Exhibit 10.1


 


AGREEMENT AND PLAN OF MERGER 


 


DATED AS OF SEPTEMBER 9, 2005 


 


AMONG 


 


FOREST OIL CORPORATION, 


 


SML WELLHEAD CORPORATION, 


 


MARINER ENERGY, INC. 


 


AND 


 


MEI SUB, INC.


 





















 


TABLE
OF CONTENTS


 


	
  ARTICLE I

  
	
   

  
	
  DEFINITIONS

  
	
   

  
	
  ARTICLE II

  
	
   

  
	
  THE MERGER

  



 


	
   

  	
  Section 2.1

  	
  Distribution and Merger

  	
  11

  
	
   

  	
  Section 2.2

  	
  Effect on Capital Stock

  	
  12

  
	
   

  	
  Section 2.3

  	
  Cancellation of Stock

  	
  12

  
	
   

  	
  Section 2.4

  	
  Stockholders Meeting

  	
  12

  
	
   

  	
  Section 2.5

  	
  Closing

  	
  13

  
	
   

  	
  Section 2.6

  	
  Effective Time

  	
  13

  
	
   

  	
  Section 2.7

  	
  Closing of Transfer Books

  	
  13

  
	
   

  	
  Section 2.8

  	
  Exchange of Certificates

  	
  13

  
	
   

  	
  Section 2.9

  	
  Certain Stock Options

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE
  III

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF FOREST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 3.1

  	
  Organization; Qualification

  	
  17

  
	
   

  	
  Section 3.2

  	
  Corporate Authority; No Violation

  	
  17

  
	
   

  	
  Section 3.3

  	
  Information Supplied

  	
  18

  
	
   

  	
  Section 3.4

  	
  Brokers or Finders

  	
  18

  
	
   

  	
  Section 3.5

  	
  Forest Rights Plan

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IV

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF FOREST AND SPINCO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 4.1

  	
  Organization, Qualification

  	
  19

  
	
   

  	
  Section 4.2

  	
  Capital Stock and Other Matters

  	
  19

  
	
   

  	
  Section 4.3

  	
  Corporate Authority; No Violation

  	
  20

  
	
   

  	
  Section 4.4

  	
  Spinco Financial Statements; Liabilities

  	
  21

  
	
   

  	
  Section 4.5

  	
  Absence of Certain Changes or Events

  	
  21

  
	
   

  	
  Section 4.6

  	
  Investigations; Litigation

  	
  21

  
	
   

  	
  Section 4.7

  	
  Licenses; Compliance with Laws

  	
  22

  
	
   

  	
  Section 4.8

  	
  Proxy Statement/Prospectus; Registration Statements

  	
  22

  
	
   

  	
  Section 4.9

  	
  Information Supplied

  	
  23

  
	
   

  	
  Section 4.10

  	
  Environmental Matters

  	
  23

  
	
   

  	
  Section 4.11

  	
  Tax Matters

  	
  24

  
	
   

  	
  Section 4.12

  	
  Benefit Plans

  	
  25

  
	
   

  	
  Section 4.13

  	
  Labor Matters

  	
  27

  



 


i





















 


	
   

  	
  Section 4.14

  	
  Intellectual Property Matters

  	
  27

  
	
   

  	
  Section 4.15

  	
  Material Contracts

  	
  28

  
	
   

  	
  Section 4.16

  	
  Brokers or Finders

  	
  29

  
	
   

  	
  Section 4.17

  	
  Certain Board Findings

  	
  29

  
	
   

  	
  Section 4.18

  	
  Vote Required

  	
  29

  
	
   

  	
  Section 4.19

  	
  Stockholder Approval

  	
  29

  
	
   

  	
  Section 4.20

  	
  Certain Payments

  	
  29

  
	
   

  	
  Section 4.21

  	
  Assets

  	
  29

  
	
   

  	
  Section 4.22

  	
  Loans

  	
  30

  
	
   

  	
  Section 4.23

  	
  Oil and Gas Reserves

  	
  30

  
	
   

  	
  Section 4.24

  	
  Derivative Transactions

  	
  31

  
	
   

  	
  Section 4.25

  	
  No Other Representations and Warranties

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 5.1

  	
  Organization, Qualification

  	
  32

  
	
   

  	
  Section 5.2

  	
  Capital Stock and Other Matters

  	
  32

  
	
   

  	
  Section 5.3

  	
  Corporate Authority; No Violation

  	
  33

  
	
   

  	
  Section 5.4

  	
  Company Financial Statements; Liabilities

  	
  34

  
	
   

  	
  Section 5.5

  	
  Absence of Certain Changes or Events

  	
  34

  
	
   

  	
  Section 5.6

  	
  Investigations; Litigation

  	
  35

  
	
   

  	
  Section 5.7

  	
  Licenses; Compliance with Laws

  	
  35

  
	
   

  	
  Section 5.8

  	
  Proxy Statement/Prospectus; Registration Statements

  	
  35

  
	
   

  	
  Section 5.9

  	
  Information Supplied

  	
  36

  
	
   

  	
  Section 5.10

  	
  Environmental Matters

  	
  36

  
	
   

  	
  Section 5.11

  	
  Tax Matters

  	
  37

  
	
   

  	
  Section 5.12

  	
  Benefit Plans

  	
  38

  
	
   

  	
  Section 5.13

  	
  Labor Matters

  	
  40

  
	
   

  	
  Section 5.14

  	
  Intellectual Property Matters

  	
  40

  
	
   

  	
  Section 5.15

  	
  Material Contracts

  	
  41

  
	
   

  	
  Section 5.16

  	
  Opinion of Company Financial Advisor

  	
  41

  
	
   

  	
  Section 5.17

  	
  Brokers or Finders

  	
  41

  
	
   

  	
  Section 5.18

  	
  Takeover Statutes

  	
  41

  
	
   

  	
  Section 5.19

  	
  Certain Board Findings

  	
  42

  
	
   

  	
  Section 5.20

  	
  Vote Required

  	
  42

  
	
   

  	
  Section 5.21

  	
  Certain Payments

  	
  42

  
	
   

  	
  Section 5.22

  	
  Assets

  	
  42

  
	
   

  	
  Section 5.23

  	
  Loans

  	
  43

  
	
   

  	
  Section 5.24

  	
  Oil and Gas Reserves

  	
  43

  
	
   

  	
  Section 5.25

  	
  Derivative Transactions

  	
  43

  
	
   

  	
  Section 5.26

  	
  No Other Representations and Warranties

  	
  43

  



 


ii





















 


	
   

  	
   

  	
  ARTICLE VI

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COVENANTS AND
  AGREEMENTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 6.1

  	
  Conduct of Business by the Company Pending the Merger

  	
  44

  
	
   

  	
  Section 6.2

  	
  Conduct of Business by Spinco and Forest Pending the Merger

  	
  49

  
	
   

  	
  Section 6.3

  	
  Proxy Statement/Prospectus

  	
  53

  
	
   

  	
  Section 6.4

  	
  Cooperation

  	
  54

  
	
   

  	
  Section 6.5

  	
  Letter of Spinco’s Accountants

  	
  55

  
	
   

  	
  Section 6.6

  	
  Letter of the Company’s Accountants

  	
  55

  
	
   

  	
  Section 6.7

  	
  Forest/Spinco Employee Stock Options, Incentive and Benefit Plans

  	
  55

  
	
   

  	
  Section 6.8

  	
  Employee Benefit Plans

  	
  56

  
	
   

  	
  Section 6.9

  	
  Investigation

  	
  59

  
	
   

  	
  Section 6.10

  	
  Reasonable Efforts; Further Assurances

  	
  60

  
	
   

  	
  Section 6.11

  	
  No Solicitation by the Company

  	
  60

  
	
   

  	
  Section 6.12

  	
  Director and Officer Indemnification; Insurance

  	
  63

  
	
   

  	
  Section 6.13

  	
  Rule 145 Affiliates

  	
  64

  
	
   

  	
  Section 6.14

  	
  Public Announcements

  	
  65

  
	
   

  	
  Section 6.15

  	
  Defense of Litigation

  	
  65

  
	
   

  	
  Section 6.16

  	
  Notification

  	
  65

  
	
   

  	
  Section 6.17

  	
  Obligations of Merger Sub

  	
  66

  
	
   

  	
  Section 6.18

  	
  Accounting Matters

  	
  66

  
	
   

  	
  Section 6.19

  	
  Reorganization Treatment

  	
  66

  
	
   

  	
  Section 6.20

  	
  Performance Bond

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE VII

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CONDITIONS TO
  THE MERGER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 7.1

  	
  Conditions to the Obligations of Spinco, Forest, the Company and Merger
  Sub to Effect the Merger

  	
  67

  
	
   

  	
  Section 7.2

  	
  Additional Conditions to the Obligations of Forest and Spinco

  	
  68

  
	
   

  	
  Section 7.3

  	
  Additional Conditions to the Obligations of the Company and Merger Sub

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TERMINATION,
  AMENDMENT AND WAIVERS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 8.1

  	
  Termination

  	
  69

  
	
   

  	
  Section 8.2

  	
  Effect of Termination

  	
  71

  
	
   

  	
  Section 8.3

  	
  Termination Fee; Expenses

  	
  71

  
	
   

  	
  Section 8.4

  	
  Amendment

  	
  72

  
	
   

  	
  Section 8.5

  	
  Waivers

  	
  73

  



 


iii





















 


	
   

  	
   

  	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 9.1

  	
  Survival of Representations, Warranties and Agreements; Indemnification

  	
  73

  
	
   

  	
  Section 9.2

  	
  Expenses

  	
  74

  
	
   

  	
  Section 9.3

  	
  Notices

  	
  74

  
	
   

  	
  Section 9.4

  	
  Certain Construction Rules

  	
  75

  
	
   

  	
  Section 9.5

  	
  Severability

  	
  76

  
	
   

  	
  Section 9.6

  	
  Assignment; Binding Effect

  	
  76

  
	
   

  	
  Section 9.7

  	
  No Third Party Beneficiaries

  	
  76

  
	
   

  	
  Section 9.8

  	
  Limited Liability

  	
  76

  
	
   

  	
  Section 9.9

  	
  Entire Agreement

  	
  77

  
	
   

  	
  Section 9.10

  	
  Governing Law

  	
  77

  
	
   

  	
  Section 9.11

  	
  Counterparts

  	
  77

  
	
   

  	
  Section 9.12

  	
  Specific Performance

  	
  77

  
	
   

  	
  Section 9.13

  	
  Waiver of Jury Trial

  	
  77

  
	
   

  	
   

  	
   

  
	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  -

  	
   

  	
  Distribution
  Agreement

  	
   

  
	
  Exhibit B

  	
  -

  	
   

  	
  Initial Officers
  of the Company

  	
   

  
	
  Exhibit C

  	
  -

  	
   

  	
  Certificate of
  Incorporation of the Company

  	
   

  
	
  Exhibit D

  	
  -

  	
   

  	
  Bylaws of the
  Company

  	
   

  
	
  Exhibit E

  	
  -

  	
   

  	
  Relocation and
  Severance Benefits

  	
   

  
	
  Exhibit F

  	
  -

  	
   

  	
  Rule 145
  Affiliate Agreement

  	
   

  
	
  Exhibit G

  	
  -

  	
   

  	
  Form of Forest
  Officers’ Certificate

  	
   

  
	
  Exhibit H

  	
  -

  	
   

  	
  Form of Company
  Officers’ Certificate

  	
   

  
						



 


iv





















 


AGREEMENT AND PLAN OF MERGER


 


THIS AGREEMENT AND PLAN OF MERGER, dated as of
September 9, 2005, is among Forest Oil Corporation, a New York corporation (“Forest”),
SML Wellhead Corporation, a Delaware corporation and a wholly owned subsidiary
of Forest (“Spinco”), Mariner Energy, Inc., a Delaware corporation (the “Company”),
and MEI Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the
Company (“Merger Sub”).


 


WHEREAS, prior to the Distribution Date (as such term
and other capitalized terms are defined in Article I hereof), and subject
to the terms and conditions set forth in the Distribution Agreement of even
date herewith by and between Forest and Spinco, in the form attached hereto as Exhibit A (the “Distribution
Agreement”), Forest intends to transfer or cause to be transferred to Spinco
all of the Spinco Assets, and Spinco intends to assume all of the Spinco
Liabilities, as contemplated by the Distribution Agreement (such transfer and assumption
collectively, the “Contribution”);


 


WHEREAS, subject to the conditions set forth in the
Distribution Agreement, on the Distribution Date, Forest intends to distribute
all of the issued and outstanding shares of Spinco Common Stock on a pro rata basis
to the holders as of the Record Date (as defined in the Distribution Agreement)
of the outstanding Forest Common Stock (the “Distribution”);


 


WHEREAS, at the Effective Time, the parties intend to
effect a merger of Merger Sub with and into Spinco, with Spinco being the
surviving corporation of the Merger;


 


WHEREAS, the Board of Directors of the Company
(i) has determined that the Merger is fair to, and in the best interests
of, the Company and its stockholders and has approved this Agreement and the Merger,
and (ii) has recommended the adoption of this Agreement by the
stockholders of the Company, and the Company, as the sole stockholder of Merger
Sub, has adopted this Agreement;


 


WHEREAS, the Board of Directors of Merger Sub has
approved this Agreement and the transactions contemplated hereby, including the
Merger;


 


WHEREAS, the Board of Directors of Forest (i) has
approved this Agreement and the Distribution Agreement and the transactions
contemplated hereby and thereby, including the Contribution, the Distribution
and the Merger, and (ii) has determined that the Merger is fair to, and in
the best interests of, Forest and its shareholders;


 


WHEREAS, the Board of Directors of Spinco (i) has
determined that the Merger is fair to, and in the best interests of, Spinco and
its stockholder and has approved this Agreement, and Forest, as the sole
stockholder of Spinco, has adopted this Agreement, and (ii) has approved the
Distribution Agreement and the transactions contemplated hereby and thereby,
including the Contribution and the Distribution; and


 


WHEREAS, the parties to this Agreement intend that the
Contribution and the Distribution qualify under Sections 368(a) and 355 of the
Code, respectively, and that the Merger qualify as a reorganization under
Section 368(a) of the Code, and the parties intend, by executing this
Agreement, to adopt a plan of reorganization within the meaning of Section 368
of the Code;


 





















 


NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:


 


ARTICLE I



DEFINITIONS


 


“2004 Spinco IDC” shall have the meaning specified in
Section 6.21.


 


“Acquisition Proposal” shall have the meaning
specified in Section 6.11(g).


 


“Acquisition Group” shall have the meaning specified
in Section 6.11(g).


 


“Action” shall mean any litigation, claim, action,
suit, arbitration, inquiry, proceeding or investigation by or before any
Governmental Authority.


 


“Affiliate” shall mean, with respect to any specified
Person, any other Person that, directly or indirectly, controls, is controlled
by or is under common control with, such specified Person.  For purposes of this definition, “control”
(including, with correlative meanings, the terms “controlled by” and “under
common control with”), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; provided, however,
that for purposes of this Agreement, from and after the Distribution Date, no
member of either Group shall be deemed an Affiliate of any member of the other
Group.


 


“Agreement” shall mean this Agreement and Plan of
Merger.


 


“Approved for Listing” shall mean, with respect to
shares of Spinco Common Stock, that such shares have been approved for listing
on the NYSE or Nasdaq, subject to official notice of issuance.


 


“Certificate of Merger” shall have the meaning
specified in Section 2.6.


 


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


 


“Change of Recommendation” shall have the meaning
specified in Section 6.11(d).


 


“Closing” shall have the meaning specified in
Section 2.5.


 


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


 


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


 


“Company Benefit Plans” shall have the meaning set
forth in Section 5.12(a).


 


2





















 


“Company Common Stock” shall mean the common stock,
par value $.0001 per share, of the Company.


 


“Company Consent” shall mean the consent of the
Company.


 


“Company Disclosure Schedule” shall mean the schedule
prepared and delivered by the Company to Forest and Spinco as of the date of
this Agreement, setting forth, among other things, certain information that, to
the extent provided herein, qualifies certain representations, warranties and
agreements of the Company made in this Agreement.


