactions
contemplated hereby.



 15
 









Section
3.6      Litigation.  Except as set forth in Schedule 3.6,
there are no (a) Orders against Seller or any of its Affiliates (other than the
Companies) or (b) Actions pending, or to the Knowledge of Seller, threatened
against or affecting Seller or any of its Affiliates other than the Companies,
in either of the foregoing clauses (a) or (b), (i) challenging or seeking or
the effect of which would reasonably be expected to restrain, delay or prohibit
any of the transactions contemplated by this Agreement or (ii) preventing
Seller from performing in all material respects its obligations under this
Agreement.


Section
3.7      Finders; Brokers.  There are, and after Closing there will be,
no claims (or any basis for any claims) upon Buyer for brokerage commissions,
finder’s fees or like payments in connection with this Agreement or the
transactions contemplated hereby resulting from any action taken by Seller or
by any other Person on Seller’s behalf.


Section
3.8      Bankruptcy.  Seller is not subject to any pending
bankruptcy proceeding, and to Seller’s Knowledge, no proceeding is
contemplated, in which Seller would be declared insolvent or subject to the
protection of any bankruptcy or reorganization laws or procedures.


ARTICLE IV

REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANIES


Seller represents and warrants to Buyer that:


Section
4.1      Due Organization and Capitalization
of the Companies.


(a)           Each Company is duly formed, validly existing and in good
standing under the laws of the State of Delaware.  Each Company has the requisite limited
liability company power and authority to own its properties and assets and to
carry on its business as presently conducted. 
Each Company is duly authorized, qualified or licensed to do business as
a foreign limited liability company and is in good standing in every
jurisdiction wherein, by reason of the nature of the Business, the failure to
be so qualified would have a Material Adverse Effect on such Company.


(b)           As of the date hereof, the record ownership of the LLC
Interests is as set forth in Schedule 4.1.


(c)           Neither Company has any Subsidiary and neither Company
owns any equity interest in any other Person, other than, in each case, that
Lodi Gas owns all of the Lodi Development LLC Interests.  There are no outstanding options, warrants or
other rights of any kind relating to the sale, issuance, repurchase or voting
of any of the LLC Interests, nor are there any securities convertible into or
evidencing the right to purchase such LLC Interests, except as set forth in Schedule
3.4.


Section
4.2      Governmental Approvals; Consents and
Actions.  Except as set forth in Schedule
4.2, no Action or Order is pending or, to the Knowledge of Seller, is
threatened against either Company by or before any Governmental Entity that
would have a Material Adverse Effect on the Companies taken as a whole.  Except as set forth in Schedule 3.3,
no Permit from or of any Governmental Entity or any Third-Party Approval is
required on the part of the Companies in connection with the execution and
delivery of this Agreement or the 



 16
 









consummation of the transactions contemplated hereby,
except for Permits the failure of which to obtain would not have a Material
Adverse Effect on the Companies taken as a whole or which have been (or prior
to Closing will be) obtained.


Section
4.3      Financial Statements.


(a)           Schedule 4.3 contains a copy of the (i) audited
consolidated financial statements of Seller and its Subsidiaries as of, and for
the years ended, December 31, 2006, 2005 and 2004, and (ii) the unaudited
consolidated balance sheet of Seller and its Subsidiaries as of March 31, 2007
(the “Most Recent Balance Sheet”), and the related statement of income
for the three-month period then ending (clauses (i) and (ii) collectively, the “Financial
Statements”).  Each of the Financial
Statements fairly presents, in all material respects, the financial condition
and the results of the operations of Seller and its Subsidiaries, as of the
dates and for the respective periods indicated. 
The Financial Statements have been prepared in accordance with GAAP in
all material respects on a consistent basis throughout the periods involved and
consistent with the internal accounting practices of Seller for equivalent
prior accounting periods, except as otherwise disclosed in Schedule 4.3 or
the Financial Statements and, with respect to the unaudited financial
statements, subject to normal year-end adjustments and the absence of notes.


(b)           EXCEPT AS SPECIFICALLY SET
FORTH IN THIS ARTICLE IV, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES
REGARDING PAST FINANCIAL PERFORMANCE OF THE BUSINESS OR THE ASSETS OWNED OR
USED BY THE BUSINESS OR AS TO ANY FINANCIAL INFORMATION OR FINANCIAL OR
BUSINESS PROJECTIONS MADE AVAILABLE TO BUYER REGARDING THE BUSINESS OR THE
ASSETS OWNED OR USED BY THE BUSINESS. 
SELLER MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING FUTURE FINANCIAL
PERFORMANCE OF THE BUSINESS OR THE ASSETS OWNED OR USED BY THE BUSINESS OR
FINANCIAL OR BUSINESS PROJECTIONS MADE AVAILABLE TO BUYER REGARDING THE
BUSINESS OR THE ASSETS OWNED OR USED BY THE BUSINESS.  BUYER FURTHER AGREES THAT, EXCEPT AS
SPECIFICALLY SET FORTH IN THIS ARTICLE IV OR IN THE CERTIFICATES TO BE
DELIVERED AT CLOSING PURSUANT TO SECTION 2.4(d), NO INFORMATION OR
MATERIAL PROVIDED BY, OR COMMUNICATION MADE BY, SELLER OR ANY REPRESENTATIVE OF
SELLER WILL CONSTITUTE, CREATE OR OTHERWISE CAUSE TO EXIST ANY REPRESENTATION
OR WARRANTY WHATSOEVER, WHETHER OR NOT EXPRESSLY DISCLAIMED BY THE FOREGOING.


Section
4.4      Absence of Changes.  Except as otherwise disclosed in Schedule
4.4 or the other Disclosure Schedules hereto, or as contemplated by this
Agreement, since December 31, 2006, (a) the Business has been conducted in all
material respects in the ordinary course consistent with past practice, (b)
neither of the Companies has taken any of the Enumerated Actions, and (c) there
has been no change, event, or loss affecting the Business that has had, or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Companies taken as a whole.



 17
 









Section
4.5      Property.


(a)           The Companies hold and possess the Real Property and the
Real Property Agreements that are used by them to conduct, or are reasonably
necessary to conduct, the Business, as presently operated, free and clear of
all Liens, except (i) Liens described in Section 1 of Schedule
4.5; (ii) Liens disclosed in the Financial Statements; (iii) Liens for
taxes, assessments and other governmental charges not yet due and payable or,
if due, not delinquent or being contested in good faith by appropriate
proceedings (and as to which adequate reserves have been set aside in
accordance with GAAP); (iv) mechanics’, workmen’s, repairmen’s, warehousemen’s,
carriers’ or other like Liens arising or incurred in the ordinary course of
business, but only to the extent the underlying obligations are not more than
sixty (60) days past due or are being contested in good faith; (v) with respect
to personal property liens or title retention arrangements arising under
original purchase price conditional sales contracts and equipment leases with
third parties entered into in the ordinary course of business; (vi) the matters
identified in the Title Reports, (vii) Liens, easements, licenses, covenants,
rights-of-way and other conditions and restrictions (A) recorded in the
applicable real property records of Sacramento, San Joaquin and/or Solano
Counties, California, (B) that may reasonably be shown or identified by survey
or physical inspection (whether or not made) of the Real Property or the
property described in the Real Property Agreements, and (C) set forth in
applicable zoning, building and other similar regulations, so long as no such
matter identified in clauses (A), (B) or (C) prevents or materially hinders or
interferes with the use of such property substantially as currently used for
the purposes of the Business; (viii) Liens, if any, created or existing
pursuant to the Disclosed Contracts, (ix) Liens, if any, created or existing
pursuant to Real Property Agreements, (x) Liens, if any, created or existing
pursuant to the matters and agreements listed in Schedules 3.4 and 4.8,
(xi) prior to the Closing, Liens, if any, created or existing pursuant to the
matters and agreements listed in Schedule 3.3, (xii) at and following
the Closing, Liens, if any, created or existing pursuant to the matters and
agreements listed in Schedule 3.3(1) and (2) and Liens in respect
of Remaining Indebtedness to the extent Buyer receives Payoff Letters in
respect thereof prior to the Closing, and (xiii) such defects, burdens,
encumbrances, imperfections or irregularities of title, if any, as are not
substantial in character, amount or extent and do not, individually or in the
aggregate, materially impair the conduct of normal operations of the Business
as currently conducted (the matters described in clauses (i) through (xiii)
above are collectively referred to herein as the “Permitted Liens”).


(b)           Section 2 of Schedule 4.5 sets forth a
complete and correct list of all material real property owned by the Companies
(the “Real Property”).  Except as
set forth in Section 2 of Schedule 4.5, Seller has not received,
and to the Knowledge of Seller, neither Company has received, any written
notice that either the whole or any material portion of the Real Property is to
be condemned, requisitioned or otherwise taken by any public authority.


(c)           Section 3 of Schedule 4.5 sets forth a
complete and correct list of all gas storage agreements and leases, waivers of
mineral owners, mineral deeds, leases, and all material (x) easements and waivers
of surface and/or subsurface interests, (y) pipeline easements and
rights-of-way, (z) access agreements, and all similar material agreements used
by the Companies in the conduct of the Business, as it is presently conducted
(the “Real Property Agreements”). 
Except as set forth in Section 3 of Schedule 4.5:  (i) each Real Property Agreement is a valid,
binding and enforceable obligation of the parties thereto and is in full force
and effect according 



 18
 









to its terms, except where such failure would
not, individually or in the aggregate, have a Material Adverse Effect on the
Companies taken as a whole; (ii) the Companies are not in default or breach
under any Real Property Agreement and, to the Knowledge of Seller, no other
party thereto is in default or breach under any Real Property Agreement, except
in each case for such defaults or breaches that would not, individually or in
the aggregate, have a Material Adverse Effect on the Companies taken as a
whole; (iii) there are no claims affecting any such Real Property Agreement of
which Seller has received written notice that would have a Material Adverse
Effect on the Companies as a whole, and no party has given written notice to a
Company of such party’s intent to terminate any Real Property Agreement; (iv)
to the Knowledge of Seller, no event has occurred which with or without the
giving of notice or lapse of time, or both, may conflict in any respect with or
result in a violation or breach of, or give any Person the right to exercise
any remedy under or accelerate the maturity or performance of, or cancel,
terminate or modify, any Real Property Agreement, except in each case as would
not, individually or in the aggregate, have a Material Adverse Effect on the
Companies taken as a whole; and (v) except as set forth in Schedule 3.3
hereto, no Real Property Agreement requires any material Third-Party Approval
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.  Neither Company is currently participating in any discussions or
negotiations regarding termination of any Real Property Agreement affecting a
property at which the Companies conduct Business operations prior to the
scheduled expiration of such Real Property Agreement.


(d)           Each Company has good title, free and clear of all Liens
except for Permitted Liens, to all material personal property that such Company
purports to own, including all personal property reflected as owned on the Most
Recent Balance Sheet (other than personal property sold, disposed of or
replaced in the ordinary course of business since the date thereof).  To the Knowledge of Seller, each Company has
a valid leasehold interest in all personal property that such Company purports
to lease, and all such leases are in full force and effect and constitute valid
and binding obligations of and are enforceable against, the lessors thereto,
except where any such failure to be in full force and effect, to constitute a
valid and binding obligation, or to be enforceable against the lessor thereto
would not be material to the Companies taken as a whole.  To the Knowledge of the Seller, neither
Company is in breach of any of the terms of any such lease except where any
such breach would not be material to the Companies taken as a whole.


(e)           This Section 4.5 contains the sole and exclusive
representations and warranties of Seller relating to Real Property.


Section
4.6      Contracts.


(a)           To the Knowledge of
Seller and except as otherwise disclosed in Schedule 4.6 or as
entered into after the date hereof in accordance with the provisions of Section 6.1,
there are no outstanding commitments, contracts and agreements (other than
agreements relating to Real Property Agreements) to which the Companies are
parties or by which they are bound that: (i) involve commitments by the
Companies for terms of twelve (12) months or longer that involve annualized
payments of more than Two Hundred Fifty Thousand Dollars ($250,000), (ii)
involve payment of more than Five Hundred Thousand Dollars ($500,000) in the
aggregate (and in the case of the foregoing clauses (i) and (ii), are not
terminable by their terms, without penalty, on thirty (30) days or less
notice), (iii) contain a 



 19
 









covenant not to compete restricting the
Companies from competing or engaging in any line of business; (iv) under which
the Companies have (A) created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) any Indebtedness, (B) granted a Lien (other than a
Permitted Lien) on their assets, whether tangible or intangible, to secure such
Indebtedness, or agreed to any restriction or limitation on distributions,
dividends or return on equity, or extended credit to any Person in an amount,
individually or in the aggregate, in excess of Two Hundred Fifty Thousand Dollars
($250,000) of committed credit (excluding trade receivables in the ordinary
course of business) or (C) any indemnity, any guaranty of performance or any
agreement to provide credit support or otherwise make capital contributions,
loans or advances; (v) any current contract to which either Company is a party
for the purchase or sale of any business, corporation, partnership, joint
venture or other business organization; (vi) involve hedges, swaps, fixed
priced commitments or other derivatives that would be an obligation of either
Company after Closing; (vii) are Real Property Agreements; or (viii) any
amendment, supplement, restatement, or other modification relating to any of
the foregoing.  Contracts identified in Schedule
4.6 are hereafter referred to as the “Disclosed Contracts”.


(b)           To the Knowledge of Seller, except as described in Schedule 4.6,
each Disclosed Contract is valid and in full force and effect and is
enforceable against the subject Company according to its terms, neither the
Companies nor any other Person is in default or breach under any such Disclosed
Contract, and there are no claims or basis for any claims affecting the same of
which Seller has Knowledge, except where such failure to be valid, in full
force and effect, or enforceable or such default, breach or claim would not,
individually or in the aggregate, have a Material Adverse Effect on the
Companies taken as a whole.


(c)           To the Knowledge of Seller, neither of the Companies has,
other than in a manner consistent with normal billing cycles, (i) received any
quantity of natural gas under any Disclosed Contract for which payment will be
due in the future, or (ii) received any prepayment or advance payment that will
obligate either Company to perform services or provide natural gas or other
products after the Closing Date without receiving payment therefor, except in
the ordinary course of business consistent with past practice.


Section
4.7      No Undisclosed Liabilities.  Except as set forth in Schedule 4.7 or as would not reasonably
be expected to have a Material Adverse Effect on the Companies taken as a
whole, the Companies do not have any liability or obligation of any nature
(whether or not absolute, accrued, fixed, contingent or otherwise) that would
be required to be reflected in, reserved against or otherwise described on a
consolidated balance sheet of the Companies or in the notes thereto in
accordance with GAAP, except:  (x) those
set forth or reflected in the Financial Statements, (y) those arising under
agreements or other commitments described or identified in the Schedules to
this Agreement or (z) those incurred since the Most Recent Balance Sheet in the
ordinary course of business.


Section
4.8      Litigation.  Except as set forth in Schedule 4.8,
to the Knowledge of Seller, there are no material adverse Orders against either
Company and there are no material adverse Actions before any Governmental
Entity that are pending or threatened in law or in equity against either
Company by any Person not a Governmental Entity.



 20
 









Section
4.9      Compliance with Laws.  Except as disclosed in Schedule 4.9
and except for those failures to have, to be in full force and effect, to file,
retain and maintain and to comply, in each case, that would not have,
individually or in the aggregate, a Material Adverse Effect on the Companies
taken as a whole, (a) the Companies have all Permits issuable by Governmental
Entities and required thereby for the operation of the Business as presently
conducted, (b) all such Permits are in full force and effect and no action,
claim or proceeding is pending, nor to Seller’s Knowledge threatened, to
suspend, revoke, or terminate any such Permit or declare any such Permit
invalid; (c) the Companies have filed all necessary reports and maintained and
retained all necessary records pertaining to such Permits in all material
respects, and (d) the Companies have otherwise complied with all of the Laws
and Orders applicable to their existence, financial condition, operations, and
business.  Seller is not making any
representation or warranty in this Section 4.9 with respect to any
Taxes, employee benefit matters or any environmental matters with respect to
the Companies or the Business, it being agreed that such matters are
exclusively addressed in Section 4.11, Section 4.12 and Section
4.13, respectively.


Section
4.10      Intellectual Property.  Except as set forth on Schedule 4.10,
neither Company owns, licenses or utilizes any material registered patents,
trademarks, trade names, service marks, copyrights, proprietary software
(which, for purposes of clarity, does not include “off-the-shelf” software),
domain names on any applications therefor (collectively, “Intellectual
Property”), in connection with the Business.  To the Knowledge of Seller, neither Company
has any liability for the infringement of the Intellectual Property of any
third party.


Section
4.11      Tax Matters.  Except for the Pending Audit and as set forth
in Schedule 4.11 or as would not have a Material Adverse Effect on the
Companies taken as a whole:


(a)           the Companies have timely filed all material Tax Returns
relating to any federal, state, local and foreign income, franchise, gross
receipts, sales, use, property, real estate, and any other similar taxes,
together with all interest, penalties and additions imposed with respect to
such amounts (collectively, “Taxes”) required to be filed on or prior to
the Closing Date, and all Taxes due and payable by or with respect to the
Companies have
been timely paid (whether or not shown as due on such Tax Returns);


(b)           no audit, written inquiry or other proceeding by any
Taxing Authority is pending with respect to any Taxes due by or with respect to
the Companies.  No written assessment of
tax is proposed against the Companies for any period ending prior to the
Closing Date other than those assessments that are being contested in good
faith and are set forth in Schedule 4.11;


(c)           Neither Company has requested an extension of time to file
any Tax Return;


(d)           Neither Company is a party to any tax sharing or similar
agreement;


(e)           Neither Company has extended or waived any statute of
limitations regarding the assessment or collection of any Tax;


(f)            Seller is, and has
been since its date of inception treated as, a partnership for federal income
tax purposes pursuant to Section 7701 of the Code and any corresponding



 21
 









provision of state or local Law that permits
such treatment.  Each Company is, and has
since its respective date of inception been treated as, a disregarded entity
pursuant to Section 7701 of the Code and corresponding provisions of state or
local Law that permit such treatment;


(g)           Neither Company has entered into any transaction that is
either a “listed transaction” or that Seller believes in good faith is a “reportable
transaction” (both as defined in Treas. Reg. § 1.6011-4 as modified by annually
issued revenue procedures and other IRS guidance); and


(h)           Seller is neither a “foreign person” nor a disregarded
entity within the meaning of Section 1445 of the Code and the regulations
promulgated thereunder.


Section
4.12      Employee Benefit Plans.


(a)           Section 1 of Schedule 4.12 contains a
complete list of each Employee Benefit Plan. 
Except for liabilities set forth in Section 2 of Schedule 4.12,
neither Company has or has ever had since its formation any material liability,
contingent or otherwise, with respect to any Employee Benefit Plan, and neither
Company has or has ever had since its formation any commitment or obligation to
establish any Employee Benefit Plan.


(b)           Except as set forth in Section 3 of Schedule
4.12, true, correct, and complete copies of all material documents with
respect to each Employee Benefit Plan have been made available to Buyer.


(c)           Except as set forth in Section 4 of Schedule
4.12, each Employee Benefit Plan (and each related trust, insurance
contract or funding arrangement) has been maintained and operated in all
material respects in accordance with its terms and complies in all material
respects in form and operation with the applicable requirements of ERISA, the
Code and other applicable Laws, including, but not limited to, all reporting,
disclosure, funding and fiduciary requirements, and no condition exists with
respect to any Employee Benefit Plan that has resulted or would result in a
material liability to Buyer or any Lien upon the assets of either Company.


(d)           Except as set forth in Section 5 of Schedule
4.12, neither Company nor any ERISA Affiliate sponsors, maintains or
contributes to, or has ever sponsored, maintained or contributed to, or had any
material liability with respect to, any Employee Benefit Plan subject to
Section 302 of ERISA, section 412 of the Code or Title IV of ERISA.  Except as set forth in Section 5 of Schedule
4.12, none of the Employee Benefit Plans is a multiemployer plan (as
defined in Section 3(37) of ERISA). 
Except as set forth in Section 5 of Schedule 4.12, neither
Company nor any ERISA Affiliate contributes to, and has never contributed to or
had any other material liability with respect to, a multiemployer plan.


(e)           Except as set forth in Section 6 of Schedule
4.12, neither Company has or has ever had any employees, and neither
Company has any material liability, contingent or otherwise, with respect to
any employee of an ERISA Affiliate.


Section 4.13      Environmental
Matters.  Since April 1, 2003, and to
the Knowledge of Seller for the time prior to April 1, 2003, except as set
forth in Schedule 4.13 or as would not 



 22
 









have, individually or in the aggregate, a Material
Adverse Effect on the Companies taken as a whole:


(i)            Neither Company is in violation of any applicable
statute, judgment, order, license, rule or regulation pertaining to
environmental protection, including without limitation those arising under the
Resource Conservation and Recovery Act (“RCRA”), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended (“CERCLA”),
the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the
Federal Water Pollution Control Act, the Solid Waste Disposal Act, as amended,
the Federal Clean Air Act, the Toxic Substances Control Act, the Occupational
Safety and Health Act, the Emergency Planning and Community Right to Know Act
of 1986, the Safe Drinking Water Act, the Hazardous Materials Transportation
Act or any applicable similar Law of any other Governmental Entity of similar
import, and all amendments or regulations promulgated thereunder (hereinafter “Environmental
Laws”);


(ii)           Neither Company has received written notice from any third
party, including without limitation any federal, state, municipal or local
authority or regulatory body or other Governmental Entity, (A) that it has been
identified by the United States Environmental Protection Agency (“EPA”)
as a potentially responsible party under CERCLA with respect to a site listed
on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (B) that
any hazardous waste, as defined by 42 U.S.C. §6903(5), any hazardous substance
as defined by 42 U.S.C. §9601(14), any pollutant or contaminant as defined by
42 U.S.C. §9601(33) or any other toxic substance, oil or hazardous material
(including friable asbestos, urea formaldehyde insulation or polychlorinated
biphenyls) in each case regulated by any Environmental Laws (“Hazardous
Substances”) which such Company generated, transported or disposed of has
been found at any site at which a federal, state or local agency or other third
party has conducted an investigation and in respect of which Hazardous
Substances such Company may have a remediation liability or obligation pursuant
to any Environmental Law; or (C) that is or shall be a named party to any
Action under Environmental Laws arising out of any release (as that term is
defined in 42 U.S.C. §9601(22), hereinafter, “Release”) of Hazardous
Substances, and, to Seller’s Knowledge, there are no facts or circumstances
which could be expected to form the basis for a claim of any of the foregoing
against either Company; and


(iii)          Neither Company has released Hazardous Substances into the
environment in violation of any Environmental Laws, or in a manner that would
reasonably be expected to result in liability to such Company under any
Environmental Law, at any real property presently owned, leased or operated by
either Company; to the Knowledge of Seller, no Hazardous Substances are present
in, on, about or migrating to or from any such real property that would be
expected to give rise to an Action against either Company.


This Section 4.13 contains the sole and
exclusive representations and warranties of Seller relating to Environmental
Laws and Hazardous Substances.


Section 4.14      Insurance.  Schedule 4.14 sets forth a list of all
of the policies of insurance carried by the Companies that directly insure the
operation of the Business on or prior to the Closing Date (collectively, the “Lodi
Policies”).  All premiums due and
payable under the Lodi Policies have been paid in a timely manner.  No notice of cancellation or non-renewal of
any 



 23
 









Lodi Policy has been received by either Company and
there is no claim under any such policy as to which coverage has been denied or
disputed by the underwriters or issuers thereof.


Section
4.15      Affiliate Transactions.  Except for the matters disclosed in Schedule
4.15 (none of which will survive the Closing) or as specifically described
in or required by this Agreement, neither Seller, nor any of the members,
managers, partners, directors, officers and other Affiliates of the Companies
nor, if any such Persons are individuals, any of their family members, is a
party to any agreement, contract, commitment or transaction with a Company or
has any interest in any property used in the Business, other than agreements,
contracts, commitments or transactions involving employment, each of which have
been previously made available to Buyer, and salaries, expense reimbursement and
employee benefits in respect of employment in the ordinary course of business.


Section
4.16      Finders; Brokers.  There are, and after Closing there will be,
no claims (or any basis for any claims) upon either Company for brokerage
commissions, finder’s fees or like payments in connection with this Agreement
or the transactions contemplated hereby resulting from any action taken by
Seller or by either Company or any other Person on behalf of Seller or either
Company.


Section
4.17      No Other Representations or
Warranties.  Buyer and Seller
covenant and agree that:


(a)           EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN
ARTICLE III AND THIS ARTICLE IV, SELLER HAS NOT MADE ANY OTHER
REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, AT LAW OR IN EQUITY,
CONCERNING THE COMPANIES, THE BUSINESS OR ANY OTHER MATTER, INCLUDING BUT NOT
LIMITED TO THE PROBABLE SUCCESS OR PROFITABILITY OF THE OWNERSHIP OF THE LLC
INTERESTS OR THE OWNERSHIP, USE OR OPERATION BY BUYER AFTER THE CLOSING OF THE
BUSINESS OR ANY OF THE ASSETS OF THE COMPANIES, OR ANY LIABILITIES OF THE
COMPANIES AS OF THE CLOSING, INCLUDING, WITHOUT LIMITATION, REPRESENTATIONS AND
WARRANTIES CONCERNING THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE
OF ANY ASSET, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED.


(b)           BUYER ACKNOWLEDGES AND AGREES THAT SELLER IS MAKING NO
REPRESENTATIONS OR WARRANTIES AS TO THE CONDITION OR INTEGRITY OF THE NATURAL
GAS RESERVOIRS, WELLS, PIPELINES, EQUIPMENT OR OTHER ASSETS OF THE COMPANIES,
AND ALL OF THE ASSETS OF THE COMPANIES (INCLUDING REAL AND PERSONAL PROPERTY)
ARE BEING PURCHASED BY BUYER, INDIRECTLY THROUGH THE PURCHASE OF THE LLC
INTERESTS, ON AN “AS IS, WHERE IS” AND “WITH ALL FAULTS” BASIS.