 


“Company Employee” shall have the meaning set forth in
Section 5.12(a).


 


“Company Financial Statements” shall have the meaning
specified in Section 5.4(b).


 


“Company Preferred Stock” shall mean the Preferred
Stock, par value $.0001 per share, of the Company.


 


“Company Reserve Report” shall have the meaning
specified in Section 5.24.


 


“Company Savings Plan” shall have the meaning
specified in Section 6.8(d).


 


“Company Stock Plans” shall mean the Mariner Energy,
Inc. Stock Incentive Plan, effective as of March 11, 2005, and the Mariner
Energy, Inc. Equity Participation Plan, effective March 11, 2005.


 


“Company Stockholders Meeting” shall have the meaning
specified in Section 2.4(a).


 


“Company Subsidiaries” shall mean all direct and
indirect Subsidiaries of the Company.


 


“Company Voting Debt” shall have the meaning specified
in Section 5.2.


 


“Company Welfare Plans” shall have the meaning
specified in Section 6.8(c).


 


“Confidentiality Agreement” shall mean the
Confidentiality Agreement, dated as of May 23, 2005, between Forest and
the Company.


 


“Continuing Company Employees” shall have the meaning
set forth in Section 6.8(a).


 


“Continuing Spinco Employees” shall have the meaning
set forth in Section 6.8(a).


 


“Contract” shall mean any loan or credit agreement,
note, bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other binding agreement, obligation
or commitment.


 


“Contribution” shall have the meaning set forth in the
Recitals hereto.


 


“Controlling Person” shall have the meaning specified
in Section 9.1(b).


 


3





















 


“Derivative Transaction” shall mean a derivative
transaction within the coverage of Statement of Financial Accounting Standards
No. 133, including any swap transaction, option, warrant, forward purchase
or sale transaction, futures transaction, cap transaction, floor transaction or
collar transaction relating to one or more currencies, commodities, bonds,
equity securities, loans, interest rates, credit-related events or
conditions or any indexes, or any other similar transaction (including any
option with respect to any of such transactions) or combination of any of such
transactions, including collateralized mortgage obligations or other similar
instruments or any debt or equity instruments evidencing or embedding any such
types of transactions, and any related credit support, collateral, transportation
or other similar arrangements or agreements related to such transactions.


 


“DGCL” shall mean the General Corporation Law of the
State of Delaware.


 


“Disclosure Schedules” shall mean, collectively, the
Forest Disclosure Schedule, the Spinco Disclosure Schedule and the Company
Disclosure Schedule.


 


“Distribution” shall have the meaning set forth in the
Recitals hereto.


 


“Distribution Agreement” shall have the meaning set
forth in the Recitals hereto.


 


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


 


“Effective Time” shall have the meaning specified in
Section 2.6.


 


“Employee Benefits Agreement” shall mean the Employee
Benefits Agreement of even date herewith between Forest and Spinco, in the form
attached to the Distribution Agreement.


 


“Environmental Laws” shall mean any and all federal,
state or local statute, rule, regulation or ordinance, and any judicial or
administrative interpretation thereof, including any guidance document, cleanup
standard, Order or determination issued, promulgated, approved or entered
thereunder by any Governmental Authority, relating to pollution or the
protection, cleanup or restoration of the environment, protection of species or
ecosystems, or to human health, safety or natural resources, including those
established by or promulgated under the Federal Clean Air Act, the Federal Oil
Pollution Act, the Federal Water Pollution Control Act, the Federal Resource
Conservation and Recovery Act, the Federal Comprehensive Environmental
Response, Compensation, and Liability Act, the Federal Toxic Substances Control
Act, the Federal Coastal Zone Management Act, the Federal Outer Continental
Shelf Lands Act, the Federal Endangered Species Act, the Federal Marine Mammal
Protection Act, the Federal National Environmental Policy Act, and similar
state laws.


 


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


 


“ERISA Affiliate” shall mean, with respect to any
Person, any other Person or any trade or business, whether or not incorporated,
that, together with such first Person would be deemed a “single employer”
within the meaning of section 4001(b) of ERISA.  For all purposes under this


 


4





















 


Agreement, Forest shall be deemed to be an ERISA Affiliate of Spinco,
regardless of whether the Distribution has occurred.


 


“Estimated Basis” shall have the meaning specified in
Section 6.21.


 


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


 


“Exchange Agent” shall have the meaning specified in
Section 2.8(a).


 


“Exchange Fund” shall have the meaning specified in
Section 2.8(a).


 


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


 


“Forest Common Stock” shall mean the common stock, par
value $.10 per share, of Forest.


 


“Forest Disclosure Schedule” shall mean the schedule
prepared and delivered by Forest to the Company as of the date of this
Agreement, setting forth, among other things, certain information that, to the
extent provided herein, qualifies certain representations, warranties and
agreements of Forest made in this Agreement.


 


“Forest Group” shall mean Forest and the Forest
Subsidiaries.


 


“Forest Incentive Plans” shall mean the Forcenergy
Inc. 1999 Stock Plan and the Forest 2001 Stock Incentive Plan.


 


“Forest Rights” shall mean the common stock purchase
rights issued pursuant to the First Amended and Restated Rights Agreement,
dated as of October 17, 2003, by and between Forest and Mellon Investor
Services LLC.


 


“Forest Savings Plan” shall have the meaning specified
in Section 6.8(d).


 


“Forest Stock Option” shall mean an option to acquire
Forest Common Stock granted pursuant to a Forest Incentive Plan that is held by
a Continuing Spinco Employee as of the Effective Time.


 


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


 


“GAAP” shall mean United States generally accepted
accounting principles.


 


“Governmental Authority” shall mean any federal, state
or local court, administrative agency, board, bureau or commission or other
governmental department, authority or instrumentality or any subdivision,
agency, commission or authority thereof.


 


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


 


5





















 


“Hazardous Material” shall mean any substance,
material or waste regulated under Environmental Laws, and includes petroleum
and any derivative thereof.


 


“HSR Act” shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder.


 


“HSR Agencies” shall mean the Federal Trade Commission
and the Antitrust Division of the Department of Justice.


 


“Indemnified Party” shall have the meaning set forth
in Section 6.12(a).


 


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


 


“IRS” shall mean the United States Internal Revenue
Service or any successor thereto, including, but not limited to its agents,
representatives and attorneys.


 


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


 


“Licenses” shall mean any license, authorization,
permit, certificate, variance, exemption, Order, franchise or approval from any
Governmental Authority.


 


“Liens” has the meaning set forth in
Section 4.21.


 


“Losses” shall have the meaning set forth in
Section 9.1(b).


 


“Material Adverse Effect,” with respect to any Person,
shall mean any circumstance, change or effect that is or is reasonably likely
to be materially adverse to (i) the business, operations, assets,
liabilities, results of operations or condition (financial or otherwise) of
such Person and its Subsidiaries, taken as a whole (which may include damage
attributable, both directly and indirectly, to Hurricane Katrina), except for
such effects on or changes in general economic or capital market conditions and
effects and changes that generally affect the U.S. domestic oil and gas
exploration and production business, or (ii) the ability of such Person to
perform its obligations hereunder or under the other Transaction Agreements, in
each case other than any such circumstance, change or effect that relates to or
results primarily from (x) the announcement, pendency or consummation of the
transactions contemplated by this Agreement or the other Transaction Agreements
or (y) acts of war, insurrection, sabotage or terrorism; provided, however,
that damages attributable to Hurricane Katrina disclosed in the September 9,
2005 written damage report of the Company and in the September 9, 2005 written
damage report of Forest, respectively, shall not be taken into account in
determining whether a Material Adverse Effect exists or has occurred.


 


“Merger” shall have the meaning specified in
Section 2.1(b).


 


6





















 


“Merger Consideration” shall mean the number of shares
of Company Common Stock issuable at the Effective Time in exchange for one
share of Spinco Common Stock in accordance with the provisions of
Section 2.2(a).


 


“Merger Sub” shall have the meaning specified in the
preamble hereto.


 


“Nasdaq” shall mean The Nasdaq Stock Market.


 


“NYBCL” shall mean the Business Corporation Law of the
State of New York.


 


“NYSE” shall mean the New York Stock
Exchange, Inc.


 


“Offshore Gulf of Mexico” shall mean (i) the Outer
Continental Shelf, as defined at 43 U.S.C. 1331(a), located in the Gulf of
Mexico, and (ii) lands submerged in offshore waters within the jurisdiction of
Alabama, Florida, Louisiana, Mississippi or Texas.


 


“Option Exchange Ratio” shall have the meaning
specified in Section 2.9(b).


 


“Order” shall mean any decree, judgment, injunction,
writ, rule or other order of any Governmental Authority.


 


“Out-of-Pocket Expenses” shall have the
meaning specified in Section 8.3(a).


 


“PBGC” shall mean the U.S. Pension Benefit Guaranty
Corporation.


 


“Permitted Liens” of any Person shall mean any (a)
purchase money Liens and Liens in connection with capital leases, in each case
upon or in any equipment acquired or held by such Person in the ordinary course
of business; provided that, the indebtedness secured by such Liens (i) was
incurred solely for the purpose of financing the acquisition of such equipment,
and does not exceed the aggregate purchase price of such equipment, (ii) is
secured only by such equipment and not by any other assets of such Person or
its Subsidiaries, (iii) is not increased in amount and (iv) is not described in
the Forest Disclosure Schedule, Spinco Disclosure Schedule or Company
Disclosure Schedule; (b) Liens for Taxes, assessments, or other governmental
charges or levies not yet due or that (provided that foreclosure, sale, or
other similar proceedings shall not have been initiated) are being contested in
good faith by appropriate proceedings; (c) Liens in favor of vendors, carriers,
warehousemen, repairmen, mechanics, workmen, materialmen, construction, or
similar Liens arising by operation of law in the ordinary course of business in
respect of obligations that are not yet due or that are being contested in good
faith by appropriate proceedings; (d) Liens to operators and non-operators
under joint operating agreements arising in the ordinary course of the business
of such Person to secure amounts owing, which amounts are not yet due or are
being contested in good faith by appropriate proceedings; (e) royalties,
overriding royalties, net profits interests, production payments, reversionary
interests, calls on production, preferential purchase rights and other burdens
on or deductions from the proceeds of production, that do not secure
indebtedness for borrowed money; (f) Liens arising in the ordinary course of
business out of pledges or deposits under workers’ compensation laws,
unemployment insurance, old age pensions or other social security or retirement
benefits, or similar legislation or to secure public or statutory obligations
of such Person; (g) operating agreements, unitization and pooling agreements
and orders, production


 


7





















 


handling agreements, processing agreements, transportation agreements,
sales agreements, farmout agreements, gas balancing agreements and other
agreements, in each case that are customary in the oil, gas and mineral
exploration and production business and that are entered into in the ordinary
course of business, to the extent that such Liens do not materially impair the
use of the property covered by such Lien for the purposes for which such
property is held by such Person; (h) consents to assignments, rights reserved
to or vested in any Governmental Authority or lessor, and rights of set-off
and banker’s liens in each case that do not secure indebtedness; and (i)
easements, rights-of-way, restrictions, and other similar
encumbrances, and minor defects in the chain of title that are customary in the
oil and gas industry, none of which interfere with the ordinary conduct of the
business of such Person or any Subsidiary of such Person or materially detract
from the value or use of the property to which they apply.


 


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


 


“Privileged Information” shall have the meaning
specified in the Distribution Agreement.


 


“Proxy Statement/Prospectus” shall mean the proxy
statement/prospectus to be distributed to the stockholders of the Company in
connection with the Merger and the transactions contemplated by this Agreement,
including any preliminary proxy statement/prospectus or definitive proxy statement/prospectus
filed with the SEC in accordance with the terms and provisions hereof.  The Proxy Statement/Prospectus shall
constitute a part of the Registration Statement on Form S-4.


 


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


 


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


 


“Requisite Approval” shall have the meaning specified
in Section 5.20.


 


“Retention Benefit” shall have the meaning specified
in Section 6.8(g).


 


“Retention Period” shall have the meaning specified in
Section 6.8(e).


 


“Rule 145 Affiliate” shall have the meaning
specified in Section 6.13.


 


“Rule 145 Affiliate Agreement” shall have the
meaning specified in Section 6.13.


 


8





















 


“SEC” shall mean the U.S. Securities and Exchange
Commission.


 


“Securities Act” shall mean the Securities Act of
1933, as amended, together with the rules and regulations of the SEC
promulgated thereunder.


 


“Significant Subsidiary” shall have the meaning set
forth in Rule 1-02 of Regulation S-X of the Exchange Act.


 


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


 


“Spinco 2004 Financial Statements” shall have the
meaning set forth in Section 4.4.


 


“Spinco Assets” shall have the meaning specified in
the Distribution Agreement.


 


“Spinco Benefit Plans” shall have the meaning
specified in Section 4.12(a).


 


“Spinco Business” shall have the meaning specified in
the Distribution Agreement.


 


“Spinco Common Stock” shall mean the Common Stock, par
value $.10 per share, of Spinco.


 


“Spinco Disclosure Schedule” shall mean the schedule
prepared and delivered by Spinco to the Company as of the date of this
Agreement, setting forth, among other things, certain information that, to the
extent provided herein, qualifies certain representations, warranties and
agreements of Forest and Spinco made in this Agreement.


 


“Spinco Employee” shall have the meaning specified in
Section 4.12(a).


 


“Spinco Financial Statements” shall have the meaning
specified in Section 4.4.


 


“Spinco Group” shall mean Spinco and the Spinco
Subsidiaries.


 


“Spinco Liabilities” shall have the meaning specified
in the Distribution Agreement.


 


“Spinco Preferred Stock” shall mean the Preferred
Stock of Spinco.


 


“Spinco Reserve Report” shall have the meaning
specified in Section 4.23.


 


“Spinco Subsidiaries” shall mean all direct and
indirect Subsidiaries of Spinco immediately after the Distribution Date and
prior to the Effective Time.


 


“Spinco Voting Debt” shall have the meaning specified
in Section 4.2.


 


“Subsidiary” shall mean, with respect to any Person, a
corporation, partnership, limited liability company or other entity in which
such Person, a Subsidiary of such Person or such Person and one or more
Subsidiaries of such Person, directly or indirectly, has either (i) a
majority ownership in the equity thereof, (ii) the power, under ordinary
circumstances, to elect, or to direct the election of, a majority of the board
of directors or other governing body of such


 


9





















 


entity, or (iii) the title or function of general partner or
manager, or the right to designate the Person having such title or function.


 


“Superior Offer” shall have the meaning specified in
Section 6.11(g).


 


“Surviving Corporation” shall have the meaning set
forth in Section 2.1(b).


 


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


 


“Tax Return” means any return, report, certificate,
form or similar statement or document (including any related or supporting
information or schedule attached thereto and any information return, amended
tax return, claim for refund or declaration of estimated Tax) required to be
supplied to, or filed with, a Taxing Authority in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax.


 


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


 


“Taxing Authority” means any Governmental Authority or
any quasi-governmental or private body having jurisdiction over the
assessment, determination, collection or imposition of any Tax (including the
IRS).


 


“Termination Date” shall mean the date, if any, on
which this Agreement is terminated pursuant to Section 8.1.


 


“Termination Fee” shall have the meaning specified in
Section 8.3(b).


 


“Termination for Cause” shall have the meaning
assigned to such term in Forest’s Severance Plan as in effect on the date of
this Agreement.


 


“Third Party Provisions” shall have the meaning specified
in Section 9.7.


 


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


 


“Transition Services Agreement” shall mean the Transition
Services Agreement of even date herewith between Forest and its affiliates and
Spinco and its affiliates in the form attached to the Distribution Agreement.


 


10





















 


“Unvested Forest Stock Option” shall mean the portion
of a Forest Stock Option representing the shares of Forest Common Stock for
which such option is not exercisable as of the Effective Time.


 


ARTICLE II



THE MERGER


 


Section 2.1             Distribution and Merger.


 


(a)           Subject
to the terms and conditions of the Distribution Agreement, prior to or on the
Distribution Date, the parties thereto shall effect the various transactions
contemplated by the Distribution Agreement.


 


(b)           At
the Effective Time:  (i) Merger Sub
shall be merged with and into Spinco (the “Merger”), the separate existence of
Merger Sub shall cease and Spinco shall continue as the surviving corporation
of the Merger (sometimes referred to herein as the “Surviving Corporation”);
(ii) the Amended and Restated Certificate of Incorporation of Spinco as in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter duly amended in
accordance with applicable law and such Certificate of Incorporation; and
(iii) the Amended and Restated Bylaws of Spinco as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until thereafter duly amended in accordance with applicable law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.


 


(c)           The
Board of Directors of the Company from and after the Effective Time shall be
increased to seven (7) directors, five of whom shall be the directors of
the Company immediately prior to the Effective Time, and two of whom shall be
mutually agreed by Forest and the Company prior to the Effective Time.  The initial officers of the Company from and
after the Effective Time shall be as set forth in Exhibit B hereto. 
Such directors and officers of the Company shall serve until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Company’s Certificate of
Incorporation and Bylaws.  The Board of
Directors of the Company shall also appoint committees as appropriate,
including an audit committee, a compensation committee and a nominating
committee.  The Certificate of
Incorporation and Bylaws of the Company at the Effective Time shall be
substantially in the forms attached hereto as Exhibit C
and Exhibit D,
respectively.  The corporate and
operational headquarters of the Company will be located in Houston, Texas.


 


(d)           The
directors of Merger Sub shall, from and after the Effective Time, be the
directors of the Surviving Corporation. 
The officers of Merger Sub shall, from and after the Effective Time, be
the officers of the Surviving Corporation. 
Such directors and officers of the Surviving Corporation shall serve
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation’s Certificate of Incorporation and Bylaws.


 


11





















 


(e)           The
Merger shall have the effects set forth in this Article II and the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of Spinco and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of each of Spinco and Merger Sub shall become the
debts, liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.


 


Section 2.2             Effect on Capital Stock.  At the Effective Time,
by virtue of the Merger and without any action on the part of Merger Sub,
Spinco or any holder of any Spinco Common Stock:


 


(a)           Each
share of Spinco Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with
Section 2.2(b)) shall be automatically converted into the right to receive
one fully paid and nonassessable share of Company Common Stock; provided,
however, that in the event that, subsequent to the date hereof but prior to the
Effective Time, the outstanding shares of Spinco Common Stock shall have been
changed into a different number of shares as a result of a stock split, reverse
stock split, stock dividend, subdivision, reclassification, combination, exchange,
recapitalization or other similar transaction, the Merger Consideration shall
be appropriately adjusted to provide the holders of the Spinco Common Stock the
same economic effect contemplated by this Agreement prior to such event.


 


(b)           Each
share of Spinco Common Stock held by Spinco as treasury stock and each share of
Spinco Common Stock owned by the Company or Merger Sub, in each case
immediately prior to the Effective Time, shall be canceled and shall cease to
exist and no stock or other consideration shall be delivered in exchange
therefor.


 


(c)           Each
share of common stock, par value $.0001 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into one
fully paid and nonassessable share of common stock, par value $.10 per share,
of the Surviving Corporation.


 


Section 2.3             Cancellation of Stock.  Each share of Spinco Common Stock
issued and outstanding immediately prior to the Effective Time, when converted
in accordance with Section 2.2, shall no longer be outstanding and shall
automatically be canceled and shall cease to exist.  Each holder of a certificate that,
immediately prior to the Effective Time, represented outstanding shares of
Spinco Common Stock (collectively, the “Certificates”) shall cease to have any
rights with respect thereto, except the right to receive, upon the surrender of
any such Certificate, a certificate representing the shares of Company Common
Stock to which such holder is entitled pursuant to Section 2.2 and any dividends
or other distributions to which such holder is entitled pursuant to
Section 2.8(c).


 


Section 2.4             Stockholders Meeting.


 


(a)           As
promptly as practicable following the date hereof and the effectiveness of the
Registration Statements, the Company, subject to Section 6.11, shall call
a special meeting of its stockholders (the “Company Stockholders Meeting”) to
be held as promptly as practicable for


 


12





















 


the purpose of
voting upon (i) the adoption of this Agreement and (ii) any related
matters.  Subject to Section 6.11,
this Agreement shall be submitted for adoption to the stockholders of the
Company at such special meeting.  Without
limiting the generality of the foregoing, the Company shall cause the Company
Stockholders Meeting to be held and such vote taken within 60 days
following the effectiveness of Spinco’s Registration Statement on Form S-4.  The Company shall deliver to the Company’s
stockholders the Proxy Statement/Prospectus in definitive form in connection
with the Company Stockholders Meeting at the time and in the manner provided by
the applicable provisions of the DGCL, the Exchange Act and the Company’s
Second Amended and Restated Certificate of Incorporation and Fourth Amended and
Restated Bylaws and shall conduct the Company Stockholders Meeting and the
solicitation of proxies in connection therewith in compliance with such
statutes, charter and bylaws.


 


(b)           Subject
to Section 6.11 and its fiduciary duty under applicable law, the Board of
Directors of the Company shall recommend that the Company’s stockholders adopt
this Agreement and approve the transactions contemplated hereby, and such
recommendations shall be set forth in the Proxy Statement/Prospectus.  The Company shall comply with its obligations
under Section 2.4(a) whether or not its Board of Directors withdraws,
modifies or changes its recommendation regarding this Agreement or recommends
any other offer or proposal.


 


Section 2.5             Closing.  Unless the transactions herein
contemplated shall have been abandoned and this Agreement terminated pursuant
to Section 8.1, the closing of the Merger and the other transactions
contemplated hereby (the “Closing”) shall take place at the offices of Baker
Botts L.L.P., in Houston, Texas at 10:00 a.m., Central time, as promptly
as practicable and in no event later than the second business day following the
satisfaction or, if permissible, waiver of the conditions set forth in
Article VII (except for those conditions that, by the express terms
thereof, are not capable of being satisfied until the Effective Time), or at
such other time and place as Spinco and the Company shall agree in writing.


 


Section 2.6             Effective Time.  Upon the terms and subject to the
conditions of this Agreement, as soon as practicable at or after the Closing, a
certificate of merger shall be filed with the Secretary of State of the State
of Delaware with respect to the Merger (the “Certificate of Merger”), in such
form as is required by, and executed in accordance with, the applicable provisions
of the DGCL. The Merger shall become effective at the time of filing of the
Certificate of Merger or at such later time as the parties hereto may agree and
as is provided in the Certificate of Merger. 
The date and time at which the Merger shall become so effective is
herein referred to as the “Effective Time.”


 


Section 2.7             Closing of Transfer Books.  From and after the
Effective Time, the stock transfer books of Spinco shall be closed and no
transfer shall be made of any shares of capital stock of Spinco that were
outstanding immediately prior to the Effective Time.


 


Section 2.8             Exchange of Certificates.


 


(a)           Exchange Agent.  Prior to the Effective Time, the Company
shall deposit with such bank or trust company as shall be agreed upon by Spinco
and the Company (the “Exchange Agent”), for the benefit of holders of shares of
Spinco Common Stock and for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares


 


13





















 


of Company Common
Stock issuable pursuant to Section 2.2 in exchange for outstanding shares
of Spinco Common Stock as of the Effective Time (such certificates for shares
of Company Common Stock, together with any dividends or distributions with respect
thereto to which the holders thereof may be entitled pursuant to
Section 2.8(c), being hereinafter referred to as the “Exchange Fund”). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the Company
Common Stock contemplated to be issued pursuant to Section 2.2 from the
shares of stock held in the Exchange Fund. 
The Exchange Fund shall not be used for any other purpose.


 


(b)           Exchange Procedures.  As promptly as practicable after the
Effective Time, the Company shall cause the Exchange Agent to mail or deliver
to each holder of record of a Certificate or Certificates whose shares were
converted pursuant to Section 2.2 into the right to receive shares of
Company Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Spinco and the Company
may reasonably specify) and (ii) instructions for the use of such letter
of transmittal in effecting the surrender of the Certificates in exchange for
certificates representing the shares of Company Common Stock that such holder
has the right to receive pursuant to this Article II. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Spinco and the Company, together with such letter
of transmittal, duly executed, and any other required documents, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Company Common Stock that such
holder has the right to receive pursuant to this Article II (and any
dividends or distributions pursuant to Section 2.8(c)), and the
Certificate so surrendered shall forthwith be canceled.  In the event of a transfer of ownership of
shares of Spinco Common Stock that is not registered in the transfer records of
Spinco, a certificate representing the proper number of shares of Company
Common Stock (and any dividends or distributions pursuant to
Section 2.8(c)) may be issued to a transferee only on the condition that
the Certificate formerly representing such shares of Spinco Common Stock is
presented to the Exchange Agent, properly endorsed, and accompanied by all
documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid or that no such taxes are
applicable.  Until surrendered as
contemplated by this Section 2.8, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender a certificate representing shares of Company Common Stock (and any
dividends or distributions pursuant to Section 2.8(c)).  The Exchange Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the Company Common
Stock held by it from time to time hereunder, except that it shall receive and
hold all dividends or other distributions paid or distributed with respect
thereto for the account of persons entitled thereto.


 


If any Certificate shall have been lost, stolen,
mislaid or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen, mislaid or destroyed, the
Company shall cause to be delivered in exchange for such lost, stolen, mislaid
or destroyed Certificate the consideration deliverable in respect thereof as
determined in accordance with this Article II. When authorizing the
delivery of such consideration in exchange therefor, the Company may, in its
sole discretion and as a condition precedent to the delivery thereof, require
the owner of such lost, stolen, mislaid or destroyed Certificate to give the
Company a bond, in form and substance reasonably satisfactory to the Company,
and in such sum as the


 


14





















 


Company may reasonably direct, as indemnity against any claim that may
be made against the Company or the Exchange Agent with respect to the
Certificate alleged to have been lost, stolen, mislaid or destroyed.


 


(c)           Distributions with Respect to Unexchanged Shares.  No dividends or other distributions declared
or made after the Effective Time with respect to Company Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Company Common Stock
which such holder is entitled to receive pursuant to the terms hereof, until
the holder of record of such Certificate shall surrender such Certificate.  Subject to the effect of applicable laws,
following the surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing shares of Company Common Stock issued
in exchange therefor, without interest (i) at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Company
Common Stock and (ii) at the appropriate payment date therefor, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to the surrender of such Certificate and a payment date subsequent to
the surrender of such Certificate payable with respect to such whole shares of
Company Common Stock.  Spinco shall
deposit in the Exchange Fund all such dividends and distributions.


 


(d)           No Further Ownership
Rights in Spinco Common Stock.  All shares of Company Common Stock issued
upon the surrender for exchange of Certificates formerly representing shares of
Spinco Common Stock (including any cash paid pursuant to Section 2.8(c))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Spinco Common Stock.  If, after the Effective Time, Certificates
are presented to the Company or the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II.


 


(e)           Termination of Exchange Fund.  Any portion of the Exchange Fund made
available to the Exchange Agent that remains undistributed to the holders of
Spinco Common Stock on the eighteen-month anniversary of the Effective
Time shall be delivered to the Company, upon demand, and any stockholders of
Spinco who have not theretofore complied with this Article II shall
thereafter look only to the Company for payment of their claim for Company
Common Stock and any dividends or distributions with respect to Company Common
Stock to which they are entitled pursuant to Section 2.8(c).


 


(f)            No Liability.  Neither the Company nor the Surviving
Corporation shall be liable to any holder of a Certificate or any holder of
shares of Company Common Stock for shares of Company Common Stock (or dividends
or distributions with respect thereto or with respect to Spinco Common Stock)
or cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.


 


Section 2.9             Certain Stock Options.


 


(a)           Not
later than immediately before the Effective Time, Forest and the Company shall
take such actions as may be required to provide that, effective as of the
Effective Time, each Unvested Forest Stock Option shall be converted into an
option to acquire (from the


 


15





















 


Company), on the
same terms and conditions as were applicable under such Unvested Forest Stock
Option immediately before the Effective Time, the number of shares of Company
Common Stock determined by multiplying the number of shares of Forest Common
Stock subject to such Unvested Forest Stock Option immediately before the
Effective Time by the Option Exchange Ratio (rounded to the nearest whole
number of shares), at a price per share (rounded to the nearest whole cent)
equal to the exercise price per share of Forest Common Stock otherwise
purchasable pursuant to such Unvested Forest Stock Option divided by the Option
Exchange Ratio; provided, however, that with respect to any Unvested Forest
Stock Option, such conversion shall be effected such that (i) the aggregate
intrinsic value of the award immediately after the conversion is not greater
than the aggregate intrinsic value (as determined pursuant to GAAP) of the
Unvested Forest Stock Option immediately before the conversion, (ii) the
ratio of the exercise price per share to the market value per share is not
reduced as a result of the conversion and (iii) the substitution requirements
of Q&A 4(d)(ii) of Internal Revenue Service Notice 2005-1 are
otherwise met.


 


(b)           For
purposes of Section 2.9(a) above, “Option Exchange Ratio” shall mean the
quotient (rounded to the third decimal place) determined by dividing
(i) the average of the daily closing prices per share of Forest Common
Stock on the NYSE Composite Transactions Reporting System (regular way), as
reported in The Wall Street Journal,
for the last five trading days immediately preceding the Effective Time by
(ii) the average of the daily closing prices per share of Company Common
Stock on the NYSE Composite Transactions Reporting System (regular way) or on
Nasdaq (regular way), as applicable and as reported in The Wall Street Journal, for the first
five trading days following the Effective Time. 
The Option Exchange Ratio shall be subject to appropriate adjustment in
the event of any stock split, stock dividend or recapitalization after the date
of this Agreement applicable to shares of Forest Common Stock or Company Common
Stock.  The Company shall take all
actions necessary to reserve for issuance, from and after the Effective Time, a
sufficient number of shares of Company Common Stock for delivery pursuant to
the options described in Section 2.9(a). 
On or as soon as practicable after the Effective Time, the Company (x)
shall cause to be filed with the SEC a registration statement on an appropriate
form under the Securities Act with respect to shares of Company Common Stock
subject to the options described in Section 2.9(a) and shall use reasonable
efforts to maintain the current status of the prospectus contained therein, as
well as to comply with any applicable state securities or “blue sky” laws, for
so long as such options remain outstanding and (y) shall cause the shares of
Company Common Stock subject to the options described in Section 2.9(a) to
be listed on the NYSE or quoted on Nasdaq.


 


(c)           The
provisions of this Section 2.9 shall not apply to any Forest Stock Option (or
portion thereof) that is subject to Section 3.1 of the Employee Benefits
Agreement.


 


(d)           By
adopting or approving this Agreement, (i) the Board of Directors of the Company
shall be deemed to have approved and authorized each and every amendment to any
of the Company Stock Plans as the officers of the Company may deem necessary or
appropriate to give effect to the preceding provisions of this Section 2.9, and
(ii) the Board of Directors of Forest shall be deemed to have approved and
authorized each and every amendment to any of the Forest Incentive Plans and
the Forest Stock Options as the officers of Forest may deem necessary or
appropriate to give effect to the preceding provisions of this Section 2.9.


 


16





















 


ARTICLE III



REPRESENTATIONS AND
WARRANTIES OF FOREST


 


Except as set forth in the Forest Disclosure Schedule
(with specific reference to the particular Section of this Agreement to which
the information set forth in such disclosure schedule relates; provided, that
any information set forth in one section of the Forest Disclosure Schedule
shall be deemed to apply to each other Section thereof to which it is
relevant), Forest represents and warrants to the Company as follows:


 


Section 3.1             Organization; Qualification.  Forest is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York.