Section 4.18      CONTRARY
KNOWLEDGE OF BUYER.  BUYER AND SELLER
COVENANT AND AGREE THAT, TO THE EXTENT BUYER HAS ACTUAL KNOWLEDGE AS OF THE
DATE OF THIS AGREEMENT OF ANY FACT OR FACTS CONTRARY TO ANY OF THE
REPRESENTATIONS MADE BY SELLER IN THIS ,



 24















ARTICLE IV,
NO SUCH REPRESENTATION OR WARRANTY BY SELLER WILL BE DEEMED TO HAVE BEEN UNTRUE
OR NOT CORRECT UNDER SECTION 7.3(A) OF THIS AGREEMENT BECAUSE OF SUCH
CONTRARY FACT OR FACTS.


ARTICLE V

REPRESENTATIONS OF BUYER


Buyer represents
and warrants that:


Section 5.1      Due
Organization and Power of Buyer. 
Buyer is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requisite limited
liability company power and authority to own, lease and operate its assets and
to carry on its business as the same is now being conducted.  Buyer is duly authorized, qualified or
licensed to do business as a foreign limited liability company and in good
standing in every jurisdiction wherein, by reason of the nature of the
Business, the failure to be so qualified would have a Buyer Material Adverse
Effect.


Section 5.2      Authorization
and Validity of Agreement; Non-Contravention.  This Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
limited liability company action on the part of Buyer, and Buyer has full power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder.  This Agreement
has been duly executed and delivered by Buyer and constitutes a valid and
legally binding obligation of Buyer, enforceable against Buyer in accordance
with its terms except as enforceability may be limited by bankruptcy,
insolvency or other similar Laws affecting the enforcement of creditors’ rights
generally and subject to general principles of equity.  The execution and delivery by Buyer of this
Agreement does not, and the consummation by Buyer of the transactions
contemplated hereby and the performance of its obligations hereunder, will not,
(a) violate or conflict with any provision of the certificate of formation or
limited liability company agreement of Buyer or (b) assuming the receipt of the
approvals and the issuance of all Permits set forth in Schedule 5.3, and
except as set forth in Schedule 5.2, (i) violate any Law or Order to
which Buyer is subject or (ii) result in any breach or creation of any Lien or
constitute a default under any contract, indenture, mortgage, lease, note or
other agreement or instrument to which Buyer is subject or is a party, except,
in the case of clause (b), for any such violation, conflict, breach, default or
creation of any Lien (A) which would not impair materially the ability of Buyer
to perform its obligations under this Agreement or to consummate the
transactions contemplated hereby or (B) that has been waived, cured or
consented to on or prior to the Closing Date.


Section 5.3      Governmental
Approvals; Consents and Actions.  No
Action or Order is pending or, to the Knowledge of Buyer, threatened against
Buyer which would have, individually or in the aggregate, a Buyer Material
Adverse Effect.  Except as set forth in Schedule
5.3 and except for the requirements of the California Act and the
Hart-Scott Act, no Permit from or of any Governmental Entity or any third
party, is required on the part of Buyer in connection with the execution and
delivery of this Agreement, or the consummation of the transactions
contemplated hereby and thereby, except for such Permits which have been (or
prior to Closing will be) obtained. 
Buyer is qualified to obtain those consents set forth in Schedule 5.3.  There are no conditions in existence which
could reasonably be expected to delay, impede, 



 25
 









restrict or
prevent the receipt by Buyer of the consents set forth in Schedule 5.3
or any consent, approval, authorization or order of any Governmental Entity in
connection with the transactions contemplated by this Agreement, including
under the Hart-Scott Act and the California Act.


Section 5.4      Litigation.  Except as set forth in Schedule 5.4,
there are no (a) Orders against or affecting Buyer or its Affiliates or (b)
Actions pending or, to the Knowledge of Buyer, threatened against or affecting
Buyer or its Affiliates (i) challenging or seeking to restrain, delay or
prohibit any of the transactions contemplated by this Agreement or (ii)
preventing Buyer from performing in all material respects its obligations under
this Agreement.  To the Knowledge of
Buyer, no event has occurred that could reasonably be expected to result in any
such Order or Action.


Section 5.5      Independent
Decision.  Buyer (a) has knowledge
and experience in financial and business matters, (b) has the capability of
evaluating the merits and risks of investing in the Business, (c) can bear the
economic risk of an investment in the LLC Interests and (d) is not in a
disparate bargaining position with Seller. 
Buyer acknowledges that, to its Knowledge, it and its representatives
have been permitted such access to the books and records, facilities,
equipment, tax returns, contracts, insurance policies (or summaries thereof)
and other properties and assets of the Business that it and its representatives
have desired or requested to see and/or review, and that it and its
representatives have had such opportunity to meet with the officers of the
Companies and the employees of Lodi Management involved in the conduct of the
Business to discuss the businesses and assets of the Business as Buyer has
deemed necessary.  Buyer acknowledges
that none of Seller, its Subsidiaries, Lodi Management nor any other Person has
made any representations or warranties, expressed or implied, as to the
accuracy or completeness of any information regarding the Business or the
Companies that has been furnished or made available to Buyer and its
representatives, except as expressly set forth in this Agreement or in the
schedules and exhibits hereto and certificates delivered in connection
herewith, and none of Seller, the Companies, Lodi Management, their respective
representatives or any other Person shall have or be subject to any liability
(other than pursuant to the express terms of this Agreement, or for fraud) to
Buyer or any other Person resulting from the distribution to Buyer, or Buyer’s
use, of any such information with respect to the Business or the Companies and
any information, documents or material made available to Buyer in management
presentations or in any other form in expectation of the transactions
contemplated by this Agreement.


Section 5.6      Purchase
for Investment.  Buyer acknowledges
that the LLC Interests are not registered under the Securities Act of 1933, as
amended (the “Securities Act”), or under any state or foreign securities
Laws.  Buyer represents that it is not an
underwriter, as such term is defined under the Securities Act, and is
purchasing the LLC Interests solely for investment, with no intention to
distribute any of the LLC Interests to any Person, and Buyer will not sell or
otherwise dispose of the LLC Interests except in compliance with the
registration requirements or exemption provisions under the Securities Act and
the rules promulgated thereunder, and any other applicable securities Laws.


Section 5.7      Financial
Capacity; No Financing Condition. 
Buyer has available to it as of the date hereof (or has commitments
therefor) and will at Closing have funds sufficient to consummate the
transactions contemplated by this Agreement. 
Buyer acknowledges that its 



 26
 









obligations to
effect the transactions contemplated thereby are not subject to the
availability to Buyer or any other Person of financing.


Section 5.8      Finders;
Brokers.  Neither Buyer nor any of
its Affiliates is a party to any agreement with any finder or broker, or in any
way obligated to any finder or broker for any commissions, fees or expenses, in
connection with the origin, negotiation, execution or performance of this
Agreement.


Section 5.9      No
Knowledge of Seller’s Breach.  As of
the date of this Agreement, neither Buyer nor any of its Affiliates or
representatives has Knowledge of (a) any breach of any representation or
warranty by Seller in Article IV of this Agreement, or (b) any other
condition or circumstance that would excuse Buyer from its timely performance
of its obligations hereunder.


Section 5.10      No
Other Representations or Warranties. 
Except for the representations and warranties contained in this Article
V, neither Buyer nor any other Person makes any other representations or
warranties, whether express or implied, on behalf of Buyer.


ARTICLE VI

AGREEMENTS OF BUYER AND SELLER


Section 6.1      Operation
of the Business.  Until the Closing,
Seller shall use its reasonable efforts to cause the Companies to conduct the
Business and to operate and maintain their assets in the ordinary course
consistent with past practices, keep the books and records of the Companies in
accordance with past practices, maintain all of their existing insurance
coverage, maintain good working relationships with their customers and
suppliers and the employees of Lodi Management and pay all of their trade
payables and other obligations on a timely basis.  Seller will not, and shall cause the
Companies not to, without the prior written approval of Buyer (which approval
shall not be unreasonably withheld, delayed or conditioned) or as otherwise
contemplated by this Agreement or Schedule 6.1, take any of the
following actions with respect to the Companies (such actions set forth in subsections
(a) through (p) hereof being the “Enumerated Actions”):


(a)       amend their respective
certificates of formation or limited liability company agreements, or issue or
agree to issue any additional membership interests (or other equity interests)
of any class or series, or any securities convertible into or exchangeable or
exercisable for membership interests (or other equity interests), or issue any
options, warrants or other rights to acquire any membership interests (or other
equity interests);


(b)       sell, transfer or
otherwise dispose of or encumber any of the assets of the Business other than
in the ordinary course of business;


(c)       cancel any debts or
waive any material claims or rights pertaining to the Business;


(d)       incur, assume or
guarantee any Indebtedness, or issue any notes, bonds, debentures or other
similar securities, or grant any option, warrant or right to purchase any of
the 



 27
 









same, or issue any security convertible or
exchangeable or exercisable for debt securities of the Companies;


(e)       except as deemed
necessary by Seller in connection with resolution of the matters raised in the
Pending Audit but only to the extent such resolution does not involve a change
in the tax classification of the Companies and Seller referenced in Section
4.11(f), make or change any material Tax elections (except as required by
Law), adopt or change any accounting method with respect to Taxes except as may
be required as a result of a change in Law, file any amendment to a Tax Return,
enter into any closing agreement with respect to Taxes, settle any material
claim or assessment with respect to Taxes, consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect to
Taxes, or settle or compromise any material Tax liability;


(f)        enter into any
employment agreement or severance agreement or any other compensation arrangement
binding on the Companies or that would be binding on Buyer pursuant to Section
6.6;


(g)       except as may be
required as a result of a change in Law or in GAAP, change any of the
accounting principles or practices used by the Companies;


(h)       except for those
activities and expenditures contemplated by Schedule 6.1, make any
capital expenditure or make any commitment to make any capital expenditure in
excess of $250,000, other than (i) pursuant to existing commitments set forth
in the Disclosed Contracts or business plans described in Schedule 6.1,
(ii) to repair, maintain or replace any assets, properties or facilities in the
ordinary course of business, or (iii) as may be necessary to maintain or
restore safe operations of the Business or respond to any catastrophe or other
emergency situation;


(i)        adopt a plan of
complete or partial liquidation, dissolution, restructuring, recapitalization
or other restructuring;


(j)        except as contemplated
by the Note Purchase Agreement or the Loan Agreement, pledge or mortgage the
assets of the Companies or otherwise cause or permit a Lien (other than a
Permitted Lien) to exist against the assets of the Companies;


(k)       effect any split,
combination or reclassification of the LLC Interests;


(l)        redeem, repurchase or
otherwise acquire, directly or indirectly, any of the LLC Interests;


(m)      allow or cause either Company to acquire
(by purchase, merger or otherwise) any equity interest in, or otherwise make
any investment in, any other Person, or enter into any joint venture, partnership
or similar arrangement;


(n)       knowingly allow any material Permit held
by the Companies to terminate or lapse;



 28
 









(o)       enter into any agreement or amend, modify
or terminate any Disclosed Contract or Permit to which either Company is a
party or by which any of their assets are bound, except that the Companies may
(i) enter into agreements for the conduct of the Business or the maintenance of
the Companies’ assets in the ordinary course of business consistent with past
practices and (ii) enter into or amend Firm Storage Service Agreements and
Interruptible Storage Service Agreements consistent with past practices and in
accordance with Lodi Gas’ tariffs on file with the CPUC; or


(p)       agree, whether in writing or otherwise,
to do any of the foregoing;


provided,
however, that nothing in this Section 6.1 shall
preclude Seller or the Companies from obtaining the consent of any third party
required in connection with the transactions contemplated by this Agreement,
and provided, further, that the
Companies may prepare and submit to the CPUC and other Governmental Entities
applications for the issuance (or amendment) of Permits or other
authorizations, enter into contracts for, make capital expenditures in
connection with, and otherwise take any and all reasonable actions in
furtherance of the operation of the Business and the expansion of the Kirby
Hills gas storage facility in accordance with the expansion plan described in Schedule
6.1 (the “Expansion”) and the expansion budget attached as Exhibit C
hereto.  Seller shall cause the Companies
not to spend less than 90%, or in excess of 110%, of the amount budgeted on a
monthly basis after the date of this Agreement as set forth in such attached
budget, without the prior written consent of Buyer, which consent shall not be
unreasonably withheld.


Prior to the
Closing, Seller shall, and shall use its reasonable efforts to cause the
Companies and Lodi Management to, make their representatives and/or employees
who are actively engaged in the conduct of the Business available to Buyer (and
its representatives) on a reasonable basis to confer and discuss with respect
to (i) the operation of the Business and the status of the assets of the
Companies and the status of the Expansion (including accompanying Buyer’s
representatives on site visits of the Expansion if reasonably requested), (ii)
the legal, operational and other actions required or reasonably necessary for
the consummation of the transactions contemplated by this Agreement, (iii) the
smooth and orderly transition of the Business to Buyer and (iv) the status of
Seller’s compliance with this Section 6.1.  After the date of this Agreement and prior to
the Closing, Seller shall, and shall cause the Companies to, keep Buyer
reasonably apprised of the regulatory and operational status of the Expansion.


Prior to the
Closing, Seller shall cause Lodi Gas to manage the operation of its
Interruptible Storage Services business in accordance with the risk limits
established by the Member Committee of Seller and described in Exhibit D
hereto.  Additionally, prior to the
Closing and for informational purposes only, Seller shall give notice (which
may be made by email or other electronic submission) to Buyer (or to a
representative of Buyer) immediately, on a daily basis, if the Interruptible
Storage Services business’ “value at risk” measurement exceeds Five Million
Five Hundred Thousand Dollars ($5,500,000) (as measured and determined
consistent with past practice of Lodi Gas).