 


Section 3.2             Corporate Authority; No Violation.  Forest has the
corporate power and authority to enter into this Agreement and each other
Transaction Agreement and to carry out its obligations hereunder and
thereunder.  The execution, delivery and
performance by Forest of this Agreement and each other Transaction Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all requisite corporate action on the part of Forest
and no other corporate proceedings on the part of Forest are necessary to
consummate the transactions contemplated hereby and thereby.  This Agreement has been duly executed and
delivered by Forest and, assuming the due authorization, execution and delivery
by the Company, constitutes a legal, valid and binding agreement of Forest,
enforceable against Forest in accordance with its terms (except insofar as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights
generally, or by principles governing the availability of equitable
remedies).  Each other Transaction
Agreement has been duly executed and delivered by Forest and, assuming the due
authorization, execution and delivery by the other parties thereto, constitutes
a legal, valid and binding agreement of Forest, enforceable against Forest in
accordance with its terms (except insofar as such enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws affecting creditors’ rights generally, or by
principles governing the availability of equitable remedies).  Except for matters expressly contemplated by
this Agreement and for such matters described in clauses (b), (c) and
(d) below as would not, individually or in the aggregate, have a Material
Adverse Effect on Forest, the Spinco Business or Spinco, neither the execution
and delivery by Forest of this Agreement and each other Transaction Agreement,
nor the consummation by Forest of the transactions contemplated hereby or
thereby and the performance by Forest of this Agreement and each other
Transaction Agreement will (a) violate or conflict with any provisions of
Forest’s Certificate of Incorporation or Bylaws; (b) require any consent,
approval, authorization or permit of, registration, declaration or filing with,
or notification to, any Governmental Authority or any other Person;
(c) result in any breach of or constitute a default (or an event that,
with notice or lapse of time or both, would become a default) under, or give to
others any right of termination, cancellation, amendment or acceleration of any
obligation or the loss of any benefit under, any Contract to which Forest or
any of its Subsidiaries is a party or by which Forest or any of its
Subsidiaries is bound or affected; (d) result in the creation of a lien,
pledge, security interest, claim or other encumbrance on any of the issued and
outstanding shares of Spinco Common Stock, capital stock of any Spinco
Subsidiary or on any of the Spinco Assets pursuant to any Contract to which
Forest or any of its Subsidiaries (including Spinco and its Subsidiaries) is a


 


17





















 


party or by which Forest or its Subsidiaries is bound or affected; or
(e) violate or conflict with any Order, law, ordinance, rule or regulation
applicable to Forest or any of its Subsidiaries (including Spinco and its
Subsidiaries), or any of the properties, business or assets of any of the
foregoing.  Section 3.2 of the
Forest Disclosure Schedule identifies all material consents, approvals and
authorizations of any Governmental Authority that are legally required to be
obtained by Forest for the consummation of the transactions contemplated by the
Transaction Agreements.


 


Section 3.3             Information Supplied.  All documents that Forest is responsible
for filing with any Governmental Authority in connection with the transactions
contemplated hereby and by each other Transaction Agreement will comply in all
material respects with the provisions of applicable law.


 


Section 3.4             Brokers or Finders.  No agent, broker, investment banker,
financial advisor or other similar Person is or will be entitled, by reason of
any agreement, act or statement by Forest or any of its Subsidiaries,
directors, officers or employees, to any financial advisory, broker’s, finder’s
or similar fee or commission, to reimbursement of expenses or to
indemnification or contribution, in each case, by Spinco or any of its
Subsidiaries, in connection with any of the transactions contemplated by this
Agreement or the other Transaction Agreements.


 


Section 3.5             Forest Rights Plan. 
Forest has taken all action necessary, if any, to render the Forest
Rights inapplicable to this Agreement, the Distribution Agreement and the
transactions contemplated hereby and thereby.


 


Section 3.6             No Other Representations and Warranties.  Except for the representations and warranties
contained in this Article III and in Article IV and except for any
representations and warranties specifically set forth in the other Transaction
Agreements, the Company acknowledges that neither Forest nor any other Person
makes any express or implied representation or warranty with respect to Forest
and its Subsidiaries, the Spinco Assets, the Spinco Business or otherwise or
with respect to any other information provided to the Company, whether on
behalf of Forest or such other Persons. 
Neither Forest nor any other Person will have or be subject to any
liability or indemnification obligation to the Company or any other Person to the
extent resulting from the distribution to the Company or the Company’s use of,
any information related to Forest and any other information, document,
financial information or projections or material made available to the Company
in certain “data rooms,” management presentations or in any other form in
connection with the transactions contemplated by this Agreement.


 


ARTICLE IV



REPRESENTATIONS AND
WARRANTIES OF FOREST AND SPINCO


 


Except as set forth in the Spinco Disclosure Schedule
(with specific reference to the particular Section of this Agreement to which
the information set forth in such disclosure schedule relates; provided, that
any information set forth in one section of the Spinco Disclosure


 


18





















 


Schedule shall be deemed to apply to each other Section thereof to
which it is relevant), Forest and Spinco, jointly and severally, represent and
warrant to the Company as follows:


 


Section 4.1             Organization, Qualification.  Spinco is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.  Spinco has all
requisite power and authority to own, lease and operate its properties and
assets and to carry on the Spinco Business as presently conducted and as proposed
to be conducted and at the Distribution Date and the Effective Time will be
duly qualified and licensed to do business and in good standing in each
jurisdiction in which the ownership or leasing of its property or the conduct
of the Spinco Business, as presently conducted and as proposed to be conducted,
requires such qualification, except for jurisdictions in which the failure to
be so qualified or to be in good standing, individually or in the aggregate,
would not have a Material Adverse Effect on the Spinco Business or Spinco.  The copies of the Spinco Certificate of
Incorporation and Bylaws in existence on the date hereof are included as part
of Section 4.1 of the Spinco Disclosure Schedule and are complete and
correct and in full force and effect on the date hereof.  Spinco is not in violation of any of the
provisions of its Certificate of Incorporation or Bylaws.  All of the Subsidiaries of Spinco and their
respective jurisdictions of incorporation or organization (together with a
designation of those Subsidiaries constituting Significant Subsidiaries of
Spinco) are identified in Section 4.1 of the Spinco Disclosure
Schedule.  Spinco was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by this Agreement.


 


Section 4.2             Capital Stock and Other Matters.  The authorized capital
stock of Spinco consists of 100,000 shares of Spinco Common Stock and no shares
of Spinco Preferred Stock.  As of the
date hereof, 100 shares of Spinco Common stock were issued and
outstanding.  At the Distribution Date
and immediately prior to the Closing, (i) there will be issued and
outstanding 50,637,010 shares of Spinco Common Stock, subject to adjustment as
set forth on Section 4.2 of the Spinco Disclosure Schedule and as provided
in Section 2.4 of the Distribution Agreement; (ii) no shares of
Spinco Common Stock will be held by Spinco in its treasury; (iii) no
shares of Spinco Preferred Stock will be issued and outstanding; and
(iv) no bonds, debentures, notes or other indebtedness of Spinco or any of
its Subsidiaries having the right to vote (or convertible into securities
having the right to vote) on any matters on which holders of shares of capital
stock of Spinco (including Spinco Common Stock) may vote (“Spinco Voting Debt”)
will be issued or outstanding.  None of
such shares of Spinco Common Stock are, nor at the Distribution Date will they
be, subject to preemptive rights.  All of
the issued and outstanding shares of Spinco Common Stock are, and all of the
issued and outstanding shares of Spinco Common Stock at the Distribution Date
will be, validly issued, fully paid and nonassessable.  Except as set forth in this Section 4.2,
there are no outstanding, (i) shares of capital stock of Spinco, Spinco
Voting Debt or other voting securities of Spinco, (ii) securities of Spinco or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock of Spinco, Spinco Voting Debt or other voting securities of Spinco or
Spinco Common Stock or (iii) options, warrants, calls, rights (including
preemptive rights), commitments or other Contracts (other than certain
Transaction Agreements) to which Spinco or any of its Subsidiaries is a party
or by which Spinco or any of its Subsidiaries will be bound obligating Spinco
or any of its Subsidiaries to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, or otherwise relating to, shares of capital stock of Spinco or any
Spinco Voting Debt or other voting securities


 


19





















 


of Spinco or any of its Subsidiaries or obligating Spinco or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right, commitment or Contract.  There are
no stockholder agreements, voting trusts or other Contracts (other than the
Distribution Agreement) to which Spinco is a party or by which it is bound
relating to the voting or transfer of any shares of capital stock of
Spinco.  Spinco has no direct or indirect
Subsidiaries.


 


Section 4.3             Corporate Authority; No Violation.  Spinco has the
corporate power and authority to enter into this Agreement and each other
Transaction Agreement and to carry out its obligations hereunder and
thereunder.  The execution, delivery and
performance by Spinco of this Agreement and each other Transaction Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all requisite corporate action on the part of Spinco,
and no other corporate proceedings are necessary to consummate the Merger and
the other transactions contemplated by the Transaction Agreements.  This Agreement has been duly executed and
delivered by Spinco and, assuming the due authorization, execution and delivery
by the Company and Merger Sub, constitutes a legal, valid and binding agreement
of Spinco, enforceable against Spinco in accordance with its terms (except
insofar as such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws
affecting creditors’ rights generally, or by principles governing the
availability of equitable remedies). 
Each other Transaction Agreement has been duly executed and delivered by
Spinco and, assuming the due authorization, execution and delivery by the other
parties thereto, constitutes a legal, valid and binding agreement of Spinco,
enforceable against Spinco in accordance with its terms (except insofar as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights
generally, or by principles governing the availability of equitable
remedies).  Except for matters expressly
contemplated by this Agreement and for such matters described in clauses (b),
(c) and (d) below as would not, individually or in the aggregate,
have a Material Adverse Effect on Forest, the Spinco Business or Spinco,
neither the execution and delivery by Spinco of this Agreement and each other
Transaction Agreement, nor the consummation by Spinco of the transactions
contemplated hereby or thereby and the performance by Spinco of this Agreement
and each other Transaction Agreement will (a) violate or conflict with any
provision of Spinco’s Certificate of Incorporation or Bylaws; (b) require
any consent, approval, authorization or permit of, registration, declaration or
filing with, or notification to, any Governmental Authority or any other
Person; (c) result in any breach of or constitute a default (or an event
that, with notice or lapse of time or both, would become a default) under, or
give to others any right of termination, cancellation, amendment or
acceleration of any obligation or the loss of any benefit under any Contract to
which Spinco or any of its Subsidiaries is a party or by which Spinco or any of
its Subsidiaries or any of the Spinco Assets is bound or affected;
(d) result in the creation of a lien, pledge, security interest, claim or
other encumbrance on any of the issued and outstanding shares of Spinco Common
Stock or capital stock of any Spinco Subsidiaries or on any of the Spinco
Assets pursuant to any Contract to which Spinco or any of its Subsidiaries is a
party or by which Spinco or any of its Subsidiaries or any of the Spinco Assets
is bound or affected; or (e) violate or conflict with any Order, law,
ordinance, rule or regulation applicable to Spinco or any of its Subsidiaries,
or any of the properties, businesses or assets of any of the foregoing.  Section 4.3 of the Spinco Disclosure
Schedule identifies all material consents, approvals and authorizations of any
Governmental Authority that are legally required to be obtained by Spinco for
the consummation of the transactions contemplated by the Transaction
Agreements.


 


20





















 


Section 4.4             Spinco Financial Statements; Liabilities.  Forest
and Spinco have previously made available to the Company complete and correct
copies of unaudited financial statements for the Spinco Business, comprised
solely of statements of revenues and direct operating expenses, for the years
ended December 31, 2004 (the “Spinco 2004 Financial Statements”),
December 31, 2003 and December 31, 2002, and unaudited interim
financial statements for the Spinco Business, comprised solely of statements of
revenues and expenses, for the three-month periods ended March 31,
2005 and June 30, 2005 (together with the Spinco 2004 Financial Statements, the
“Spinco Financial Statements”), and Forest and Spinco will make available to
the Company any and all other financial statements for the Spinco Business
required to be included by Regulation S-X of the Exchange Act in the
Registration Statements and the Proxy Statement/Prospectus.  The Spinco Financial Statements fairly
present in all material respects, on the basis set forth therein, the revenues
and direct operating expenses for the respective periods, and any other
financial statements prepared in accordance with this Section 4.4 will fairly
present in all material respects, as applicable, on the basis set forth
therein, the financial position of the Spinco Business as of the respective
dates thereof, and the results of operations and changes in financial position
or other information included therein for the respective periods or as of the
respective dates then ended, in each case except as otherwise noted therein and
subject, where appropriate, to normal year-end audit adjustments.  The Spinco Financial Statements and such
other financial statements have been or will be prepared in accordance with
past practice and GAAP, and on a consistent basis, except as otherwise noted
therein.  Spinco and the Spinco Business
do not have any liability or obligation (whether accrued, absolute, contingent
or otherwise), other than (i) liabilities incurred in the ordinary course
of business since June 30, 2005, (ii) liabilities that, individually or in the
aggregate, would not have a Material Adverse Effect on the Spinco Business or
Spinco and (iii) liabilities and obligations under the Transaction
Agreements.


 


Section 4.5             Absence of Certain Changes or Events.  Except as specifically
contemplated by this Agreement or the other Transaction Agreements, since June
30, 2005, the Spinco Business has been conducted only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been, occurred or arisen any change, or any event (including any damage,
destruction or loss whether or not covered by insurance), condition or state of
facts of any character that, individually or in the aggregate, would have a
Material Adverse Effect on the Spinco Business or Spinco, whether or not
arising in the ordinary course of business.


 


Section 4.6             Investigations; Litigation.


 


(a)           To
Forest’s or Spinco’s Knowledge, no investigation or review by any Governmental
Authority with respect to Forest, Spinco or any of their respective
Subsidiaries or the Spinco Business is pending or threatened, nor has any
Governmental Authority indicated to Forest or Spinco or any of their respective
Subsidiaries an intention to conduct the same.


 


(b)           There
is no Action pending or, to Forest’s or Spinco’s Knowledge, threatened against
or affecting Forest, Spinco or any of their respective Subsidiaries, properties
or assets or the Spinco Business at law or in equity, or before any
Governmental Authority or arbitrator, that (i) if adversely determined,
individually or in the aggregate, would have a Material Adverse Effect on the
Spinco Business or Spinco or (ii) seeks to delay or prevent the
consummation of


 


21





















 


the Merger or any
other transaction contemplated by this Agreement or any other Transaction
Agreement.  There is no Order of any
Governmental Authority or arbitrator outstanding against Forest, Spinco or any
of their respective Subsidiaries or with respect to their respective properties
or assets or the Spinco Business that, individually or in the aggregate, would
have a Material Adverse Effect on the Spinco Business or Spinco.


 


Section 4.7             Licenses; Compliance with Laws.  As of the date hereof Forest
or a Subsidiary of Forest holds, and as of the Distribution Date and the
Effective Time Spinco and its Subsidiaries will hold, all Licenses that are
required for the conduct of the Spinco Business, as presently conducted, except
such Licenses for which the failure to so hold, individually or in the
aggregate, would not have a Material Adverse Effect on the Spinco Business or
Spinco.  As of the date hereof Forest or
a Subsidiary of Forest is, and as of the Distribution Date and the Effective
Time Spinco and its Subsidiaries will be, in compliance with the terms of all
such Licenses so held, except where the failure so to comply, individually or
in the aggregate, would not have a Material Adverse Effect on the Spinco
Business or Spinco.  No suspension or
cancellation of any of the Licenses relating to the Spinco Business is pending
or, to Forest’s or Spinco’s Knowledge, threatened, except where the failure to
have, or the suspension or cancellation of, any of such Licenses would not have
a Material Adverse Effect on the Spinco Business or Spinco.  Except with respect to Environmental Laws,
ERISA and laws relating to Taxes, Forest, Spinco and their respective
Subsidiaries are in compliance with all, and have received no notice of any
violation (as yet unremedied) of any laws, ordinances or regulations of any
Governmental Authority applicable to the Spinco Business, except for such
instances of noncompliance which, individually or in the aggregate, would not
have a Material Adverse Effect on the Spinco Business or Spinco.