Prior to the
Closing, Seller shall cause the Companies to maintain the levels of pad gas in
the Companies’ gas storage facilities consistent with historic levels and any
levels required by Laws or Orders of any Governmental Entity.



 29
 









Prior to the
Closing, Seller shall prepare and deliver to Buyer consolidated financial
statements of Seller and its Subsidiaries for each and as of the end of each
fiscal quarter of Seller that ends prior to the 45th day prior to the Closing
Date.  Upon delivery to Buyer, such
financial statements shall be deemed “Financial Statements” for all purposes
under this Agreement.


Section 6.2      Investigation
of Business; Confidentiality.  During
the period commencing on the date hereof and ending on the Closing Date, Seller
shall, and shall use its reasonable efforts to cause the Companies to, provide,
upon reasonable request and notice, Buyer and its authorized agents or
representatives reasonable access during normal business hours to the
properties, books and records of the Business for the purpose of reviewing
information and documentation relative to the properties, books and records of
the Business; provided that Buyer
shall not be entitled to perform any seismic tests or drilling or other “invasive”
tests (environmental or otherwise) without the prior written consent of Seller
(which may be withheld in its sole discretion). 
Notwithstanding anything to the contrary contained in this Section
6.2 or in any other provision of this Agreement, Seller shall not be
required to permit any inspection, to disclose any information, or to consent
to any communication with any Person if, in the reasonable judgment of Seller,
such action would (i) result in the disclosure of any trade secrets of third
parties to whom Seller or its Affiliates owe an obligation of confidentiality (provided that Seller shall use its
reasonable efforts to obtain the consent of such third parties to such
disclosure) or proprietary predictive models of Seller, (ii) violate any
obligation of Seller, the Companies or Lodi Management with respect to
confidentiality (provided that
Seller shall use its reasonable efforts to obtain the consent of any third
party to such inspection, disclosure or communication), or (iii) result in (as
determined by Seller’s legal counsel) the loss of a legal privilege or a
violation of the Hart-Scott Act or of any other applicable laws, rules or
regulations.  In addition, nothing in
this Agreement shall be construed to permit Buyer or any of its representatives
to have access to any files, records, contracts or documents of Seller or Lodi
Management relating to this transaction, including any bids or offers received
thereby for the sale of the LLC Interests, it being agreed that all such bids
or offers shall be the sole property of Seller. 
Buyer agrees to indemnify and hold harmless, release and defend Seller,
its members and their Affiliates from and against any and all losses arising,
in whole or in part, from the acts or omissions of Buyer or any of its
employees, agents or representatives in connection with Buyer’s or its
representatives’ inspection of the properties, books and records of the
Business, including claims for personal injuries, property damage and
reasonable attorneys’ fees and expenses, which indemnification obligation shall
survive the Closing and the termination of this Agreement.  Buyer and its representatives will hold in
confidence all information obtained from Seller, the Companies or Lodi
Management, or their respective officers, agents, representatives or employees
in accordance with the provisions of the confidentiality agreement dated April
11, 2007 (the “Confidentiality Agreement”) by and between ArcLight
Capital Partners, LLC and Buckeye Partners, L.P., the terms and provisions of
which shall survive the termination of this Agreement.


Section 6.3      Efforts;
Cooperation; No Inconsistent Action.


(a)       Subject to the terms and
conditions of this Agreement, each of the parties will use their reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable Laws to
consummate the transactions contemplated by this Agreement, including using
commercially reasonable efforts to 



 30
 









ensure satisfaction of the conditions
precedent to each party’s obligations hereunder.  Buyer and Seller shall timely and promptly
make all filings which may be required by any of them in connection with the
consummation of the transactions contemplated hereby under the Hart-Scott Act
and the California Act.  Each party shall
furnish to the other party such necessary information and assistance as such
other party may reasonably request in connection with the preparation of any
necessary filings or submissions by it to any Governmental Entity, including
any filings necessary under the provisions of the Hart-Scott Act and the
California Act.  Each party shall provide
the other party the opportunity to make copies of all correspondence, filings
or communications (or memoranda setting forth the substance thereof) between
such party and its representatives, and the Federal Trade Commission, the
Antitrust Division of the United States Department of Justice, the CPUC or any
other Governmental Entity and members of their respective staffs with respect
to this Agreement and the transactions contemplated hereby.  With the exception of payment of the required
filing fees and the parties’ costs and expenses necessary to prosecute such
filings, neither Seller nor Buyer shall be required to make any material
monetary expenditures, commence or participate in any material litigation, or
offer or grant any material accommodation (financial or otherwise) to any third
Person or Governmental Entity in connection therewith.


(b)       From time to time after
the Closing Date, without further consideration, Seller will, at its own
expense, execute and deliver such documents to Buyer as Buyer may reasonably
request in order to more effectively consummate the transactions contemplated
by this Agreement.  From time to time
after the Closing Date, without further consideration, Buyer will, at its own
expense, execute and deliver such documents as Seller may reasonably request in
order to more effectively consummate the transactions contemplated by this
Agreement.


(c)       Seller and Buyer shall
notify and keep the other advised as to any litigation or administrative
proceeding pending and known to such party, or to its Knowledge, threatened,
which challenges the transactions contemplated hereby.  Seller and Buyer shall act in good faith and
shall not take any action inconsistent with its obligations under this Agreement
or which would materially hinder or delay the consummation of the transactions
contemplated by this Agreement, or the prompt receipt of required consents or
approvals under the Hart-Scott Act, the California Act or other applicable
Laws.


(d)       After the Closing Date,
each party shall have reasonable access to the employees of the other party and
its Affiliates, for purposes of consultation or otherwise, to the extent that
such access may reasonably be required in connection with matters relating to
or affected by the operation of the Business prior to the Closing Date.  The parties agree to cooperate in connection
with any audit, investigation, hearing or inquiry by any Governmental Entity,
litigation or regulatory or other proceeding which may arise following the
Closing Date and which relates to the ownership of LLC Interests or the
operation of the Business, prior to the Closing Date.  Notwithstanding any other provision of this
Agreement to the contrary, each party shall bear its own expenses, including
fees of attorneys or other representatives, in connection with any such matter
described in this Section 6.3 in which Seller and Buyer are subjects or
parties or in which they have a material interest.


(e)       Notwithstanding anything
to the contrary in this Agreement, Seller and its Affiliates shall be entitled
to exclusively control, conduct and direct the prosecution or defense of 



 31
 









any of the matters set forth in Schedule
4.8 including the decision whether to settle (and amount therefore) and
whether to proceed to trial or arbitration and Buyer agrees to waive any
conflicts necessary to allow current counsel to continue to represent Seller
with respect to such matters.  After the
Closing, Buyer shall reasonably cooperate and shall cause the Companies to cooperate
in all respects with Seller and its Affiliates in the prosecution or defense of
all of the foregoing matters, including providing access to witnesses for
interviews, depositions or trial, documents and electronic information actually
or constructively under the control of Buyer or the Companies, providing a
corporate representative at trial or arbitration, and executing affidavits and
settlement agreements.  Seller shall
reimburse Buyer for all of its reasonable out-of-pocket costs and expenses in providing
such cooperation; provided that
Seller shall not be required to reimburse Buyer for the costs and expenses of
separate legal counsel in connection with Buyer’s providing such
cooperation.  In addition, Buyer
acknowledges and agrees that Seller retains the rights to any recovery
resulting from the matters listed in Schedule 4.8 and other matters
involving the Companies that Seller remains responsible for pursuant to the
provisions of Article IX or Article X of this
Agreement.


(f)        In no event shall Buyer
or Seller (and Seller shall cause the Companies not to) at any time take (or
permit any Affiliate of Buyer or Seller to take) any action that would
reasonably be expected to hinder or delay the grant by the CPUC of authority
for the construction and operation of the Kirby Hills Phase II natural gas
storage facility as requested in A.07-05-009, filed with the CPUC on May 8,
2007.  Notwithstanding the foregoing,
Seller and the Companies shall be permitted to take such commercially
reasonable actions as any of them deems appropriate in order to continue to
operate the Business as presently conducted. 
Nothing in this Agreement shall be construed as a covenant or obligation
in favor of Buyer, or as a condition precedent to Buyer’s obligation to
consummate the transaction at Closing, that Seller or the Companies must agree
to any terms or conditions of, or proposed by, the CPUC in connection with the
grant of authority for the construction and operation of the Kirby Hills Phase
II natural gas storage facility to the extent such terms or conditions are not
acceptable to Seller and the Companies in their sole discretion.  Notwithstanding any of the foregoing, in
connection with the grant of authority for the construction and operation of
the Kirby Hills Phase II natural gas storage facility as contemplated in the
filing on May 8, 2007 as referred to above, Buyer shall not be obligated to
consummate the Closing if, prior to Closing, the CPUC establishes in a final,
nonappealable order any terms or conditions that are materially different from
the terms and conditions set forth in such filing, and such terms or conditions
would require Buyer or the Companies to make any material monetary
expenditures, commence or participate in any material litigation, or offer or grant
any material accommodation (financial or otherwise) to any third Person or
Governmental Entity.  If, following the
Closing and in granting the authority for the construction and operation of the
Kirby Hills Phase II natural gas storage facility as contemplated in the filing
on May 8, 2007 as referred to above, the CPUC establishes in a final,
nonappealable order any terms or conditions that are materially different from
the terms and conditions set forth in the May 8, 2007 CPUC filing, and such
terms or conditions would require Buyer or the Companies to make any material
monetary expenditures, commence or participate in any material litigation, or
offer or grant any material accommodation (financial or otherwise) to any third
Person or Governmental Entity, Buyer shall not be obligated to pay the
Contingent Purchase Price as set forth in Section 2.1(c) hereof.  In the event that Buyer contends it is not
required to pay the Contingent Purchase Price pursuant to, and in accordance
with, this Section 6.3(f), then Buyer shall, within five (5) Business
Days after the date on which the CPUC issues 



 32
 









the order granting such authority, provide
written notice to Seller of Buyer’s election and the specific reasons
(including specific references to the order) why Buyer believes that it is not
required to pay the Contingent Purchase Price.


(g)       In the event that, as of
Closing, the Companies shall not have received an order from the CPUC granting
authority for the construction and operation of the Kirby Hills Phase II natural
gas storage facility, then Buyer shall, and shall also cause the Companies to,
use commercially reasonable efforts to secure such order from the CPUC as
contemplated by Section 2.1(c).


Section 6.4      Public
Disclosures.  Prior to the Closing
Date, no party to this Agreement or its representatives or Affiliates will
issue any press release or make any public disclosure concerning the
transactions contemplated by this Agreement without the prior written consent
of the other party.  After the Closing
Date, no party will issue any press release or make any public disclosure
concerning the transactions contemplated by this Agreement or the contents of
this Agreement without the prior written consent of the other party, which
shall not be unreasonably withheld, delayed or conditioned.  Notwithstanding the above, nothing in this
Section will preclude any party from making any disclosures that are required
by Law or the rules or regulations of any agency with jurisdiction over such
party (or the securities of any of its Affiliates) or are necessary and proper
in conjunction with the filing of any Tax Return or other document required to
be filed with any Governmental Entity; provided
that the party required to make such disclosure shall allow the other party
reasonable time to review and comment thereon in advance of such disclosure.


Section 6.5      Access
to Records and Personnel.


(a)       Buyer shall retain (or
use reasonable efforts to cause the Companies after Closing to retain) the
books, records, documents, instruments, accounts, correspondence, writings,
evidences of title and other papers (in each case, including electronic
versions thereof) relating to the Business or the Companies and the period
before Closing (the “Books and Records”) for the period of time set
forth in its records retention policies on the Closing Date or for such longer
period as may be required by Law or any applicable court order but in any event
for at least seven (7) years.  After the
seven-year period, before Buyer or the Companies shall dispose of any such
Books and Records, Buyer shall give at least forty-five (45) days’ prior
written notice to such effect to Seller, and Seller shall be given the
opportunity, at its expense, to remove and retain all or any part of such Books
and Records as Seller may elect. 
Notwithstanding the foregoing, Buyer shall retain (or cause the
Companies to retain) for such longer periods any and all material Books and
Records that relate to any ongoing litigation, investigation, Action or
proceeding until such time as Buyer is notified of the final conclusion of such
matter.


(b)       The parties will allow
each other reasonable access to such Books and Records, and to personnel having
knowledge of the whereabouts and/or contents of such Books and Records, for
legitimate business reasons, such as the preparation of Tax Returns or the
defense of litigation and responding to data requests from Governmental
Entities.  Each party shall be entitled
to recover its out-of-pocket costs (including copying costs) incurred in
providing such records and/or personnel to the other party.  The requesting party will hold in confidence 



 33
 









(except as required by applicable Law, and
then only after giving the disclosing party an opportunity to seek an
appropriate remedy) all confidential information identified as such by, and
obtained from, the disclosing party, any of its officers, agents,
representatives or employees, provided,
however, that information which (i) was in the public domain; (ii)
was in fact known to the requesting party prior to disclosure by the disclosing
party, its officers, agents, representatives or employees; or (iii) becomes
known to the requesting party from or through a third party not under an
obligation of non-disclosure to the disclosing party, shall not be deemed to be
confidential information.


Section 6.6      Employee
Matters.


(a)       Pre-Closing and
Post-Closing Compensation and Benefits. 
The parties acknowledge that prior to the date of this Agreement, Lodi
Management has furnished certain administrative, management, accounting and
operational services to Lodi Gas pursuant to the Management and Support
Services Agreement effective as of December 15, 2005, by and between Lodi
Management and Lodi Gas (the “Services Agreement”).  Seller shall use its reasonable efforts to
cause Lodi Management and Lodi Gas to perform their respective obligations
pursuant to the Services Agreement during the period following the execution of
this Agreement until the Closing Date, at which time the Services Agreement
shall be terminated.  As of the Closing
Date, Buyer shall, or shall cause Lodi Gas or one of Buyer’s Affiliates to,
either (i) offer to employ each of the Lodi Management employees listed in Schedule
6.6 (which Schedule  6.6 may be updated to reflect changes
therein since the date of this Agreement through the Closing Date that have
been made in the ordinary course of business; such listed employees being
together, the “Employees”), in each case with compensation not less than
such Employee’s annual base salary for 2007 as of the date of this Agreement
and with a reasonable opportunity to receive a comparable bonus for their
targeted 2007 bonus amount as of the date of this Agreement (except, in each
case, for any Employee who has started employment after the date of this
Agreement, and then such amounts shall be as of the date of such employment)
and otherwise on terms and conditions consistent with the provisions of this Section
6.6, or (ii) provide a severance benefit equal to such Employee’s annual
base salary.  Each Employee actually
employed by Buyer, or one of Buyer’s Affiliates or Lodi Gas shall be employed
for not less than the one (1) year period following the Closing Date (provided, however,
that Buyer may terminate the employment of any Employee for cause during such
period) and shall receive employee benefits (including health insurance) that
are substantially similar to those provided to the Employees as set forth in Schedule
6.6.  Following the execution of this
Agreement, Buyer may conduct discussions and negotiations with the Employees
with regard to the terms of their possible employment by Buyer, Lodi Gas or one
of Buyer’s Affiliates and shall notify each Employee of Buyer’s election
pursuant to this Section 6.6(a) within forty-five (45) days after
such date of execution of this Agreement, provided
that in no event shall Buyer or its Affiliates seek to influence, interfere
with, or otherwise affect such employees’ conduct or discharge of their
responsibilities and duties as employees of Lodi Management during their
continued employment by Lodi Management through the Closing.


(b)       Service Credit for
Employees.  In connection with the
employment of Employees pursuant to Section 6.6(a), Buyer shall cause
Lodi Gas or one of Buyer’s Affiliates that employs such Employees after the
Closing (as the case may be) to provide each Employee with full service credit
for all purposes, including eligibility, vesting and benefit accruals, under 



 34
 









all incentive, compensation and employee
benefit plans, policies, agreements and arrangements maintained by Lodi Gas or
such Buyer Affiliate in which such Employee participates on or after the
Closing Date to the same extent such Employee’s service was recognized under
the corresponding plans, policies, agreements and arrangements in which such
Employee participated immediately prior to the Closing Date.  Notwithstanding the foregoing, Employees
shall not be eligible to participate in employee benefit plans, policies,
agreements and arrangements maintained by Buyer for which no new employees of
Buyer are eligible, such as Buyer’s Employee Stock Ownership Plan, Retirement
Income Guarantee Plan, and Retiree Medical Plan.


(c)       Employee Health Plans.  In connection with the employment of
Employees pursuant to Section 6.6(a), Buyer shall, or shall use its
reasonable efforts to cause Lodi Gas or one of Buyer’s Affiliates (as the case
may be) to (i) waive all limitations as to preexisting conditions, evidence of
insurability, exclusions, waiting periods and actively-at-work requirements
with respect to participation and coverage requirements applicable to each
Employee under any employee health plans established by Buyer, Lodi Gas or one
of Buyer’s Affiliates pursuant to Section 6.6(a) in which such Employee
may be eligible to participate on or after the Closing Date, and (ii) provide
each Employee with credit for any co-payments, deductibles and out-of-pocket
expenses paid prior to the Closing Date in satisfying any applicable
co-payment, deductible and out-of-pocket expense requirements under such
employee health plans in which such Employee may be eligible to participate on
or after the Closing Date.  Buyer shall
offer, or shall cause Lodi Gas or Buyer’s Affiliate (as the case may be) to
offer, continuation health care coverage to Employees who accept employment
with Lodi Gas or Buyer’s Affiliate, as the case may be, after the Closing Date
and their qualified beneficiaries who incur or incurred a qualifying event, in
accordance with the continuation health care coverage requirements of Section 4980B
of the Code and Title I, Subtitle B, Part 6 of ERISA (“COBRA”), with
respect to claims incurred on or after the Closing Date.


(d)       The provisions of this Section
6.6 are for the benefit of the parties to this Agreement only and shall not
be construed to grant any rights, as a third party beneficiary or otherwise, to
any person who is not a party to this Agreement, nor shall any provision of
this Agreement be deemed to be the adoption of, or an amendment to, any
employee benefit plan sponsored or maintained by Buyer or any of its
Affiliates, or otherwise to limit the right of Buyer and its Affiliates to
amend, modify or terminate any of their employee benefit plans.


Section 6.7      Workforce
Reduction Notices.  Any workforce
reductions carried out on or after the Closing Date by Buyer, Lodi Gas or any
of Buyer’s Affiliates, as the case may be, shall be done in accordance with all
applicable laws and regulations governing the employment relationship and
termination thereof including, if applicable, the Worker Adjustment and
Retraining Notification Act (“WARN”) and regulations promulgated
thereunder, and any comparable state or local law.  Buyer shall not be responsible for any
obligations under WARN or equivalent state statutes and any applicable
regulations thereunder with respect to any employment terminations prior to the
Closing Date.


Section 6.8      Non-Solicitation.  Each of Seller and Buyer agrees that, except
to the extent otherwise provided in this Agreement, during the term of one year
after the date of this Agreement, it shall not directly or indirectly (a)
induce or attempt to induce any employee of the 



 35
 









other party or its
Affiliates (including the Companies to the extent applicable) to leave its
employ, induce or attempt to induce any consultant or independent contractor to
discontinue work with such other party or in any way interfere with the
relationship between such other party and any employee, consultant or
independent contractor, or (b) hire any person who was an employee, consultant
or independent contractor of such other party. 
Notwithstanding the foregoing, the limitations set forth herein shall
not prohibit the employment of, or other retention of the services of, any such
employee, consultant or independent contractor if such person initiates contact
without the hiring party’s encouragement, or prohibit the use of any general
newspaper solicitations not directed at such other party’s employees,
consultants or independent contractors.


Section 6.9      Amendments
of Disclosure Schedules.  Seller may,
from time to time, prior to the Closing, by written notice to Buyer, supplement
or amend its disclosure schedules to Articles III and IV
attached to this Agreement (“Disclosure Schedules”) to correct any
matter that would constitute a breach of any representation or warranty of
Seller herein contained if such supplement or amendment relates to a matter
that did not arise until after the date of this Agreement; provided, that, if Seller amends any
Disclosure Schedule within ten (10) Business Days of the anticipated Closing
Date, Buyer shall have the right to postpone the Closing Date until the date
which is ten (10) Business Days after Seller revises any such Disclosure
Schedule and provides Buyer with a copy thereof.  Any amendments or supplements shall not be
effective for determining whether Buyer’s conditions to Closing set forth in Section
7.3(a) have been satisfied.  If
immediately prior to the Closing, Buyer’s condition to Closing set forth in Section
7.3(a) is satisfied, then any such Disclosure Schedule amendments or
supplements shall not be effective to cure or correct any breach of any
representation or warranty that would have existed absent such amendment or
supplement for the purposes of Seller’s indemnification obligations under Section
9.2(a).  If immediately prior to the
Closing, Buyer’s condition to Closing set forth in Section 7.3(a) is not
satisfied, and the Closing occurs nonetheless, any such Disclosure Schedule
amendments or supplements will be effective to cure and correct any breach of
any representation or warranty that would have existed absent such amendment or
supplement, and Buyer shall have no right, and hereby waives any and all
rights, to bring any claim in respect thereof or relating thereto.


Section 6.10      Intercompany
Liabilities; Indebtedness; Release of Liens.


(a)       Prior to or on the
Closing Date, Seller shall, and shall cause the Companies to, settle, repay or
cancel all intercompany accounts that are unpaid as of the Closing Date between
the Companies, on the one hand, and Seller and its Affiliates (other than the
Companies), on the other hand.


(b)       Prior to or on the
Closing Date, Seller shall cause the Companies to extinguish all guarantees by
the Companies of any Indebtedness or other obligation of any third party,
including Seller or any of its Affiliates (other than the Companies).


(c)       Prior to or on the
Closing Date, Seller shall have caused to be released all Liens, except as
listed in Schedule 3.4, in and upon any of the property and assets of
the Companies, other than Permitted Liens. 
Buyer acknowledges and agrees that it will be 



 36
 









consummating the transactions contemplated by
this Agreement with the Development Agreement surviving Closing.


(d)       Buyer hereby
acknowledges and agrees that Seller and its Affiliates will be terminating as
of the Closing the Place in Funds Letter referenced in Schedule 4.15 and
that it is Buyer’s obligation and responsibility to replace or otherwise deal
with the obligations and commitments referenced in such Place in Funds Letter.


Section 6.11      Resignations.  At the Closing, Seller shall cause to be
delivered to Buyer duly signed resignations, effective immediately after
Closing, of the directors, officers and managers of Lodi Gas and Lodi
Development.


Section 6.12      Compliance
with Development Agreement.  Seller
shall comply with its obligations, if any, under Article III of that
certain Development Agreement, dated as of November 17, 2000 (the “Development
Agreement”), among Lodi Gas, Western Hub and Calpine Energy Services, L.P.
(“CES”), as successor by merger to CPN Gas Marketing Company (“CPN”),
as amended.  Buyer agrees that Seller’s
compliance with the obligations and requirements set forth in the Development
Agreement shall not be deemed a breach of any of the provisions of this
Agreement.  Seller shall promptly give
Buyer written notice of the exercise by any party to the Development Agreement
of the “right of first offer” set forth therein.


Section 6.13      Exclusivity.  Except with respect to this Agreement and the
transactions contemplated hereby, Seller agrees that it will not, and it will
cause the Companies and their respective managers, directors, officers,
employees, consultants, Affiliates and other agents and representatives
(including any investment banking, legal or accounting firm retained by Seller
or either Company or any of their Agents and any individual member or employee
of the foregoing) (each, an “Agent”) not to: (a) initiate, solicit or
seek, directly or indirectly, any inquiries or the making or implementation of
any proposal or offer with respect to a merger, acquisition, consolidation,
recapitalization, liquidation, dissolution, equity investment or similar
transaction involving, or any purchase of all or any substantial portion of the
assets or any equity securities of, Seller or either Company or any of their
respective Subsidiaries (any such proposal or offer being hereinafter referred
to as a “Proposal”); (b) engage in any negotiations concerning, or
provide any confidential information or data to, or have any substantive
discussions with, any person relating to a Proposal; (c) otherwise cooperate in
any effort or attempt to make, implement or accept a Proposal; or (d) enter
into a contract, arrangement or agreement with any Person relating to a
Proposal.  Seller shall notify Buyer
promptly if any substantive inquiries, proposals or offers related to a
Proposal are received by, any confidential information or data is requested
from, or any negotiations or discussions related to a Proposal are sought to be
initiated or continued with, Seller, either Company, any of their respective
Subsidiaries or any of their respective Agents. 
Notwithstanding the foregoing, Seller, the Companies and each of their Agents
may take such actions as any of them reasonably deem appropriate in connection
with the rights of CES under the Development Agreement in connection with the
transactions contemplated by this Agreement.


Section 6.14      D&O
Insurance and Indemnities.  Buyer
shall purchase a six-year extended reporting period endorsement (“reporting
tail coverage”) under the Companies’ existing directors’ and officers’
liability insurance coverage, provided
that such reporting tail 



 37
 









coverage shall
extend the director and officer liability coverage in force as of the date of
this Agreement from the Closing Date on terms, that in all material respects,
are no less favorable to the intended beneficiaries thereof than the existing
directors’ and officers’ liability insurance. 
Buyer shall maintain for a six-year period all director and officer
indemnities in the organizational documents of the Companies, and shall extend
such indemnities to the individuals serving as directors or officers of either
of the Companies immediately prior to the Closing, even though the individuals
serving in such capacities may no longer be directors or officers after the
Closing.