 


Section 4.8             Proxy Statement/Prospectus; Registration Statements.  None
of the information regarding Forest or its Subsidiaries or Spinco or its
Subsidiaries or the transactions contemplated by this Agreement or any other
Transaction Agreement provided by Forest or Spinco specifically for inclusion
in the Proxy Statement/Prospectus or the Registration Statements will, in the
case of the definitive Proxy Statement/Prospectus or any amendment or
supplement thereto, at the time of the mailing of the definitive Proxy
Statement/Prospectus and any amendment or supplement thereto and at the time of
the Company Stockholders Meeting, or, in the case of each Registration Statement,
at the time it becomes effective, at the time of the Company Stockholders
Meeting, at the Distribution Date and at the Effective Time contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.  The Registration Statements will comply in
all material respects with the provisions of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations thereunder,
except that no representation is made by Forest or Spinco with respect to
information provided by the Company specifically for inclusion in the
Registration Statements.  All factual
information (excluding estimates and projections) previously furnished by
Forest to the Company with regard to the Spinco Assets and the Spinco Business
was (taken as a whole) true and correct in all material respects on the date on
which such information was furnished and did not contain any untrue statement
of a material fact or omit to state a material fact relevant to the
consummation of the transactions contemplated by this Agreement or necessary to
make the statements contained therein not misleading.


 


22





















 


Section 4.9             Information Supplied.  All documents that Spinco or Forest is
responsible for filing with any Governmental Authority in connection with the
transactions contemplated hereby or by any other Transaction Agreement will
comply in all material respects with the provisions of applicable law.


 


Section 4.10           Environmental Matters.  Except as would not,
individually or in the aggregate, have a Material Adverse Effect on the Spinco
Business or Spinco:


 


(i)            As
of the date hereof Forest or a Subsidiary of Forest has obtained, and as of the
Distribution Date and the Effective Time each of Spinco and its Subsidiaries
shall have obtained, all Licenses, permits and other authorizations under
Environmental Laws (“Environmental Permits”) required for the conduct and
operation of the Spinco Business.  Each
of Spinco, its Subsidiaries and the Spinco Business is in compliance and at all
times has been in compliance with the terms and conditions contained in its
Environmental Permits, and each of them and the Spinco Business is, and for the
past one year has been, in compliance with all applicable Environmental Laws;


 


(ii)           Neither
Spinco nor any of its Subsidiaries is subject to any environmental
indemnification obligation regarding businesses currently operated by Forest,
Spinco or the Spinco Business or any of their respective Subsidiaries or
regarding properties currently owned or leased by Forest, Spinco or the Spinco
Business or any of their respective Subsidiaries;


 


(iii)          To
Forest’s and Spinco’s Knowledge there is no condition on, at, under or related
to any property (including any release of a Hazardous Material into the air,
soil, surface water, sediment or ground water at, under or migrating to or from
such property) currently owned, leased or used by Forest, Spinco or any of
their respective Subsidiaries or created by Spinco’s or any Spinco Subsidiary’s
operations or the Spinco Business that would create liability for Spinco or any
of its Subsidiaries under applicable Environmental Laws and, to Forest’s and
Spinco’s Knowledge, the foregoing representation is true and correct with
regard to property formerly owned, leased or used either by Forest, Spinco or
any of their respective Subsidiaries, or in connection with the Spinco
Business;


 


(iv)          There
are no past or present actions, activities, circumstances, conditions, events
or incidents (including the release, emission, discharge, presence or disposal
of any Hazardous Material) that form or are reasonably likely to form the basis
of a claim against Forest, Spinco or any of their respective Subsidiaries under
Environmental Laws, including any claims based on the alleged exposure of any
Person or property to any Hazardous Material;


 


(v)           Spinco
has made available to the Company all material site assessments, compliance
audits, and other similar studies prepared since January 1, 2002 in the
possession or custody of Forest, Spinco or any of their respective Subsidiaries
relating to (A) the environmental conditions on, under or about the
properties or assets currently owned, leased, operated or used by Spinco, the
Spinco Business, any of its Subsidiaries or any predecessor in interest thereto
and (B) any Hazardous Materials used, managed,


 


23





















 


handled, transported,
treated, generated, stored, discharged, emitted, or otherwise released by
Spinco, the Spinco Business, any of its Subsidiaries or, to Forest’s and Spinco’s
Knowledge, any other Person, on, under, about or from any of the properties
currently owned or leased by, or otherwise in connection with the use or
operation of any of the properties owned or leased by, or otherwise in
connection with the use or operation of any of the properties and assets of,
Spinco or any of its Subsidiaries, or their respective businesses and
operations;


 


(vi)          Since
January 1, 2002, neither Spinco nor Forest in connection with the Spinco
Business nor any Spinco Subsidiary has received any communication that has not
been resolved, whether from a Governmental Authority, citizen’s group, employee
or otherwise, alleging that it is liable under, or not in compliance with, any
Environmental Law; and


 


(vii)         To
Spinco’s and Forest’s Knowledge, there is no requirement anticipated or
formally proposed for notice, comment, adoption or implementation under any
Environmental Law or any Environmental Permit issued pursuant thereto that is
reasonably expected to result in liability or material increases in either
capital or operating costs for Spinco or any of its Subsidiaries.


 


(b)           Insofar
as the representations set forth in subsections (a)(i), (a)(ii), (a)(iii),
(a)(iv) and (a)(vii) relate to Spinco Assets operated by a Person
other than Spinco or any of its respective Subsidiaries, such representations
are given only to the Knowledge of Forest and Spinco.


 


Section 4.11           Tax Matters.


 


(a)           (i) All
material Tax Returns relating to Forest, the Subsidiaries of Forest, Spinco,
the Spinco Subsidiaries and the Spinco Business required to be filed have been
duly and timely filed, (ii) all such Tax Returns are true, correct and
complete in all material respects, (iii) all Taxes shown as due and
payable on such Tax Returns, relating to Forest, any Subsidiary of Forest,
Spinco, any of the Spinco Subsidiaries or the Spinco Business required to be
paid, have been duly and timely paid, (iv) no adjustment relating to such
Tax Returns has been proposed in writing by any Governmental Authority (insofar
as it relates to the activities or income of Forest, the Subsidiaries of
Forest, Spinco, the Spinco Subsidiaries or the Spinco Business), (v) all
material Taxes relating to Forest, any of the Subsidiaries of Forest, Spinco,
any of the Spinco Subsidiaries or the Spinco Business for any taxable period
(or a portion thereof) beginning on or prior to the date of the Closing (which
are not yet due and payable) have been properly reserved for in the Spinco 2004
Financial Statements (or, with respect to Forest and its Subsidiaries, on
Forest’s audited financial statements as of and for the year ended December 31,
2004) whether or not shown as being due on any Tax Returns and (vi) all
material Taxes required to be withheld by or with respect to Forest, the
Subsidiaries of Forest, Spinco, the Spinco Subsidiaries and the Spinco Business
have been withheld and such withheld Taxes have been either duly and timely
paid to the proper Governmental Authority or properly set aside in accounts for
such purpose and will be duly and timely paid to the proper Governmental
Authority.


 


24





















 


(b)           No
written agreement or other written document waiving or extending, or having the
effect of waiving or extending, the statute of limitations or the period of
assessment or collection of any Taxes relating to Forest or the Spinco Business
and no power of attorney with respect to any such Taxes, in each case that is
currently outstanding and in effect, has been filed or entered into with any
Governmental Authority.


 


(c)           No
(i) audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Return of Spinco, any Spinco
Subsidiary or with respect to the Spinco Business as to which any Taxing
Authority has asserted in writing any claim which, if adversely determined,
would have a Material Adverse Effect on Spinco or the Spinco Business, and (ii)
Governmental Authority has asserted in writing any deficiency or claim for
Taxes (including any adjustment to Taxes) with respect to income or any other
material Tax relating to the Spinco Business or for which Spinco or any Spinco
Subsidiary may be liable which has not been fully paid or finally settled.


 


(d)           Neither
Spinco nor any Spinco Subsidiary (i) is a party to or bound by or has any
obligation or liability under any written Tax separation, sharing or similar
agreement or arrangement other than the Tax Sharing Agreement, (ii) is or
has been a member of any consolidated, combined or unitary group for purposes
of filing Tax Returns or paying Taxes, (iii) has entered into a closing
agreement pursuant to Section 7121 of the Code, or any predecessor
provision or any similar provision of state or local law, (iv) is required
to include in income any amount in respect of an adjustment pursuant to
Section 481 of the Code by reason of a change in accounting method, or
(v) has filed any consents under Section 341(f) of the Code.


 


(e)           No
asset of Spinco or any Spinco Subsidiary and no asset of the Spinco Business is
subject to any Tax lien (other than liens for Taxes that are not yet due or
that are being contested in good faith by appropriate proceedings and which
have been properly reserved for in the books and records of Spinco).


 


(f)            To
Forest’s and Spinco’s Knowledge, neither Forest nor Spinco, nor any of their
respective Affiliates, has taken or agreed to take any action that would
prevent the Merger from constituting a transaction qualifying under
Section 368(a) of the Code.  Neither
Forest nor Spinco is aware of any agreement, plan or other circumstance that
would prevent the Merger from qualifying under Section 368(a) of the Code.


 


(g)           None
of the assets of Forest, any Subsidiary of Forest, Spinco, any Spinco
Subsidiary or the Spinco Business are tax-exempt use property within the
meaning of Section 168(h) of the Code.


 


(h)           Neither
Forest, any Subsidiary of Forest, Spinco nor any Spinco Subsidiary has
consummated, has participated in or is currently participating in any
transaction which was or is a listed transaction as defined in Treasury
Regulation Section 1.6011-4(b)(2).


 


Section 4.12           Benefit Plans.


 


(a)           Section 4.12(a)
of the Spinco Disclosure Schedule lists each “employee benefit plan” (as
defined in Section 3(3) of ERISA), and all other employee benefit, bonus,
incentive, deferred compensation, stock option (or other equity-based),
severance, change in control,


 


25





















 


welfare (including
post-retirement medical and life insurance), vacation, retention and
fringe benefit plans, whether or not subject to ERISA and whether written or
oral, sponsored, maintained or contributed to or required to be contributed to
by Forest (to the extent affecting Spinco or the Spinco Business), Spinco or
any of their respective Subsidiaries, or to which Forest (to the extent
affecting Spinco or the Spinco Business), Spinco or any of their respective
Subsidiaries is a party, for the benefit of any Person who is currently, has
been or, on or prior to the Effective Time, is expected to become an employee
of Spinco or any of its Subsidiaries (a “Spinco Employee”) (the “Spinco Benefit
Plans”).  Except as provided in Section
2.9 or in the Employee Benefits Agreement, neither Spinco, any of its
Subsidiaries nor any ERISA Affiliate of any of them has any commitment or
formal plan, whether legally binding or not, to create any additional employee
benefit plan or modify or change any existing Spinco Benefit Plan that would
affect any Spinco Employee.  Spinco has
heretofore delivered or made available to the Company true and complete copies
of each Spinco Benefit Plan and any amendments thereto (or if the plan is not a
written plan, a description thereof), any related trust or other funding
vehicle, any reports or summaries required under ERISA or the Code for the most
recent reporting period and the most recent determination letter received from
the IRS (if any) with respect to each such plan intended to qualify under
Section 401(a) of the Code.


 


(b)           No
liability under Title IV (including Sections 4069 and 4212(c) of ERISA) or
Section 302 of ERISA has been incurred by Spinco, any of its Subsidiaries
or any ERISA Affiliate of any of them that has not been satisfied in full, and
no condition exists that presents a material risk to Spinco, any of its
Subsidiaries or any ERISA Affiliate of any of them of incurring any such
liability, other than liability for premiums due the PBGC (which premiums have
been paid when due).  Except for the plan
established under the Forest Oil Corporation Pension Trust Agreement, no Spinco
Benefit Plan is subject to Title IV of ERISA, Section 302 of ERISA or Section
412 of the Code.


 


(c)           No
Spinco Benefit Plan is a “multiemployer pension plan,” as defined in
Section 3(37) of ERISA, and none of Spinco, any of its Subsidiaries or any
ERISA Affiliate of any of them has made or suffered a “complete withdrawal” or
a “partial withdrawal,” as such terms are respectively defined in Sections 4203
and 4205 of ERISA, which has not been satisfied in full.


 


(d)           Each
Spinco Benefit Plan has been operated and administered in all material respects
in accordance with its terms and applicable law, including ERISA and the
Code.  All contributions required to be
made with respect to any Spinco Benefit Plan have been timely made.  There are no pending or, to Spinco’s and
Forest’s Knowledge, threatened claims by, on behalf of or against any of the
Spinco Benefit Plans or any assets thereof, other than routine benefit claim
matters, that, if adversely determined could, individually or in the aggregate,
result in a material liability for Spinco or any of its Subsidiaries and no
matter is pending (other than routine qualification determination filings,
copies of which have been furnished to the Company or will be promptly
furnished to the Company when made) with respect to any of the Spinco Benefit
Plans before the IRS, the United States Department of Labor or the PBGC.


 


(e)           Each
Spinco Benefit Plan intended to be “qualified” within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code, each
trust maintained under any Spinco Benefit Plan


 


26





















 


intended to
satisfy the requirements of Section 501(c)(9) of the Code has satisfied
such requirements and, in either such case, no event has occurred or condition
is known to exist that would reasonably be expected to adversely affect such
tax-qualified status for any such Spinco Benefit Plan or any such trust.


 


(f)            Except
for a Spinco Benefit Plan that provides retiree medical benefits, no Spinco
Benefit Plan provides medical, surgical, hospitalization, death or similar
benefits (whether or not insured) for employees or former employees of Spinco
or any Subsidiary of Spinco for periods extending beyond their retirement or
other termination of service, other than (i) coverage mandated by
applicable law, (ii) death benefits under any “pension plan,” or
(iii) benefits the full cost of which is borne by the current or former
employee (or his beneficiary).  With
respect to any Spinco Benefit Plan maintained at the Effective Time, Spinco
will have the right at and after the Effective Time to terminate or terminate
participation in such Spinco Benefit Plan or to amend such Spinco Benefit Plan
to reduce future benefits without incurring or otherwise being responsible for
any material liability with respect thereto.


 


(g)           In
connection with the consummation of the transactions contemplated by this
Agreement, no payment of money or other property, acceleration of benefits or
provision of other rights has been or will be made hereunder, under any
agreement contemplated herein, or under any Spinco Benefit Plan or any Contract
listed in Section 4.15 of the Spinco Disclosure Schedule that could reasonably
be expected to be nondeductible under Section 280G of the Code, whether or not
some other subsequent action or event would be required to cause such payment,
acceleration or provision to be triggered.


 


Section 4.13           Labor Matters.  None of Forest, Spinco
or any of their respective Subsidiaries is a party to, or bound by, any collective
bargaining agreement or other Contract with a labor union or labor organization
that would affect the Spinco Business and no collective bargaining agreement is
being negotiated by Forest, Spinco or any of their respective Subsidiaries that
would affect the Spinco Business.  With
respect to Spinco Employees, none of Forest, Spinco or any of their respective
Subsidiaries is the subject of any proceeding asserting that it has committed
an unfair labor practice or is seeking to compel it to bargain with any labor
organization as to wages or conditions of employment nor is there any strike,
work stoppage or other labor dispute involving Forest, Spinco or any of their
respective Subsidiaries or the Spinco Business pending or, to Spinco’s or
Forest’s Knowledge, threatened, that, individually or in the aggregate, would
have a Material Adverse Effect on the Spinco Business or Spinco.  There are no labor controversies pending or,
to Spinco’s or Forest’s Knowledge, threatened against Forest, Spinco or any of
their respective Subsidiaries that, individually or in the aggregate, would
have a Material Adverse Effect on the Spinco Business or Spinco.  There have been no claims initiated by any
labor organization to represent any Spinco Employees not currently represented
by a labor organization.


 


Section 4.14           Intellectual Property Matters.  As
of the date hereof Forest or a Subsidiary of Forest owns or possesses, and as
of the Distribution Date and the Effective Time Spinco and its
Subsidiaries will own or possess, adequate licenses or other valid rights to
use all seismic data, patents, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, service marks, trade secrets,
applications for trademarks and service marks, know-how and other proprietary
rights and information used or held for use in connection with


 


27





















 


the Spinco Business as currently conducted, except where the failure to
own or possess such items, individually or in the aggregate, would not have a
Material Adverse Effect on the Spinco Business or Spinco.  To Forest’s or Spinco’s Knowledge, there is
no assertion or claim challenging the validity of any of the foregoing that,
individually or in the aggregate, would have a Material Adverse Effect on the
Spinco Business or Spinco.  The conduct
of the Spinco Business as currently conducted does not and will not conflict in
any way with any seismic data license, patent, patent right, license, trademark,
trademark right, trade name, trade name right, copyright, service mark, trade
secret, know-how or other proprietary rights or information of any third
party that, individually or in the aggregate, would have a Material Adverse
Effect on the Spinco Business or Spinco.