ARTICLE VII

CONDITIONS


Section 7.1      Conditions
Precedent to Obligations of Buyer and Seller.  The respective obligations of Buyer and
Seller to consummate the transactions contemplated by this Agreement on the
terms specified herein shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:


(a)       No Injunction, etc.  There shall have been no Law, injunction,
restraining order or decree of any nature by any Governmental Entity that is in
effect that restrains or prohibits the consummation of any of the transactions
contemplated by this Agreement; and no action or proceeding before any
Governmental Entity shall have been instituted or threatened which seeks to
prevent or delay the consummation of the transactions contemplated by this
Agreement or which challenges the enforceability of this Agreement; and


(b)       Regulatory
Authorizations.  All consents,
approvals, authorizations and orders of any Governmental Entity as are
necessary in connection with the transfer of the LLC Interests to Buyer,
including a final, nonappealable order of the CPUC approving the transfer of
the LLC Interests under the California Act and under decisions of the CPUC
relating to the gas storage facilities owned by Lodi Gas (the “Required
Consents”), shall have been obtained; provided
that for purposes of this Section 7.1(b) all applicable waiting periods
specified under the Hart-Scott Act with respect to the transactions
contemplated by this Agreement shall have lapsed or been terminated.


(c)       Certain Rights.  Any right of CES to exercise the purchase
right set forth in Article III of the Development Agreement with respect to the
proposed sale of the Lodi Gas LLC Interest associated with this Agreement shall
have terminated or been waived, or otherwise no longer be in effect.


Section 7.2      Conditions
Precedent to Obligation of Seller. 
The obligation of Seller to consummate the transactions provided for in
this Agreement on the terms specified herein is subject to fulfillment of each
of the following conditions:


(a)       Representations and
Warranties.  Buyer’s representations
and warranties made in this Agreement shall be true and correct in all material
respects on the Closing Date as though made on the Closing Date, except to the
extent such representations and warranties expressly relate to an earlier date
(in which case as of such earlier date) and except for such 



 38
 









breaches of representations and warranties
that, in the aggregate, would not have a Buyer Material Adverse Effect;


(b)       Performance of
Covenants.  Buyer shall have
performed and complied in all material respects with all obligations and
covenants required by this Agreement to be performed by it prior to or at the
Closing; and


(c)       Third-Party Approvals. 
Seller shall have obtained all Third-Party Approvals required for the
transfer of the LLC Interests in accordance with the terms of this Agreement.


(d)       Commitment
Replacement.  Buyer shall have replaced
or otherwise dealt with the obligations and commitments referenced in the Place
in Funds Letter such that neither ArcLight Energy Partners Fund I, L.P. nor
ArcLight Energy Partners Fund II, L.P. shall have any obligation under such
Place in Funds Letter after Closing.


Section 7.3        Conditions Precedent to Obligation of
Buyer.  The obligation of Buyer to
consummate the transactions provided for in this Agreement on the terms
specified herein is subject to fulfillment of each of the following conditions:


(a)       Representations and
Warranties.  Seller’s representations
and warranties made in this Agreement shall be true and correct on the Closing
Date as though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case as of such earlier date) and except for such breaches of representations
and warranties that, in the aggregate, would not have a Material Adverse Effect
on the Companies taken as a whole;


(b)       Performance of
Covenants.  Seller shall have
performed and complied in all material respects with all obligations and
covenants required by this Agreement to be performed by it prior to or at the
Closing;


(c)       No Material Adverse
Effect.  No events shall have
occurred and be continuing as of the time that Closing would otherwise occur,
and no circumstances shall exist as of the time that Closing would otherwise
occur, that individually or in the aggregate would reasonably be expected to
have a Material Adverse Effect on the Companies taken as a whole; and


(d)       Third-Party Approvals.  Seller shall have obtained all Third-Party
Approvals required (i) for the transfer of the LLC Interests in accordance with
the terms of this Agreement, (ii) for the consummation of the transactions
contemplated by this Agreement, and (iii) to prevent a material breach or
termination of any Disclosed Contract.


Section 7.4      Frustration
of Closing Conditions.  Neither Buyer
nor Seller may rely on the failure of any condition set forth in this Article
VII to be satisfied if such failure was caused by such party’s failure to
act in good faith or to use its reasonable best efforts to cause the Closing to
occur.



 39















ARTICLE VIII

TERMINATION


Section 8.1       Termination
Events.  This Agreement may be
terminated at any time prior to the Closing:


(a)       by the mutual written consent of Buyer
and Seller;


(b)       by either Buyer or Seller if the Closing
has not occurred by the close of business on December 31, 2007 (subject to
extension under Section 6.9 and otherwise to accommodate any cure period
specified in Section 8.1(c) or Section 8.1(d)), provided that the failure to consummate
the transactions contemplated by this Agreement did not result from the failure
by the party seeking termination of this Agreement to fulfill any material
undertaking or commitment provided for herein that is required to be fulfilled
by it prior to the Closing;


(c)       by Buyer if Seller shall have breached or
failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform (i) would give rise to the failure of a condition
set forth in Section 7.3 and (ii) cannot be or has not been cured within
thirty (30) days after the giving of written notice to Seller;


(d)       by Seller if Buyer shall have breached or
failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform (i) would give rise to the failure of a condition
set forth in Section 7.2 and (ii) cannot be or has not been cured within
thirty (30) days after the giving of written notice to Buyer;


(e)       by either Buyer or Seller if any Law or
Order or rule becomes effective prohibiting or making illegal the consummation
of the transactions contemplated by this Agreement, upon notification of the
non-terminating party by the terminating party;


(f)        by either Buyer or Seller if the
satisfaction of any other closing condition in Article VII becomes
impossible to satisfy; or


(g)       by either Buyer or Seller, if CES (or a
permitted successor or assign), as successor by merger to CPN, properly
exercises the purchase right set forth in Article III of the Development
Agreement.


Section 8.2       Effect
of Termination.  In the event of any
termination of this Agreement as provided in Section 8.1, neither Buyer
nor Seller shall have any prospective obligations to any other party and the
provisions of this Agreement shall not have any further force and effect; provided, however, (a) no such termination
shall serve or operate to release any party from any liability with respect to
any breach of its duties and obligations hereunder prior to such termination,
it being expressly agreed and acknowledged that such liabilities, and the terms
and provisions hereof relating thereto (including provisions of indemnity)
shall survive any such termination and (b) Sections 6.2, 6.4, 8.2,
9.2, 9.3, 9.4, 11.2, 11.5, 11.6, 11.7,
11.8, 11.9, 11.13, 11.15, 11.16 and 11.18
shall survive the termination of this Agreement.



 40
 









ARTICLE IX

SURVIVAL; INDEMNIFICATION


Section 9.1       Survival.


(a)       The respective representations and
warranties of Seller and of Buyer contained in this Agreement shall, without
regard to any investigation made by any party, survive the Closing Date for a
period ending on the last day of the twelfth month following the Closing Date; provided, however, that Seller’s
representations and warranties contained in Sections 3.1, 3.2, 3.4,
4.1 and 4.11 shall survive the Closing Date for a period ending
on the last day of the 24th month following the Closing Date.  The covenants and agreements that by their
terms do not contemplate performance after the Closing Date shall survive the
Closing for a period ending on the last day of the twelfth month following the
Closing Date.  The covenants and
agreements that by their terms contemplate performance after the Closing Date
shall survive the Closing in accordance with their respective terms until such
covenant or agreement has been performed, plus ninety (90) days thereafter for
each such covenant or agreement.  The
applicable survival period set forth above for each such covenant, agreement,
representation or warranty is referred to herein as the “Survival Period”.


(b)       No claim for Damages or other relief of
any kind (including a claim under Section 9.2(a) or Section 9.3(a))
arising out of or relating to the breach of any covenant, agreement,
representation or warranty under this Agreement may be brought unless a written
notice describing the nature of the claim, the theory of liability or the
nature of the relief sought and the material factual assertions upon which the
claim is based is given to the other party, before the termination of the
applicable Survival Period. 
Notwithstanding anything herein to the contrary, any covenant,
agreement, representation or warranty that would otherwise terminate shall
continue to survive for any claim for Damages with respect to which such notice
is given pursuant to this Agreement prior to the end of the Survival Period,
until the matter is finally resolved and any related Damages are paid.


Section 9.2       Indemnification
by Seller.


(a)       Except as otherwise provided in Article
X below with respect to Tax matters and subject to the further provisions
hereof, Seller shall pay, defend, indemnify and hold Buyer, its Affiliates and
respective successors and permitted assigns, and their respective shareholders,
members, partners (general and limited), officers, directors, managers,
employees, agents and representatives, and each of their heirs, executors,
successors and assigns (“Buyer Indemnified Parties”), harmless from and
against and in respect of:


(i)            Subject to Section 11.16, any
and all actual damages relating to any demands, claims, lawsuits, causes of
action, losses, investigations and other proceedings (whether or not before a
Governmental Entity and whether or not brought by a third party), including
reasonable attorney’s fees, court costs and other documented out-of-pocket
expenses incurred investigating or preparing for the foregoing (collectively, “Damages”),
which arise out of any breach of any of the covenants or other agreements of Seller
in this Agreement;



 41
 









(ii)           Damages which arise out of any breach
of the representations and warranties of Seller in this Agreement;


(iii)          Damages arising out of any matter set
forth in Schedule 4.8; and


(iv)          the amount of any Indebtedness of the
Companies as of the Closing Date that was not included in the calculation of
the Company Indebtedness Payoff Amount, and any and all reasonable and
documented out-of-pocket costs and expenses incurred by Buyer or the Companies
in connection with extinguishing any such Indebtedness.


(b)       The foregoing obligation to indemnify
Buyer Indemnified Parties set forth in Section 9.2(a)(i) and (ii)
shall be subject to each of the following limitations:


(i)            Seller’s indemnification obligations
under Section 9.2(a)(i) and (ii) shall terminate upon expiration
of the applicable Survival Period.


(ii)           No reimbursement or payment for any
Damages asserted against Seller under Section 9.2(a)(ii) above shall be
required unless and until the cumulative aggregate amount of such Damages equals
or exceeds Six Million Dollars ($6,000,000) (the “Seller’s Threshold”),
and then only to the extent that the cumulative aggregate amount of Damages, as
finally determined, exceeds the Seller’s Threshold; provided that any Damages which individually total less than
Fifty Thousand Dollars ($50,000.00) (“De Minimis Buyer Losses”) shall be
excluded in their entirety and Seller in no event shall have any liability
hereunder to any Buyer Indemnified Parties for any such De Minimis Buyer
Losses.  For all determinations made
after the Closing regarding the existence of a breach of any of Seller’s
representations and warranties in Articles III or IV for the
purposes of Section 9.2(a)(ii) or the amount of any Damages with respect
thereto, all such representations and warranties that are qualified by
materiality or by reference to Material Adverse Effect shall be deemed to be
not so qualified, except for each of the following (which shall continue to
have all such qualifiers for all purposes herein):  (A) clause (b) of Section 4.4; (B) the
first sentence of Section 4.5(b); (C) the first sentence of Section
4.5(c); and (D) Section 4.12(b).


(c)       Notwithstanding anything to the contrary
contained in this Agreement, Seller’s aggregate liability to the Buyer
Indemnified Parties for all Damages under or relating to this Agreement and the
transactions contemplated thereby, including the indemnification provisions set
forth in Article X herein, shall not exceed fifteen percent (15%) of the
sum of (i) the Final Purchase Price plus (ii) the Company Indebtedness Payoff
Amount.


(d)       The indemnities provided in this Section
9.2 shall survive the Closing.  The
indemnity provided in this Section 9.2 shall be the sole and exclusive
remedy of the Buyer Indemnified Parties against Seller at law or in equity
relating to this Agreement or the transactions contemplated hereby.  The parties agree to treat any indemnity
payment made pursuant to this Section 9.2 as an adjustment to the Final
Purchase Price unless otherwise required pursuant to a “determination” within
the meaning of Section 1313(a) of the Code.


(e)       Buyer shall give Seller prompt written
notice of any third party claim which may give rise to any indemnity obligation
under this Section, together with the estimated amount of such claim, and
Seller shall have the right to assume the defense of any such claim 



 42
 









through counsel of their own choosing, by so
notifying Buyer within sixty (60) days of receipt of Buyer’s written
notice.  Failure to give prompt notice
shall not affect the indemnification obligations hereunder in the absence of
actual prejudice.  If Buyer desires to
participate in, but not control, any such defense assumed by Seller, it may do
so at its sole cost and expense.  If
Seller fails to assume any such defense, it shall be liable to the extent
provided under Section 9.2(a) for all reasonable costs and expenses
of defending such claim incurred by Buyer, including reasonable fees and
disbursements of counsel in the event it is ultimately determined that Seller
is liable for such claim pursuant to the terms of this Agreement.  No party shall, without the prior written
consent of the other party, which shall not be unreasonably withheld, delayed,
or conditioned, settle, compromise or offer to settle or compromise any such
claim or demand on a basis which would result in the imposition of a consent
order, injunction or decree which would restrict the future activity or conduct
of the other parties or any Subsidiary or Affiliate thereof or if such
settlement or compromise does not include an unconditional release of the other
parties for any liability arising out of such claim or demand or any related
claim or demand.  The foregoing provision
shall not apply to Seller’s control of the matters set forth in Schedule 4.8
which shall be governed by Section 6.3(e).


(f)        Seller shall not be entitled to assume
the defense of such third-party claim, but shall be able to participate fully
and jointly with Buyer, if:


(i)            the third-party claim seeks, in
addition to or in lieu of monetary damages, any injunctive or other equitable
relief (except where non-monetary relief is merely incidental to a primary
claim or claims for monetary damages);


(ii)           the third-party claim relates to or
arises in connection with any criminal proceeding, action, indictment,
allegation or investigation; or


(iii)          the third-party claim would give rise
to Damages that are more than the amount indemnifiable by Seller pursuant to
this Article IX.


Section 9.3       Indemnification
by Buyer.


(a)       Except as otherwise provided in Article
X below and subject to the further provisions hereof, Buyer shall defend,
indemnify and hold Seller, its Affiliates and their respective successors and
permitted assigns, and their respective shareholders, members, partners
(general and limited), officers, directors, managers, employees, agents, and
representatives, and each of their heirs, executors, successors and assigns (“Seller
Indemnified Parties”), harmless from and against and in respect of any and
all Damages arising out of (i) any breach of any of the representations and
warranties of Buyer in this Agreement, and (ii) any breach of any of the
covenants or other agreements of Buyer in this Agreement.  For all determinations made after the Closing
regarding the existence of a breach of any of Buyer’s representations and
warranties in Article V for the purposes of Section 9.3(a)(i) or
the amount of any Damages with respect thereto, all such representations and
warranties that are qualified by materiality or by reference to Material Adverse
Effect shall be deemed to be not so qualified.


(b)       Buyer’s indemnification obligations under
Section 9.3(a) shall terminate upon expiration of the applicable
Survival Period.



 43
 









(c)       The indemnities provided in this Section
9.3 shall survive the Closing.  The
indemnity provided in this Section 9.3 shall be the sole and exclusive
remedy of the Seller Indemnified Parties against Buyer at law or in equity
relating to this Agreement in the transactions contemplated hereby.  The parties agree to treat any indemnity
payment made pursuant to Section 9.3(a) as an adjustment to the Final
Purchase Price unless otherwise required pursuant to a “determination” within
the meaning of Section 1313(a) of the Code.


(d)       Seller shall give Buyer prompt written
notice of any third party claim which may give rise to any indemnity obligation
under this Section, together with the estimated amount of such claim, and Buyer
shall have the right to assume the defense of any such claim through counsel of
its own choosing, by so notifying Seller within sixty (60) days of receipt of
Seller’s written notice.  Failure to give
prompt notice shall not affect the indemnification obligations hereunder in the
absence of actual prejudice.  If Seller
desires to participate in, but not control, any such defense assumed by Buyer
it may do so at its sole cost and expense. 
If Buyer fails to assume any such defense, it shall be liable for all
reasonable costs and expenses of defending such claim incurred by Seller,
including reasonable fees and disbursements of counsel in the event it is
ultimately determined that Buyer is liable for such claims pursuant to the
terms of this Agreement.  No party shall,
without the prior written consent of the other party, which shall not be
unreasonably withheld, delayed or conditioned, settle, compromise or offer to
settle or compromise any such claim or demand on a basis which would result in
the imposition of a consent order, injunction or decree which would restrict
the future activity or conduct of the other parties or any Subsidiary or
Affiliate thereof or if such settlement or compromise does not include an
unconditional release of the other parties for any liability arising out of
such claim or demand.


(e)       Buyer shall not be entitled to assume the
defense of such third-party claim, but shall be able to participate fully and
jointly with Seller, if:


(i)            the third-party claim seeks, in
addition to or in lieu of monetary damages, any injunctive or other equitable
relief (except where non-monetary relief is merely incidental to a primary
claim or claims for monetary damages);


(ii)           the third-party claim relates to or
arises in connection with any criminal proceeding, action, indictment,
allegation or investigation; or


(iii)          the third-party claim would give rise
to Damages that are more than the amount indemnifiable by Buyer pursuant to
this Article IX.


Section 9.4       Other
Indemnification Matters.


(a)       The amount of any Damages for which
indemnification is provided under this Article IX shall be computed net
of any insurance or other proceeds received or recoverable by the indemnified
party in connection with such Damages.


(b)       Each indemnified party agrees that it
shall pursue in good faith claims under any applicable insurance policies and
against other third parties who may be responsible for Damages.



 44
 









(c)       The parties agree that the
indemnification provisions set forth in this Agreement shall not apply to any
Damages to the extent such Damages are accounted for in the calculations of the
purchase price adjustments set forth in Section 2.2.


ARTICLE X

TAX MATTERS


Section 10.1       Tax
Indemnification.


(a)       Seller shall indemnify and hold Buyer and
its Affiliates harmless from (i) all liability for Taxes of Lodi Gas and Lodi
Development (and any Taxes of Seller or any other Person for which either
Company may be liable by contract, operation of law, or otherwise) with regard
to any taxable period ending on or before the Closing Date (the “Pre-Closing
Period”) and the portion ending on the Closing Date of any taxable period
that begins before and ends after the Closing Date (a “Straddle Period”)
and (ii) all Taxes that are the subject of a breach of any of the
representations and warranties set forth in Section 4.11 of this
Agreement.


(b)       With respect to a Straddle Period, the portion
of Taxes attributable to the portion of such taxable period beginning before
(but not ending on) the Closing Date shall be calculated as though the tax year
terminated as of the close of business on the Closing Date; provided, however, that in the case of a
Tax not based on income, receipts, proceeds, profits or similar items, such
Taxes shall be equal to the amount of Tax for the taxable period multiplied by
a fraction, the numerator of which shall be the number of days from the
beginning of the taxable period through the Closing Date and the denominator of
which shall be the number of days in the taxable period.


(c)       Buyer shall indemnify and hold Seller
harmless from and against any and all Taxes of, or pertaining or attributable
to, Lodi Gas and Lodi Development with respect to any taxable period or portion
of a Straddle Period that begins after the Closing Date.


(d)       The indemnities provided in this Section
10.1 shall survive the Closing for a period of sixty (60) days following
the applicable statutes of limitation plus any extensions or waivers thereof.


(e)       The Tax indemnification rights,
obligations, and procedures set forth in this Article shall in no way be
limited or modified by the indemnification provisions of Article IX.


(f)        The parties agree that the
indemnification provisions set forth in this Article X shall not apply
to any Damages to the extent such Damages are accounted for in the calculations
of the purchase price adjustments set forth in Section 2.2.


Section 10.2       Preparation
and Filing of Tax Returns.


(a)       Except as may be required by Law, no
amended Tax Return shall be filed, and no change in any Tax accounting method
or Tax election shall be made by, on behalf of, or with respect to Lodi Gas and
Lodi Development, for any Pre-Closing Period without the consent of the Seller,
which may be withheld in the Seller’s sole discretion.  Seller shall prepare or cause 



 45
 









to be prepared and file or cause to be filed
all Tax Returns for Lodi Gas and Lodi Development for all Pre-Closing Periods,
and shall pay all Taxes due with respect to such Tax Returns.  At least twenty (20) days prior to the due
date (including any extensions) of such Tax Returns, Seller shall furnish a
copy of such Tax Return to Buyer.  Seller
shall permit Buyer to review and comment on such Tax Returns.


(b)       With respect to any Tax Return covering a
Straddle Period that is required to be filed after the Closing Date with
respect to Lodi Gas and Lodi Development, Buyer shall cause such Tax Return to
be prepared, and shall cause to be included in such Tax Return all Tax items
required to be included therein.  Buyer
shall prepare such Tax Return in a manner consistent with practices followed in
prior years with respect to similar Tax Returns and in compliance with the Laws
of each respective jurisdiction.  At
least twenty (20) days prior to the due date (including any extensions) of such
Tax Return, Buyer shall furnish a copy of such Tax Return to Seller.  Buyer shall permit Seller to review and
comment on such Tax Return and shall make such revisions to such Tax Return as
reasonably requested by Seller.  Buyer
shall receive from Seller an amount equal to the portion of such Taxes which
relates to the portion of such Straddle Period ending on the Closing Date (“Allocable
Tax”) no later than the due date of the Tax Return but only to the extent
that such amount has not been given effect in the calculation of any purchase
price adjustment pursuant to Section 2.2.  Buyer shall refund to Seller an amount equal
to any Allocable Tax not properly allocable to Seller pursuant to the
provisions of this Section 10.2(b), but only to the extent such amount
has not been given effect in the calculation of any purchase price adjustment
pursuant to Section 2.2.  Buyer
shall timely file such Tax Return with the appropriate Taxing Authority and pay
all Taxes due with respect to such Tax Returns.


(c)       If a dispute arises between Seller and
Buyer as to the amount of Taxes for a Straddle Period or any other issues with
respect to a Tax Return covering the Straddle Period, the parties shall attempt
in good faith to resolve such dispute. 
Upon resolution of any disputed items, the Buyer shall timely file such
Tax Return and pay all Taxes due with respect to such Tax Return.  If the dispute is not resolved by the time
for filing of such Tax Return, Buyer shall timely file the Tax Return and pay
the Taxes due, and the parties shall jointly request that the Neutral Auditor
resolve any issue, which resolution shall be final, conclusive and binding on
the parties.  The scope of the Neutral
Arbitrator’s review shall be limited to the disputed items and the parties,
shall, if necessary, file an amended Tax Return reflecting the final resolution
of the disputed items.  Notwithstanding
anything in this Agreement to the contrary, the fees and expenses of the
Neutral Auditor in resolving the dispute shall be borne 50% by Buyer and 50% by
Seller.  Any payment required to be made
as a result of the resolution of the dispute by the Neutral Auditor shall be
made within ten (10) days after such resolution, together with any interest
determined by the Neutral Auditor to be appropriate.  Buyer shall not extend the statute of
limitations with respect to any Tax Return of Lodi Gas and Lodi Development for
any Pre-Closing Period without the written consent of the Seller, such consent
not to be unreasonably withheld, delayed or conditioned.


(d)       Buyer and Seller agree to provide such
assistance as may reasonably be requested by the other party in connection with
the preparation of any Tax Return, any audit or other examination by any Taxing
Authority or any judicial or administrative proceedings relating to liability
for Taxes, and each will retain and provide the requesting party with any
records or information which may be relevant to such return, audit or
examination, proceedings or 



 46
 









determination.  Any information obtained pursuant to this Section
10.2(d) or pursuant to any other Section hereof providing for the sharing
of information relating to or review of any Tax Return or other schedule
relating to Taxes shall be kept confidential by the parties hereto in
accordance with Section 6.5(b).


Section 10.3       Procedures
Relating to Indemnification of Tax Claims.


(a)       If a claim shall be made by any Taxing
Authority for which Seller is or may be liable pursuant to this Agreement,
Buyer shall notify Seller in writing within ten (10) Business Days of receipt
by Buyer of notice of such claim (a “Tax Claim”).


(b)       With respect to any Tax Claim, Seller, at
Seller’s expense, shall control all proceedings taken in connection with such
Tax Claim (including selection of counsel), and Buyer shall execute or cause to
be executed powers of attorney or other documents necessary to enable Seller to
take all actions desired by Seller with respect to such Tax Claim.  Seller shall permit Buyer to participate in
(but not control), at Buyer’s sole cost and expense, such proceeding through
counsel chosen by Buyer and shall keep Buyer reasonably informed as to the
status of such proceeding.  Seller may in
its sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing Authority with respect to
such Tax Claim, and may initiate any claim for refund, file any amended return,
or take any other action which is deemed appropriate by Seller with respect to
such Tax Claim.  Notwithstanding the
foregoing, Seller and Buyer shall jointly control all proceedings in connection
with any Tax Claim relating solely to Taxes for a Straddle Period, and all
costs and expenses related to such proceedings shall be borne 50% by Buyer and
50% by Seller.  No party shall settle a
Tax Claim relating solely to Taxes of Lodi Gas and Lodi Development for a
Straddle Period without the other party’s prior written consent (which consent
may not be unreasonably withheld, conditioned or delayed; and which consent
shall be considered to be unreasonably withheld if such settlement has no
adverse effect on the other party).


(c)       Buyer and its Affiliates (including after
the Closing, Lodi Gas and Lodi Development), on the one hand, and Seller, on
the other hand, shall cooperate with each other in contesting any Tax Claim,
which cooperation shall include the retention and, at the contesting party’s
request and expense, the provision of records and information which are
reasonably relevant to such Tax Claim, and making employees and representatives
available on a mutually convenient basis to provide additional information or
explanation of any material provided hereunder or to testify at proceedings
relating to such Tax Claim.


Section 10.4       Tax
Refunds and Credits.  Any refund or
credits of Taxes paid or payable that are attributable to Lodi Gas and Lodi
Development for any Pre-Closing Period (or for any Straddle Period to the
extent allocable (determined in a manner consistent with Section 10.2(b))
to the portion of such period beginning before and ending on the Closing Date)
shall be for the account of the Seller. 
Any refunds or credits of Taxes paid or payable that are attributable to
Lodi Gas and Lodi Development for any other taxable period shall be for the
account of Buyer.  Buyer shall, if Seller
so requests and at the Seller’s expense, cause Lodi Gas and Lodi Development to
file for and obtain any refunds or credits to which the Seller is
entitled.  Buyer shall cause Lodi Gas and
Lodi Development to forward to Seller such refund within ten (10) Business Days
after the refund is received (or reimburse Seller for any such credit within
(10) 



 47
 









Business Days after the
credit is applied against another Tax liability); provided, however, that Seller shall indemnify Buyer for
any amount paid to it pursuant to this Section 10.4 if any such refund
or credit is subsequently disallowed.


Section 10.5       Tax
Treatment of Payments.  Except as otherwise
required by applicable Law, the parties shall treat any indemnification payment
made pursuant to this Agreement as a purchase price adjustment for Tax
purposes.