 


Section 4.15           Material Contracts.


 


(a)           Section 4.15
of the Spinco Disclosure Schedule sets forth all Contracts, other than benefit
plans maintained by Forest, Spinco Benefit Plans and oil and gas leases and
assignments entered into in the ordinary course of business, to which Forest or
any of its Subsidiaries is a party relating to the Spinco Business or to which
Spinco or any Spinco Subsidiary is a party (i) relating to indebtedness
for borrowed money, (ii) that is a “material contract” (as such term is
defined in Item 601(b)(10) of Regulation S-K of the SEC),
(iii) that obligates Forest or Spinco or any of their respective
Subsidiaries to make any payments or issue or pay anything of value to any
director, officer, employee or consultant, (iv) that limit or purport to
limit the ability of Forest or Spinco or any of their respective Subsidiaries
to compete in the U.S. domestic oil and gas exploration, production and
marketing business with any Person in any geographic area or during any period
of time, (v) that includes any material indemnification, contribution or
guarantee obligations (other than such obligations entered into in the ordinary
course of business in offshore oil and gas operations), (vi) that relate
to capital expenditures involving total payments of more than $1 million,
(vii) requiring annual or remaining payments in excess of $1 million
after the date hereof, (viii) that is a seismic license agreement or rig
or drilling contract, (ix) that is a fixed price commodity sales agreement
with a remaining term of more than 60 days, (x) that is a material
Contract relating to any of the properties specified in Section 4.15 of the
Spinco Disclosure Schedule or (xi) that obligates Forest or Spinco or any
of their Subsidiaries to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any other Person.  Neither Forest nor Spinco, nor any of their
respective Subsidiaries, has received notice that any  party to any such Contract is in default, and
each such Contract (x) is freely assignable to Spinco without penalty or
other adverse consequences and (y) upon consummation of the transactions
contemplated by this Agreement and the other Transaction Agreements shall
continue in full force and effect without penalty or other adverse consequence
(other than the termination or expiration thereof in accordance with its terms,
for reasons other than the consummation of the transactions contemplated by
this Agreement and the other Transaction Agreements).


 


(b)           Neither
Forest, Spinco nor any of their respective Subsidiaries is in default in any
respect under any Contract to which it is a party or by which it or any of its
properties or assets is bound, which default, individually or in the aggregate,
would have a Material Adverse Effect on the Spinco Business or Spinco, and
there has not occurred any event that, with the lapse of time or the giving of
notice or both, would constitute such a default.


 


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Section 4.16           Brokers or Finders.  No agent, broker,
investment banker, financial advisor or other similar Person is or will be
entitled, by reason of any agreement, act or statement by Forest, Spinco or any
of their respective Subsidiaries, directors, officers or employees, to any
financial advisory, broker’s, finder’s or similar fee or commission, to
reimbursement of expenses or to indemnification or contribution in connection
with any of the transactions contemplated by this Agreement or any other
Transaction Agreement.


 


Section 4.17           Certain Board Findings.  The Board of Directors
of each of Forest and Spinco, by unanimous written consent or at a meeting duly
called and held, has approved this Agreement and each other Transaction
Agreement.


 


Section 4.18           Vote Required.  The only vote of
stockholders of Forest or Spinco required under any of the NYBCL, DGCL, NYSE
rules, Forest’s Certificate of Incorporation or Bylaws or Spinco’s Certificate
of Incorporation or Bylaws to approve the transactions contemplated by this
Agreement and each other Transaction Agreement is the affirmative vote of the
sole holder of the outstanding shares of Spinco Common Stock prior to the
Distribution Date.  Such affirmative vote
has been obtained on or prior to the date hereof.


 


Section 4.19           Stockholder Approval.  As of the date hereof,
the sole stockholder of Spinco is Forest. 
On the date of this Agreement Forest shall deliver to Spinco a written
consent of Spinco’s sole stockholder in compliance with Section 228 of the
DGCL with respect to all aspects of this Agreement and the other Transaction
Agreements and the transactions contemplated hereby and thereby which require
the consent of Spinco’s stockholders under the DGCL, NYSE rules, Spinco’s
Certificate of Incorporation or Spinco’s Bylaws.  The approval of Forest’s shareholders is not
required to effect the transactions contemplated by the Distribution Agreement,
this Agreement or any other Transaction Agreement.  Upon delivery of such written consent, the
approval of Spinco’s stockholders after the Distribution Date will not be
required to effect the transactions contemplated by this Agreement, including
the Merger, unless this Agreement is amended in accordance with
Section 251(d) of the DGCL after the Distribution Date and such approval
is required, solely as a result of such amendment, under the DGCL, NYSE rules,
Spinco’s Certificate of Incorporation or Spinco’s Bylaws or by the IRS.


 


Section 4.20           Certain Payments.  Except as contemplated
by the Transaction Agreements, no Spinco Benefit Plan or employment
arrangement, no similar plan or arrangement sponsored or maintained by Forest
in which any Spinco Employee is a participant and no contractual arrangement
between Spinco and any third party exists that could result in the payment to
any current, former or future director, officer, stockholder or employee of
Spinco or any of its Subsidiaries, or of any entity the assets or capital stock
of which have been acquired by Spinco or a Spinco Subsidiary, of any money or
other property or rights or accelerate or provide any other rights or benefits
to any such individual as a result of the consummation of the transactions
contemplated by the Transaction Agreements (including the Distribution),
whether or not (a) such payment, acceleration or provision would
constitute a “parachute payment” (within the meaning of Section 280G of
the Code), or (b) some other subsequent action or event would be required
to cause such payment, acceleration or provision to be triggered.


 


Section 4.21           Assets.  As of the date hereof, Forest, a
Subsidiary of Forest, Spinco or a Spinco Subsidiary has, and as of the
Effective Time, Spinco or a Spinco Subsidiary will have,


 


29





















 


good and marketable title to all oil and gas properties forming the
basis for the reserves reflected in the Spinco Reserve Report as attributable
to interests owned by Spinco or any Spinco Subsidiary and, as of the date
hereof, Forest, a Subsidiary of Forest, Spinco or a Spinco Subsidiary has, and
as of the Effective Time, Spinco or a Spinco Subsidiary will have, good and
valid title to or valid leasehold interests or other contractual rights in, all
other Spinco Assets, with respect to both the oil and gas properties and all
other Spinco Assets, free and clear of all mortgages, deeds of trust, liens,
security interests, pledges, leases, conditional sale contracts, claims,
charges, liabilities, obligations, privileges, easements, rights of way,
limitations, reservations, restrictions, options, rights of first refusal and
other encumbrances of every kind (“Liens”) except for Permitted Liens
and Liens associated with obligations reflected in the Spinco Reserve
Report.  The oil and gas leases and other
agreements that provide Forest and its Subsidiaries, and that as of the
Effective Time will provide Spinco and its Subsidiaries, with operating rights
in the oil and gas properties reflected in the Spinco Reserve Report are legal,
valid and binding and in full force and effect, the rentals, royalties and
other payments due thereunder have been properly paid and, to Forest’s and
Spinco’s Knowledge, there is no existing default (or event that, with notice or
lapse of time or both, would become a default) under any of such oil and gas
leases or other agreements, except as would not, individually or in the
aggregate, have a Material Adverse Effect on the Spinco Business or
Spinco.  Each of Spinco and Forest and
their respective Subsidiaries (as the case may be) has maintained all the
Spinco Assets owned on the date hereof in working order and operating condition,
subject only to ordinary wear and tear. 
The Spinco Assets constitute all the assets, properties and rights
related to or required for the conduct of the Spinco Business as currently
conducted, except for the services to be provided pursuant to the Transition
Services Agreement.  The Spinco Assets
include all properties reflected in the Spinco Reserve Report.


 


Section 4.22           Loans.  There are no outstanding loans made to
any Person by Forest, Spinco or any of their respective Subsidiaries that are or
will be Spinco Assets.


 


Section 4.23           Oil and Gas Reserves.  Forest has furnished to
the Company reserve reports prepared by Forest containing estimates of the oil
and gas reserves, as of December 31, 2004 and June 30, 2005 (collectively,
the “Spinco Reserve Report”), that will be owned by Spinco and the Spinco
Subsidiaries upon completion of the Contribution.  The factual, non-interpretive data on
which the Spinco Reserve Report was based for purposes of estimating the oil
and gas reserves set forth therein was accurate in all material respects, and
to the Knowledge of Forest no errors in such information existed at the time
such information was provided.  The
Spinco Reserve Report conforms to the guidelines with respect thereto of the
SEC.  Except for changes (including
changes in hydrocarbon commodity prices) generally affecting the oil and gas
industry and normal depletion by production, there has been no change in
respect of the matters addressed in the Spinco Reserve Report that would
reasonably be expected to have a Material Adverse Effect on the Spinco Business
or Spinco.  Since January 1, 2003 all
wells included in the Spinco Assets have been drilled and (if completed)
completed, operated and produced in compliance in all respects with applicable
oil and gas leases and applicable laws, except where any such failure or
violation would not have a Material Adverse Effect on Spinco, the Spinco Assets
or the Spinco Business.  To the Knowledge
of Forest and Spinco, there are no wells included in the Spinco Assets that
Forest, Spinco or any of their respective Subsidiaries are (i) currently
obligated by applicable law or Contract to plug and abandon, or (ii) obligated
by applicable law or Contract to plug and abandon with the lapse of


 


30





















 


time or notice or both because the well is not currently capable of
producing in commercial quantities.  No
Person has any call on, option to purchase or similar rights with respect to
the production of hydrocarbons attributable to the Spinco Assets, except any
such call, option or similar right at market prices.  Except for gas imbalances between Forest,
Spinco or any of their respective Subsidiaries and any third party working
interest owners, marketers or pipelines relative to the Spinco Assets that have
accrued since June 30, 2005, neither Forest, Spinco nor any of their respective
Subsidiaries is obligated by any gas prepayment arrangement or by any “take-or-pay”
requirement, advance payment or other similar arrangement to deliver any gas at
a future time without then or thereafter receiving payment therefor.  With respect to any oil and gas interests
comprising Spinco Assets that are not operated by Forest, Spinco or any of
their respective Subsidiaries, Forest and Spinco make the representations and
warranties set forth in this Section 4.23 only to Forest’s and Spinco’s
Knowledge.


 


Section 4.24           Derivative Transactions.  Neither Forest nor
Spinco nor any of their respective Subsidiaries has entered into any Derivative
Transaction pursuant to which Spinco, any Spinco Subsidiary or the Spinco
Business has or will have a continuing financial liability or obligation.  All Derivative Transactions entered into by
Forest, Spinco or any of their respective Subsidiaries that are currently open
and pursuant to which Spinco, any Spinco Subsidiary or the Spinco Business has
or will have a continuing financial liability or obligation were entered into
in material compliance with applicable rules, regulations and policies of all
regulatory authorities.


 


Section 4.25           No Other Representations and Warranties.  Except for the representations and warranties
contained in Article III and in this Article IV and except for any
representations and warranties specifically set forth in the other Transaction
Agreements, the Company acknowledges that neither Forest nor Spinco nor any
other Person makes any express or implied representation or warranty with
respect to Spinco or its Subsidiaries, the Spinco Business or otherwise or with
respect to any other information provided to the Company, whether on behalf of
Forest, Spinco or such other Persons, including as to (i) merchantability or
fitness for any particular use or purpose, (ii) the use of the Spinco Assets
and the assets of the Spinco Business and the operation of the Spinco Business
after the Closing in any manner or (iii) the success or profitability of the
ownership, use or operation of the Spinco Business after the Closing.  Neither Forest, Spinco nor any other Person
will have or be subject to any liability or indemnification obligation to the
Company or any other Person to the extent resulting from the distribution to
the Company, or the Company’s use of, any information related to the Spinco
Business and any other information, document or material made available to the
Company in certain “data rooms,” management presentations or in any other form
in connection with the transactions contemplated by this Agreement and the
other Transaction Agreements.


 


ARTICLE V



REPRESENTATIONS AND
WARRANTIES OF THE COMPANY


 


Except as set forth in the Company Disclosure Schedule
(with specific reference to the particular Section of this Agreement to which
the information set forth in such disclosure schedule relates; provided, that
any information set forth in one section of the Company


 


31





















 


Disclosure Schedule shall be deemed to apply to each other Section
thereof to which it is relevant), the Company represents and warrants to Forest
and Spinco as follows:


 


Section 5.1             Organization, Qualification.  Each of the Company and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite power and
authority to own, lease and operate its properties and assets and to carry on
its business as presently conducted and is duly qualified and licensed to do
business and is in good standing in each jurisdiction in which the ownership or
leasing of its property or the conduct of its business requires such qualification,
except for jurisdictions in which the failure to be so qualified or to be in
good standing, individually or in the aggregate, would not have a Material
Adverse Effect on the Company.  The
copies of the Company’s Second Amended and Restated Certificate of
Incorporation and Fourth Amended and Restated Bylaws in existence on the date
hereof included as part of Section 5.1 of the Company Disclosure Schedule
are complete and correct and in full force and effect on the date hereof.  The Company is not in violation of any of the
provisions of its Second Amended and Restated Certificate of Incorporation or
Fourth Amended and Restated Bylaws.  All
of the Company Subsidiaries and their respective jurisdictions of incorporation
or organization (together with a designation of those Subsidiaries constituting
Significant Subsidiaries of the Company) are identified in Section 5.1 of
the Company Disclosure Schedule.  Merger
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement, has engaged in no other business activities and
has conducted its operations only as contemplated by this Agreement.


 


Section 5.2             Capital Stock and Other Matters.  The authorized capital
stock of the Company consists of 70,000,000 shares of Company Common Stock and
20,000,000 shares of Company Preferred Stock. 
At the close of business on September 9, 2005, (i) 35,615,400
shares of Company Common Stock were issued and outstanding, including 2,267,270
shares of restricted stock issued to employees pursuant to the Company’s Equity
Participation Plan, and 2,000,000 shares of Company Common Stock were reserved
for issuance as restricted stock or upon the exercise of stock options granted
or that may be granted under the Company’s Stock Incentive Plan, and none of
such shares have been issued as restricted stock and 807,960 of such shares are
subject to stock options that have been granted to employees and directors;
(ii) no shares of Company Common Stock were held by the Company in its
treasury or by its Subsidiaries; (iii) no shares of Company Preferred
Stock were issued and outstanding; and (iv) no bonds, debentures, notes or
other indebtedness of the Company or any of its Subsidiaries having the right
to vote (or convertible into securities having the right to vote) on any
matters on which holders of shares of capital stock of the Company may vote (“Company
Voting Debt”) were issued or outstanding. 
All of the issued and outstanding shares of Company Common Stock are
validly issued, fully paid and nonassessable and are not subject to preemptive
rights.  Except as set forth in this
Section 5.2, there are no outstanding (i) shares of Company Common
Stock, Company Voting Debt or other voting securities of the Company,
(ii) securities of the Company or any of its Subsidiaries convertible into
or exchangeable for shares of capital stock, Company Voting Debt or other
voting securities of the Company or (iii) except as specified in Section
2.9, options, warrants, calls, rights (including preemptive rights),
commitments or other Contracts (other than certain Transaction Agreements) to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound obligating the Company or any of its
Subsidiaries to issue, deliver, sell, purchase, redeem or acquire, or


 


32





















 


cause to be issued, delivered, sold, purchased, redeemed or acquired,
or otherwise relating to, shares of capital stock of the Company or any of its
Subsidiaries or any Company Voting Debt or other voting securities of the
Company or any of its Subsidiaries or obligating the Company or any Company
Subsidiary to grant, extend or enter into any such option, warrant, call,
right, commitment or Contract.  There are
no stockholder agreements, voting trusts or other Contracts to which the
Company is a party or by which it is bound relating to the voting or transfer
of any shares of capital stock of the Company. 
The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $.0001 per share, all of which are owned by the
Company.  Each outstanding share of
capital stock of Merger Sub is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by the Company is free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the voting rights of the Company or such Company
Subsidiary, charges and other encumbrances of any nature whatsoever.