Section 10.6       Transfer
Taxes.  All Transfer Taxes incurred
in connection with this Agreement and the transactions contemplated hereby
shall be borne by Buyer.  Seller shall
file, to the extent required by applicable Law, all necessary Tax Returns and
other documentation with respect to such Transfer Taxes.  Buyer shall pay Seller the amount shown as
due on such Tax Returns, as determined in accordance with this Agreement, and
shall, to the extent required by Law, join in the execution of any such Tax
Return.  Prior to the Closing Date, Buyer
shall provide to Seller, to the extent possible, an appropriate exemption
certificate in connection with this Agreement and the transactions, with
respect to each applicable Taxing Authority. 
For purposes of this Agreement, “Transfer Taxes” shall mean
transfer, documentary, sales, use, registration and other such Taxes (including
all applicable real estate transfer taxes).


Section 10.7       Purchase
Price Allocation.  The Purchase
Price, as adjusted by Section 2.2 and increased by (i) any liabilities
of the Companies outstanding as of the Closing and treated as assumed by Buyer
for tax purposes and (ii) any other amounts treated as consideration paid for
the LLC Interests for tax purposes, shall be allocated among the assets of Lodi
Gas and Lodi Development for the purposes of Section 1060 of the Code as set
forth in this Section 10.7 (the “Purchase Price Allocation”).  Buyer and Seller agree to complete and attach
Internal Revenue Service Form 8594 to their respective Tax Returns in a manner
consistent with the Purchase Price Allocation and otherwise to be bound by such
Purchase Price Allocation (including the preparation of all books, records, and
filings) unless otherwise required by Law. 
In
consultation with Buyer, Seller shall prepare an initial Purchase Price
Allocation (based upon the Initial Purchase Price and any adjustments known to
Seller) and send it to Buyer no later than forty-five (45) days prior to Seller’s
best estimate of the expected Closing Date. 
Buyer shall review the proposed Purchase Price Allocation and either
consent to such Purchase Price Allocation or request necessary modifications
within fifteen (15) days of receipt of such initial Purchase Price
Allocation.  If Seller agrees with Buyer’s
suggested modifications, then Seller shall make Buyer’s requested modifications
and the Purchase Price Allocation shall be adjusted only to the extent
necessary to account for the final adjustments to the Initial Purchase Price
pursuant to Section 2.2.  If
Buyer and Seller are unable to agree upon the Purchase Price Allocation (or any
modification or amendment to the final or any interim Purchase Price
Allocation), Seller and Buyer shall attempt to resolve their differences as
soon as possible, but in all events prior to the Closing Date.  If Buyer and Seller are unable to agree upon
the Purchase Price Allocation at least twenty (20) days prior to the Closing
Date, Buyer and Seller shall jointly request that the Neutral Auditor resolve
any issues by or before the Closing Date. 
Notwithstanding anything in this Agreement to the contrary, the fees and
expenses of the Neutral Auditor in resolving the dispute shall be borne 50% by
Buyer and 50% by Seller.



 48
 









ARTICLE XI

MISCELLANEOUS


Section 11.1       Notices.  All communications provided for hereunder
shall be in writing and shall be deemed to be given when delivered in person or
by private courier with receipt, when telefaxed and received, or five (5) days
after being deposited in the United States mail, first-class, registered or
certified, return receipt requested, with postage paid and,


If to Buyer:


Buckeye Gas Storage LLC

Five TEK Park

9999 Hamilton Blvd.

Breinigsville, PA 18031

Attention:  Executive Vice President,
Administration & Legal Affairs

Facsimile:  610-254-4625


with a copy (which shall
not itself constitute notice) to:


Morgan, Lewis & Bockius
LLP

1701 Market Street

Philadelphia, PA 19103

Attention:  Howard L. Meyers, Esq.

Facsimile:  215-963-5001


with a copy (which shall
not itself constitute notice) to:


McDermott Will &
Emery LLP

340 Madison Avenue

New York, NY  10017

Attention:  Stephen E. Older, Esq.
                   Timothy J. Alvino, Esq.

Facsimile:  212-547-5444


If to Seller:


Lodi Holdings, L.L.C.

c/o ArcLight Capital Partners LLC

200 Clarendon, 55th Floor

Boston, MA  02117

Attention:  General Counsel

Facsimile:  617-867-4698



 49
 









with a copy (which shall
not itself constitute notice) to:


Andrews Kurth LLP

600 Travis, Suite 4200

Houston, TX 77002

Attention:  W. Lance Schuler

Facsimile:  713-238-7193


or to such other
address as any such party shall designate by written notice to the other
parties hereto.


Section 11.2       Expenses.  Seller and Buyer shall each pay their
respective expenses (such as legal, investment banker and accounting fees)
incurred in connection with the origination, negotiation, execution and
performance of this Agreement, provided,
however, that Buyer shall be responsible for payment of all Transfer
Taxes, as provided under Section 10.6, and provided, further, that Buyer shall pay 50% and Seller shall
pay 50% of any filing fees under the Hart-Scott Act.


Section 11.3       Non-Assignability.  This Agreement shall inure to the benefit of
and be binding on the parties hereto and their respective successors and
permitted assigns.  This Agreement shall
not be assigned by any party hereto without the express prior written consent
of the other party, in its sole discretion, and any attempted assignment,
without such consent, shall be null and void. 
In no event shall any assignment or transfer hereunder serve to release
or discharge the assigning party from any of its duties and obligations
hereunder, unless expressly released, in writing, by the non-assigning party.


Section 11.4       Amendment;
Waiver.  Except as otherwise provided
in Section 6.9, this Agreement may be amended, supplemented or otherwise
modified only by a written instrument executed by each of the parties
hereto.  No waiver by any party of any of
the provisions hereof shall be effective unless explicitly set forth in writing
and executed by the party so waiving. 
Except as provided in the preceding sentence, no action taken pursuant
to this Agreement, including without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties, covenants or
agreements contained herein, and in any documents delivered or to be delivered
pursuant to this Agreement and in connection with the Closing hereunder.  The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach.


Section 11.5       No
Third Party Beneficiaries.  Except
as expressly provided herein, including in Section 6.14 and Article X
hereof, this Agreement is not intended, nor shall it be deemed, construed or
interpreted, to confer upon any Person not a party hereto any rights or
remedies hereunder.


Section 11.6       Governing
Law.  This Agreement and the rights
and duties of the parties hereunder shall be governed by, and construed in
accordance with, the laws of the State of New York, other than matters dealing
with the ownership of real property or interests therein, which shall be
governed by the laws of the state where such property is located.



 50
 









Section 11.7       Consent
to Jurisdiction.  Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York located in the borough of
Manhattan in the City of New York, or if such court does not have jurisdiction,
the Supreme Court of the State of New York, New York County, for the purposes
of any suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby.  Each of
the parties hereto further agrees that service of any process, summons, notice
or document by U.S. registered mail to such party’s respective address set
forth in Section 11.1 shall be effective service of process for any
action, suit or proceeding in New York with respect to any matters to which it
has submitted to jurisdiction as set forth above in the immediately preceding
sentence.  Each of the parties hereto
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (a) the United States District Court for
the Southern District of New York or (b) the Supreme Court of the State of New
York, New York County, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an
inconvenient forum.


Section 11.8       Entire
Agreement.  This Agreement and the
schedules and exhibits hereto, along with the Confidentiality Agreement, the
letter agreement dated July 24, 2007 between Buyer and Seller and the letter
agreement dated July 24, 2007 between BGH GP Holdings, LLC and Seller, set
forth the entire understanding of the parties hereto with respect to the
subject matter hereof.


Section 11.9       Severability.  If any provision of this Agreement shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall not be affected and
shall remain in full force and effect.


Section 11.10       Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.


Section 11.11       Further
Assurances.  Upon request from time
to time, Seller and Buyer shall execute and/or cause to be executed and
delivered such other documents and instruments and shall do such other acts
that may be reasonably necessary or desirable, to consummate the transactions
contemplated hereby and to carry out the intent of this Agreement.


Section 11.12       Schedules, Annexes and Exhibits.  All schedules, annexes and exhibits hereto
are hereby incorporated by reference and made a part of this Agreement.


Section 11.13       Waiver
of Jury Trial.  THE PARTIES HEREBY
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY, WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.  THE PARTIES AGREE THAT ANY OF
THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF
THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES
IRREVOCABLY TO WAIVE TRIAL BY JURY AND THAT ANY 



 51
 









ACTION OR PROCEEDING
WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION
BY A JUDGE SITTING WITHOUT A JURY.


Section 11.14       Time.  Time is of the essence in the performance of
this Agreement in all respects.


Section 11.15       Disclosure.  Any fact or item that is disclosed on any
schedule, annex or exhibit to this Agreement or in the Financial Statements so
as to make its relevance to other representations made elsewhere in this
Agreement or to the information called for by other schedules, annexes or
exhibits to this Agreement reasonably apparent shall be deemed to qualify such
representations or to be disclosed on such other schedules, annexes or
exhibits, as the case may be, notwithstanding the omission of a reference or
cross-reference thereto.  Any fact or
item disclosed on any schedule, annex or exhibit hereto shall not by reason
only of such inclusion be deemed to be material and shall not be employed as a
point of reference in determining any standard of materiality under this
Agreement.  In addition, matters
reflected in the Disclosure Schedules are not necessarily limited to matters
required by this Agreement to be reflected in such Disclosure Schedules, and
any such additional matters are set forth for informational purposes only and
do not necessarily include other matters of a similar nature.  The disclosure of any information shall not
be deemed to constitute an acknowledgment that such information is required to
be disclosed in connection with the representations and warranties made.


Section 11.16       Limitation
on Damages.  Neither Buyer nor Seller
shall have any liability for, and each party hereby waives any right to recover
from the other party or any of its owners, officers or Affiliates, punitive,
incidental, special, exemplary and consequential damages arising in connection
with or with respect to this Agreement and the transactions contemplated
hereby.  For the avoidance of doubt, this
Section 11.16 shall not prevent any party from seeking indemnification
hereunder for claims of third parties for damages that are punitive,
incidental, special, exemplary or consequential in nature (for purposes of
clarity, in no event shall Buyer be able to seek indemnification for any such
punitive, incidental, special, exemplary or consequential damages in respect of
claims brought against Buyer, Buckeye Partners, L.P. or any other Buyer
Indemnified Parties by any Buyer Indemnified Party).


Section 11.17       Seller
Guaranty.  ArcLight Energy Partners
Fund I, L.P. and ArcLight Energy Partners Fund II, L.P. hereby each guaranty,
jointly and severally, the full and prompt performance and payment when due of
all obligations of Seller under Sections 9.2 and 10.1 (subject to
all limitations in such Sections); provided
however, that such guaranty obligations shall terminate in full on
the earlier of (i) the date that is three years after the Closing Date and (ii)
the date Buyer and its Affiliates cease to control the Companies.


Section 11.18       Buyer
Guaranty.  Buckeye Partners, L.P.
hereby guarantees the full and prompt performance and payment when due of all
obligations of Buyer at or prior to the Closing.


[SIGNATURE
PAGE FOLLOWS]



 52















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


	
   

  	
  LODI HOLDINGS, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
           /s/
  Robb E. Turner

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Robb E. Turner

  
	
   

  	
  Title:

  	
   

  	
  Authorized Representative of the Member

  
	
   

  	
   

  	
   

  	
  Committee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
						



 


	
  

  	
  BUCKEYE GAS STORAGE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
           /s/
  Stephen C. Muther

  	
   

  
	
   

  	
  Name:

  	
  Stephen C. Muther

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice
  President, Administration &

  
	
   

  	
   

  	
  Legal Affairs

  
	
   

  	
   

  	
   

  
					



 


The undersigned have executed this Agreement solely
for the purposes of accepting their obligations as set forth in Section
11.17 hereof.


	
  

  	
  ARCLIGHT ENERGY PARTNERS FUND I, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  ArcLight PEF GP, LLC

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:  ArcLight Capital Holdings, LLC

  
	
   

  	
  Its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel R. Revers

  	
   

  
	
   

  	
  Name:

  	
  Daniel R. Revers

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robb E. Turner

  	
   

  
	
   

  	
  Name:

  	
  Robb E. Turner

  
	
   

  	
  Title:

  	
  Manager

  
					



 



 53
 









 


	
  

  	
  ARCLIGHT ENERGY PARTNERS FUND II, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  ArcLight PEF GP II, LLC

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:  ArcLight Capital Holdings, LLC

  
	
   

  	
  Its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel R. Revers

  	
   

  
	
   

  	
  Name:

  	
  Daniel R. Revers

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robb E. Turner

  	
   

  
	
   

  	
  Name:

  	
  Robb E. Turner

  
	
   

  	
  Title:

  	
  Manager

  
					



 



 54
 









The undersigned has executed this Agreement solely for
the purposes of accepting its obligations as set forth in Section 11.18
hereof.


	
  

  	
  BUCKEYE PARTNERS, L.P.

  
	
   

  	
  By:  Buckeye
  GP LLC

  
	
   

  	
  as General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
           /s/
  Stephen C. Muther

  	
   

  
	
   

  	
  Name:

  	
  Stephen C. Muther

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice
  President, Administration &

  
	
   

  	
   

  	
  Legal Affairs

  
					



 



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