 


Section 5.3             Corporate Authority; No Violation.  The Company has the
corporate power and authority to enter into this Agreement and, subject to
obtaining the Requisite Approval, to carry out its obligations hereunder.  The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the part
of the Company, subject to obtaining the Requisite Approval, and no other
corporate proceedings are necessary to consummate the Merger.  Merger Sub has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder.  The execution, delivery and
performance by Merger Sub of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of Merger Sub. 
This Agreement has been duly executed and delivered by Merger Sub and,
assuming the due authorization, execution and delivery by Forest and Spinco,
constitutes a legal, valid and binding agreement of Merger Sub, enforceable
against Merger Sub in accordance with its terms (except insofar as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights
generally, or by principles governing the availability of equitable
remedies).  This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Forest and Spinco, constitutes a legal, valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms (except insofar as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws affecting creditors’ rights generally, or by
principles governing the availability of equitable remedies).  Merger Sub is not a party to any Contract
except this Agreement, and has no obligations or liabilities except under this
Agreement and costs incidental to its incorporation in the State of
Delaware.  Except for matters expressly
contemplated by this Agreement and except for such matters described in clauses
(b), (c) and (d) below as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, neither the execution
and delivery by the Company and Merger Sub of this Agreement, nor the
consummation by the Company and Merger Sub of the transactions contemplated
hereby and the performance by the Company and Merger Sub of this Agreement will
(a) violate or conflict with any provision of the Company’s Second Amended
and Restated Certificate of Incorporation or Fourth Amended and Restated Bylaws
or any provision of Merger Sub’s Certificate of Incorporation or Bylaws;
(b) require any consent, approval, authorization or permit of,
registration, declaration or filing with, or notification to, any Governmental
Authority or any other Person; (c) result in any breach of or


 


33





















 


constitute a default (or an event that, with notice or lapse of time or
both, would become a default) under, or give to others any right of
termination, cancellation, amendment or acceleration of any obligation or the
loss of any benefit under any Contract to which the Company or any of its
Subsidiaries is a party, or by which the Company or any of its Subsidiaries or
any of their respective assets or properties is bound or affected;
(d) result in the creation of a lien, pledge, security interest, claim or
other encumbrance on any of the issued and outstanding shares of Company Common
Stock or on any of the assets of the Company or its Subsidiaries pursuant to
any Contract to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of the assets of the
Company or its Subsidiaries is bound or affected; or (e) violate or
conflict with any Order, law, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries, or any of the properties, businesses or
assets of any of the foregoing. 
Section 5.3 of the Company Disclosure Schedule identifies all
material consents, approvals and authorizations of any Governmental Authority
that are legally required to be obtained by the Company for the consummation of
the transactions contemplated by this Agreement.


 


Section 5.4             Company Financial Statements; Liabilities.  The
Company has previously made available to Forest complete and correct copies of
audited consolidated financial statements for the Company as of and for the
years ended December 31, 2004, 2003 and 2002, and unaudited consolidated
interim financial statements for the Company as of and for the three-month
periods ended March 31, 2005 and June 30, 2005 (including any related
notes and schedules thereto, the “Company Financial Statements”).  The Company Financial Statements fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of the respective dates thereof and the results of
operations and changes in financial position or other information included
therein for the respective periods or as of the respective dates then ended, in
each case except as otherwise noted therein and subject, where appropriate, to
normal year-end audit adjustments, in each case in accordance with past
practice and GAAP, consistently applied, during the periods involved (except as
otherwise stated therein).  Except as set
forth in the Company Financial Statements, the Company and its Subsidiaries do
not have any liability or obligation (whether accrued, absolute, contingent or
otherwise) of a nature or character required to be reflected in the
consolidated balance sheet of the Company or in the footnotes thereto, in each
case prepared in conformity with GAAP, other than (i) liabilities incurred
in the ordinary course of business since June 30, 2005, (ii) liabilities that
individually or in the aggregate, would not have a Material Adverse Effect on
the Company and (iii) liabilities and obligations under the Transaction
Agreements.


 


Section 5.5             Absence of Certain Changes or Events.  Except as specifically
contemplated by this Agreement, since June 30, 2005, each of the Company and
its Subsidiaries has conducted its business only in the ordinary course and in
a manner consistent with past practice, and, since such date, there has not
been, occurred or arisen any change, or any event (including any damage,
destruction or loss whether or not covered by insurance), condition or state of
facts of any character that, individually or in the aggregate, would have a
Material Adverse Effect on the Company, whether or not arising in the ordinary
course of business.


 


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Section 5.6             Investigations;
Litigation.


 


(a)           To
the Company’s Knowledge, no investigation or review by any Governmental
Authority with respect to the Company or any of its Subsidiaries is pending or
threatened, nor has any Governmental Authority indicated to the Company or any
of its Subsidiaries an intention to conduct the same.


 


(b)           There
is no Action pending or, to the Company’s Knowledge, threatened against or
affecting the Company or any of its Subsidiaries at law or in equity, or before
any Governmental Authority or arbitrator, that, (i) if adversely
determined, individually or in the aggregate, would have a Material Adverse
Effect on the Company or (ii) seeks to delay or prevent the consummation
of the Merger or any other transaction contemplated by this Agreement.  There is no Order of any Governmental
Authority or arbitrator outstanding against the Company or any Company
Subsidiary or with respect to any of their properties or assets that,
individually or in the aggregate, would have a Material Adverse Effect on the
Company.


 


Section 5.7             Licenses; Compliance
with Laws.  The Company and its Subsidiaries hold
all Licenses that are required for the conduct of the businesses of the Company
and its Subsidiaries, taken as a whole, as presently conducted, except such
Licenses for which the failure to so hold, individually or in the aggregate,
would not have a Material Adverse Effect on the Company.  The Company and its Subsidiaries are in
compliance with the terms of all such Licenses so held, except where the
failure so to comply, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. 
No suspension or cancellation of any of the Company’s Licenses is
pending or, to the Company’s Knowledge, threatened, except where the failure to
have, or the suspension or cancellation of, any of the Company’s Licenses would
not have a Material Adverse Effect on the Company.  Except with respect to Environmental Laws,
ERISA and laws relating to Taxes, the Company and its Subsidiaries are in compliance
with all, and have received no notice of any violation (as yet unremedied) of
any, laws, ordinances or regulations of any Governmental Authority applicable
to any of them or their respective operations, except for such instances of
noncompliance which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company.


 


Section 5.8             Proxy
Statement/Prospectus; Registration Statements.  None
of the information regarding the Company or its Subsidiaries or the
transactions contemplated by this Agreement provided by the Company
specifically for inclusion in the Proxy Statement/Prospectus or the
Registration Statements will, in the case of the definitive Proxy
Statement/Prospectus or any amendment or supplement thereto, at the time of the
mailing of the definitive Proxy Statement/Prospectus and any amendment or
supplement thereto and at the time of the Company Stockholders Meeting, or, in
the case of each Registration Statement, at the time it becomes effective, at
the time of the Company Stockholders Meeting, at the Distribution Date and at
the Effective Time, contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading.  The
Registration Statements (other than the Registration Statement on Form 10) will
comply in all material respects with the provisions of the Securities Act and
the Exchange Act, as the case may be, and the rules and regulations thereunder,
except that no representation is made by the Company with respect to
information provided by Forest and Spinco specifically for inclusion in the


 


35





















 


Registration Statements.  All factual information (excluding estimates
and projections) previously furnished by the Company to Forest relating to the
Company or its business was (taken as a whole, including disclosures set forth
in the Company’s Registration Statement on Form S-1 filed with the SEC,
as amended) true and correct in all material respects on the date on which such
information was furnished and did not contain any untrue statement of a
material fact or omit to state a material fact relevant to the consummation of
the transactions contemplated by this Agreement or necessary to make the
statements contained therein not misleading.


 


Section 5.9             Information Supplied.  All
documents that the Company is responsible for filing with any Governmental Authority
in connection with the transactions contemplated hereby or by any other
Transaction Agreement will comply in all material respects with the provisions
of applicable law.


 


Section 5.10           Environmental Matters.  Except
as would not, individually or in the aggregate, have a Material Adverse Effect
on the Company:


 


(i)            Each
of the Company and its Subsidiaries has obtained all Environmental Permits
required for the conduct and operation of its business and is in compliance and
at all times has been in compliance with the terms and conditions contained in
its Environmental Permits, and is, and for the past one year has been, in
compliance with all applicable Environmental Laws;


 


(ii)           Neither
the Company nor any of its Subsidiaries is subject to any environmental
indemnification obligation regarding businesses currently operated by the
Company or any of its Subsidiaries or regarding properties currently owned or
leased by the Company or any of its Subsidiaries;


 


(iii)          To
the Company’s Knowledge there is no condition on, at, under or related to any
property (including any release of a Hazardous Material into the air, soil,
surface water, sediment or ground water at, under or migrating to or from such
property) currently owned, leased or used by the Company or any of its
Subsidiaries or created by the Company’s or any of the Company Subsidiary’s
operations that would create liability for the Company or any of its
Subsidiaries under applicable Environmental Laws and, to the Company’s
Knowledge, the foregoing representation is true and correct with regard to
property formerly owned, leased or used by the Company or any of its
Subsidiaries;


 


(iv)          There
are no past or present actions, activities, circumstances, conditions, events
or incidents (including the release, emission, discharge, presence or disposal
of any Hazardous Material) that form or are reasonably likely to form the basis
of a claim against the Company or any of its Subsidiaries under Environmental
Laws, including any claims based on the alleged exposure of any Person or
property to any Hazardous Material;


 


(v)           The
Company has made available to Spinco and Forest all material site assessments,
compliance audits, and other similar studies prepared since January 1, 2002 in
the Company’s possession or custody relating to (A) the environmental
conditions on, under or about the properties or assets currently owned, leased,
operated or used by the


 


36





















 


Company, any of its
Subsidiaries or any predecessor in interest thereto and (B) any Hazardous
Materials used, managed, handled, transported, treated, generated, stored,
discharged, emitted, or otherwise released by the Company, any of its
Subsidiaries or, to the Company’s Knowledge, any other Person, on, under, about
or from any of the properties currently owned or leased by, or otherwise in
connection with the use or operation of any of the properties owned or leased
by, or otherwise in connection with the use or operation of any of the
properties and assets of, the Company or any of its Subsidiaries, or their
respective businesses and operations;


 


(vi)          Since
January 1, 2002, neither the Company nor any of its Subsidiaries has received
any communication that has not been resolved, whether from a Governmental
Authority, citizen’s group, employee or otherwise, alleging that it is liable
under, or not in compliance with, any Environmental Law; and


 


(vii)         To
the Company’s Knowledge, there is no requirement anticipated or formally
proposed for notice, comment, adoption or implementation under any
Environmental Law or Environmental Permit issued pursuant thereto that is
reasonably expected to result in liability or material increases in either
capital or operating costs for the Company or any of its Subsidiaries.


 


(b)           Insofar
as the representations set forth in subsections (a)(i), (a)(ii), (a)(iii),
(a)(iv) and (a)(vii) relate to assets of the Company operated by a
Person other than the Company or any of its Subsidiaries, such representations
are given only to the Knowledge of the Company.


 


Section 5.11           Tax Matters.


 


(a)           (i) All
material Tax Returns relating to the Company and the Company Subsidiaries
required to be filed have been duly and timely filed, (ii) all such Tax
Returns are true, correct and complete in all material respects, (iii) all
Taxes shown as due and payable on such Tax Returns, relating to the Company or
any Company Subsidiary required to be paid, have been duly and timely paid,
(iv) no adjustment relating to such Tax Returns has been proposed in writing
by any Governmental Authority, (v) all material Taxes relating to the
Company and the Company Subsidiaries for any taxable period (or a portion
thereof) beginning on or prior to the date of the Closing (which are not yet
due and payable) have been properly reserved for in the books and records of
the Company whether or not shown as being due on any Tax Return, and
(vi) the Company and the Company Subsidiaries have duly and timely
withheld all material Taxes required to be withheld and such withheld Taxes have
been either duly and timely paid to the proper Governmental Authority or
properly set aside in accounts for such purpose and will be duly and timely
paid to the proper Governmental Authority.


 


(b)           No
written agreement or other written document waiving or extending, or having the
effect of waiving or extending, the statute of limitations or the period of
assessment or collection of any Taxes relating to the Company or any Company
Subsidiary and no power of attorney with respect to any such Taxes, in each
case that is currently outstanding and in effect, has been filed or entered
into with any Governmental Authority.


 


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(c)           (i) No
audits or other administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Return of the Company or any Company
Subsidiary as to which any Taxing Authority has asserted in writing any claim
which, if adversely determined, would have a Material Adverse Effect on the
Company, and (ii) no Governmental Authority has asserted in writing any
deficiency or claim for Taxes (including any adjustment to Taxes) with respect
to which the Company or any Company Subsidiary may be liable with respect to
income or any other material Tax which has not been fully paid or finally
settled.


 


(d)           Neither
the Company nor any Company Subsidiary (i) is a party to or bound by or
has any obligation or liability under any written Tax separation, sharing or
similar agreement or arrangement, (ii) is or has been a member of any consolidated,
combined or unitary group for purposes of filing Tax Returns or paying Taxes,
(iii) has entered into a closing agreement pursuant to Section 7121
of the Code, or any predecessor provision or any similar provision of state or
local law, (iv) is required to include in income any amount in respect of
an adjustment pursuant to Section 481 of the Code by reason of a change in
accounting method, or (v) has filed any consents under Section 341(f)
of the Code.


 


(e)           None
of the assets of the Company or any of its Subsidiaries are subject to any Tax
lien (other than liens for Taxes that are not yet due or that are being
contested in good faith by appropriate proceedings and which have been properly
reserved for in the books and records of the Company).


 


(f)            To
the Company’s Knowledge, neither the Company nor any of its Affiliates has
taken or agreed to take any action that would prevent the Merger from
constituting a transaction qualifying under Section 368(a) of the Code.  The Company is not aware of any agreement,
plan or other circumstance that would prevent the Merger from qualifying under
Section 368(a) of the Code.


 


(g)           None
of the assets of the Company or any of the Company Subsidiaries are tax-exempt
use property within the meaning of Section 168(h) of the Code.


 


(h)           Neither
the Company nor any Company Subsidiary has consummated, has participated in or
is currently participating in any transaction which was or is a listed
transaction as defined in Treasury Regulation Section 1.6011-4(b)(2).


 


Section 5.12           Benefit Plans.


 


(a)           Section 5.12(a)
of the Company Disclosure Schedule lists each “employee benefit plan” (as
defined in Section 3(3) of ERISA), and all other employee benefit, bonus,
incentive, deferred compensation, stock option (or other equity-based),
severance, change in control, welfare (including post-retirement medical
and life insurance), vacation, retention and fringe benefit plans, whether or
not subject to ERISA and whether written or oral, sponsored, maintained or
contributed to or required to be contributed to by the Company or any of its
Subsidiaries, or to which the Company or any of its Subsidiaries is a party for
the benefit of any Person who is currently, has been or, prior to the Effective
Time, is expected to become an employee of the Company or any of its
Subsidiaries (a “Company Employee”) (the “Company


 


38





















 


Benefit
Plans”).  Neither the Company, any of its
Subsidiaries nor any ERISA Affiliate of any of them has any commitment or formal
plan, whether legally binding or not, to create any additional employee benefit
plan or modify or change any existing Company Benefit Plan that would affect
any Company Employee.  The Company has
heretofore delivered or made available to Forest and Spinco true and complete
copies of each Company Benefit Plan and any amendments thereto (or if the plan
is not a written plan, a description thereof), any related trust or other
funding vehicle, any reports or summaries required under ERISA or the Code for
the most recent reporting period and the most recent determination letter
received from the IRS (if any) with respect to each such plan intended to
qualify under Section 401(a) of the Code.


 


(b)           No
liability under Title IV (including Sections 4069 and 4212(c) of ERISA) or
Section 302 of ERISA has been incurred by the Company, any of its
Subsidiaries or any ERISA Affiliate of any of them that has not been satisfied
in full, and no condition exists that presents a material risk to the Company,
any of its Subsidiaries or any ERISA Affiliate of any of them of incurring any
such liability, other than liability for premiums due the PBGC (which premiums
have been paid when due).  No Company
Benefit Plan is subject to Title IV of ERISA, Section 302 of ERISA or Section 412
of the Code.


 


(c)           No
Company Benefit Plan is a “multiemployer pension plan,” as defined in
Section 3(37) of ERISA and  none of the Company, any of its
Subsidiaries or any ERISA Affiliate of any of them has made or suffered a
“complete withdrawal” or a “partial withdrawal,” as such terms are respectively
defined in Sections 4203 and 4205 of ERISA, which has not been satisfied in
full.


 


(d)           Each
Company Benefit Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including, but not
limited to, ERISA and the Code.  All
contributions required to be made with respect to any Company Benefit Plan have
been timely made.  There are no pending
or, to the Company’s Knowledge, threatened claims by, on behalf of or against
any of the Company Benefit Plans or any assets thereof, other than routine
benefit claim matters, that, if adversely determined could, individually or in
the aggregate, result in a material liability for the Company or any of its
Subsidiaries and no matter is pending (other than routine qualification
determination filings, copies of which have been furnished to Forest and Spinco
or will be promptly furnished to Forest and Spinco when made) with respect to
any of the Company Benefit Plans before the IRS, the United States Department
of Labor or the PBGC.


 


(e)           Each
Company Benefit Plan intended to be “qualified” within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code, each
trust maintained under any Company Benefit Plan intended to satisfy the
requirements of Section 501(c)(9) of the Code has satisfied such
requirements and, in either such case, no event has occurred or condition is
known to exist that would reasonably be expected to adversely affect such tax-qualified
status for any such Company Benefit Plan or any such trust.


 


(f)            No
Company Benefit Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees of
Company or any Company Subsidiary for periods extending beyond their retirement
or other termination of


 


39





















 


service, other
than (i) coverage mandated by applicable law, (ii) death benefits
under any “pension plan,” or (iii) benefits the full cost of which is
borne by the current or former employee (or his beneficiary).  The Company has the right, and will have the
right after the Effective Time to terminate any Company Benefit Plan or to
amend any such Company Benefit Plan to reduce future benefits (including any
Company Benefit Plan that provides post-retirement medical and life
insurance benefits) without incurring or otherwise being responsible for any
material liability with respect thereto.


 


(g)           In
connection with the consummation of the transactions contemplated by this
Agreement, no payment of money or other property, acceleration of benefits or
provision of other rights has been or will be made hereunder, under any
agreement contemplated herein, or under any Company Benefit Plan or any
Contract listed in Section 5.15 of the Company Disclosure Schedule that could
reasonably be expected to be nondeductible under Section 280G of the Code,
whether or not some other subsequent action or event would be required to cause
such payment, acceleration or provision to be triggered.


 


Section 5.13           Labor Matters.  Neither
the Company nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement or other Contract with a labor union or labor
organization and no collective bargaining agreement is being negotiated by the
Company or any of its Subsidiaries. 
Neither the Company nor any of its Subsidiaries is the subject of any
proceeding asserting that the Company or any of its Subsidiaries has committed
an unfair labor practice or is seeking to compel it to bargain with any labor
organization as to wages or conditions of employment nor is there any strike,
work stoppage or other labor dispute involving the Company or any of its
Subsidiaries pending or, to the Company’s Knowledge, threatened, that,
individually or in the aggregate, would have a Material Adverse Effect on the
Company.  There are no labor controversies
pending or, to the Company’s Knowledge, threatened against the Company or any
of its Subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect on the Company. 
There have been no claims initiated by any labor organization to
represent any Company Employees not currently represented by a labor
organization.


 


Section 5.14           Intellectual Property
Matters.  The Company and its Subsidiaries own
or possess adequate licenses or other valid rights to use all seismic data,
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, copyrights, service marks, trade secrets, applications for trademarks
and service marks, know-how and other proprietary rights and information
used or held for use in connection with the business of the Company and its Subsidiaries
as currently conducted, except where the failure to own or possess such items,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.  To the Company’s Knowledge,
there is no assertion or claim challenging the validity of any of the foregoing
that, individually or in the aggregate, would have a Material Adverse Effect on
the Company.  The conduct of the business
of the Company and its Subsidiaries as currently conducted does not and will
not conflict in any way with any seismic data license, patent, patent right,
license, trademark, trademark right, trade name, trade name right, copyright,
service mark, trade secret, know-how or other proprietary rights or
information of any third party that, individually or in the aggregate, would
have a Material Adverse Effect on the Company.


 


40





















 


Section 5.15           Material Contracts.


 


(a)           Section 5.15
of the Company Disclosure Schedule sets forth all Contracts, other than Company
Benefit Plans and oil and gas leases and assignments entered into in the
ordinary course of business, to which the Company or any of its Subsidiaries is
a party (i) relating to indebtedness for borrowed money, (ii) that is
a “material contract” (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC), (iii) that obligates the Company or
any of its Subsidiaries to make any payments or issue or pay anything of value
to any director, officer, key employee or consultant, (iv) that limit or
purport to limit the ability of the Company or any of its Subsidiaries to
compete in the U.S. domestic oil and gas exploration, production and marketing
business with any Person in any geographic area or during any period of time,
(v) that includes any material indemnification, contribution or guarantee
obligations (other than such obligations entered into in the ordinary course of
business in offshore oil and gas operations), (vi) that relate to capital
expenditures involving total payments of more than $1 million,
(vii) requiring annual or remaining payments in excess of $1 million after
the date hereof, (viii) that is a seismic license agreement or rig or
drilling contract material to the Company, (ix) that is a fixed price
commodity sales agreement with a remaining term of more than 60 days, (x)
that is a material Contract relating to any of the properties specified in
Section 5.15 of the Company Disclosure Schedule or (xi) that obligate the
Company or any of its Subsidiaries to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any other
Person.  Neither the Company nor any of
its Subsidiaries has received notice that any 
party to any such Contract is in default, and each such
Contract, upon consummation of the transactions contemplated by this
Agreement and the other Transaction Agreements, shall continue in full force
and effect without penalty or other adverse consequence (other than the
termination or expiration thereof in accordance with its terms, for reasons
other than the consummation of the transactions contemplated by this Agreement
and the other Transaction Agreements).


 


(b)           Neither
the Company nor any of its Subsidiaries is in default in any respect under any
Contract to which it is a party or by which it or any of its properties or
assets is bound, which default, individually or in the aggregate, would have a
Material Adverse Effect on the Company, and there has not occurred any event
that, with the lapse of time or the giving of notice or both, would constitute
such a default.


 


Section 5.16           Opinion of Company
Financial Advisor.  The Company has received the written
opinion of Lehman Brothers Inc., to the effect that, as of the date of such
opinion, the Exchange Ratio (as defined in such opinion) is fair, from a
financial point of view, to the Company. 
The Company has previously delivered a complete copy of such opinion to
Forest.


 


Section 5.17           Brokers or Finders.  No
agent, broker, investment banker, financial advisor or other similar Person is
or will be entitled, by reason of any agreement, act or statement by the
Company, or any of its Subsidiaries, directors, officers or employees, to any
financial advisory, broker’s, finder’s or similar fee or commission, to
reimbursement of expenses or to indemnification or contribution in connection
with any of the transactions contemplated by this Agreement or any other
Transaction Agreement.


 


Section 5.18           Takeover Statutes.  The
Board of Directors of the Company has unanimously approved the terms of this
Agreement and the consummation of the Merger and the


 


41





















 


other transactions contemplated by this
Agreement, and such approval represents all the action necessary to render
inapplicable to this Agreement, the Merger and the other transactions
contemplated by this Agreement the restrictions on “business combinations” set
forth in Section 203 of the DGCL to the extent such restrictions would
otherwise be applicable to this Agreement, the Merger or the other transactions
contemplated by this Agreement.


 


Section 5.19           Certain Board Findings.  The
Board of Directors of the Company, at a meeting duly called and held,
(i) has determined that the Merger is fair to, and in the best interests
of, the Company and its stockholders and (ii) has resolved, subject to Section 6.11, to recommend
the adoption of this Agreement by the stockholders of the Company.


 


Section 5.20           Vote Required.  The
only vote of the stockholders of the Company required under any of the DGCL or
the Company’s Second Amended and Restated Certificate of Incorporation for
adoption of this Agreement and the approval of the transactions contemplated by
this Agreement is the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote (sometimes referred
to herein as the “Requisite Approval”).


 


Section 5.21           Certain Payments.  No
Company Benefit Plan or employment arrangement, and no contractual arrangements
between the Company or any of its Subsidiaries and any third party, exists that
could result in the payment to any current, former or future director, officer,
stockholder or employee of the Company or any of its Subsidiaries, or of any
entity the assets or capital stock of which have been acquired by the Company
or a Company Subsidiary, of any money or other property or rights or accelerate
or provide any other rights or benefits to any such individual as a result of
the consummation of the transactions contemplated by the Transaction Agreements
whether or not (a) such payment, acceleration or provision would
constitute a “parachute payment” (within the meaning of Section 280G of
the Code), or (b) some other subsequent action or event would be required
to cause such payment, acceleration or provision to be triggered.


 


Section 5.22           Assets.  The
Company has good and marketable title to all oil and gas properties forming the
basis for the reserves reflected in the Company Reserve Report as attributable
to interests owned by the Company or any Company Subsidiary and has good and
valid title to, or valid leasehold interests or other contractual rights in,
all other Company assets, with respect to both the oil and gas properties and
all other Company assets, free and clear of all Liens except for Permitted
Liens and Liens associated with obligations reflected in the Company
Reserve Report.  The oil and gas leases
and other agreements that provide the Company and its Subsidiaries with
operating rights in the oil and gas properties reflected in the Company Reserve
Report are legal, valid and binding and in full force and effect, the rentals,
royalties and other payments due thereunder have been properly paid and, to the
Company’s Knowledge, there is no existing default (or event that, with notice
or lapse of time or both, would become a default) under any of such oil and gas
leases or other agreements, except as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.  The Company and its Subsidiaries (as the case
may be) have maintained all of their respective assets owned on the date hereof
in working order and operating condition, subject only to ordinary wear and
tear.


 


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Section 5.23           Loans.  Section 5.23
of the Company Disclosure Schedule sets forth each currently outstanding loan
exceeding $1 million in principal amount made by the Company or any of its
Subsidiaries to any Person.


 


Section 5.24           Oil and Gas Reserves.  The
Company has furnished to Forest reserve reports prepared by the Company
containing estimates of the oil and gas reserves, as of December 31, 2004
and June 30, 2005 (collectively, the “Company Reserve Report”), that are owned
by the Company or any of its Subsidiaries. 
The factual, non-interpretive data on which the Company Reserve
Report was based for purposes of estimating the oil and gas reserves set forth
therein was accurate in all material respects, and to the Knowledge of the
Company no errors in such information existed at the time such information was
provided.  The Company Reserve Report
conforms to the guidelines with respect thereto of the SEC.  Except for changes (including changes in
hydrocarbon commodity prices) generally affecting the oil and gas industry and
normal depletion by production, there has been no change in respect of the
matters addressed in the Company Reserve Report that would reasonably be
expected to have a Material Adverse Effect on the Company.  Since January 1, 2003 all of the Company’s
and its Subsidiaries’ wells have been drilled and (if completed) completed,
operated and produced in compliance in all respects with applicable oil and gas
leases and applicable laws, except where any such failure or violation would
not have a Material Adverse Effect on the Company.  To the Company’s Knowledge, there are no
wells of the Company or any of its Subsidiaries that the Company or any of its
Subsidiaries are (i) currently obligated by applicable law or Contract to plug
and abandon, or (ii) obligated by applicable law or Contract to plug and
abandon with the lapse of time or notice or both because the well is not
currently capable of producing in commercial quantities.  No Person has any call on, option to purchase
or similar rights with respect to the production of hydrocarbons attributable
to any of the Company’s or its Subsidiaries’ assets, except any such call,
option or similar right at market prices. 
Except for gas imbalances between the Company or any of its Subsidiaries
and any third party working interest owners, marketers or pipelines relative to
its assets that have accrued since June 30, 2005, neither the Company nor any
of its Subsidiaries is obligated by any gas prepayment arrangement or by any
“take-or-pay” requirement, advance payment or other similar
arrangement to deliver any gas at a future time without then or thereafter
receiving payment therefor.  With respect
to any oil and gas interests of the Company and its Subsidiaries that are not
operated by the Company or any of its Subsidiaries, the Company makes the
representations and warranties set forth in this Section 5.24 only to its
Knowledge.


 


Section 5.25           Derivative Transactions.  Neither
the Company nor any of its Subsidiaries has entered into any Derivative
Transaction pursuant to which it has a continuing financial liability or obligation.  All Derivative Transactions entered into by
the Company or any of its Subsidiaries that are currently open were entered
into in material compliance with applicable rules, regulations and policies of
all regulatory authorities.


 


Section 5.26           No Other
Representations and Warranties. 
Except for the representations and warranties contained in this Article
V, Forest and Spinco acknowledge that neither the Company nor any other Person
makes any express or implied representation or warranty with respect to the
Company and its Subsidiaries or otherwise or with respect to any other
information provided to Forest or Spinco, whether on behalf of the Company or
such other Persons.  Neither the Company
nor any other Person will have or be subject to any liability or
indemnification


 


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obligation to Forest or Spinco or any other
Person to the extent resulting from the distribution to Forest or Spinco, or
Forest or Spinco’s use of, any information related to the Company and any other
information, document or material made available to Forest or Spinco in certain
“data rooms,” management presentations or in any other form in connection with
the transactions contemplated by this Agreement.


 


ARTICLE VI



COVENANTS AND AGREEMENTS


 


Section 6.1             Conduct of Business
by the Company Pending the Merger.  Following the date of
this Agreement and prior to the earlier of the Effective Time and the
Termination Date, except as specifically contemplated or permitted by this
Agreement or the other Transaction Agreements or described in Section 6.1
of the Company Disclosure Schedule or to the extent that Forest shall otherwise
consent in writing (such consent not to be unreasonably withheld or delayed),
the Company agrees as to itself and its Subsidiaries as follows:


 


(a)           Ordinary Course. 
Each of the Company and its Subsidiaries shall conduct its operations in
accordance with its ordinary course of business consistent with past practice
and use all commercially reasonable efforts to preserve intact its present
business organization, maintain its material rights and franchises, keep
available the services of its current officers and key employees and preserve
its relationships with material customers, suppliers and others having business
dealings with it in such a manner that its goodwill and ongoing businesses are
not impaired in any material respect. 
The Company shall not, nor shall it permit any of its Subsidiaries to,
enter into any new material line of business. 
Prior to the Effective Time and except as specifically contemplated by
this Agreement or as mutually approved in writing by Spinco and the Company,
the Company shall cause Merger Sub not to conduct any business operations,
enter into any Contract (other than this Agreement), acquire any assets or
incur any liabilities.


 


(b)           Dividends; Changes in
Stock.  The Company shall not, nor shall it permit
any of its Subsidiaries to, nor shall the Company or any of its Subsidiaries
propose to, (i) declare or pay any dividends on or make other
distributions in respect of any shares of its capital stock or partnership
interests (whether in cash, securities or property), except for the declaration
and payment of cash dividends or distributions paid on or with respect to a
class of capital stock all of which shares of capital stock or partnership
interests (with the exception of directors’ qualifying shares and other
similarly nominal holdings required by law to be held by Persons other than the
Company or its wholly owned Subsidiaries), as the case may be, of the
applicable corporation or partnership are owned directly or indirectly by the
Company; (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect of,
in lieu of, or in substitution for, shares of its capital stock; or
(iii) redeem, repurchase or otherwise acquire, or permit any Subsidiary to
redeem, repurchase or otherwise acquire, any shares of its capital stock
(including any securities convertible or exchangeable into such capital stock).


 


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(c)           Issuance of Securities. 
The Company shall not, nor shall it permit any of its Subsidiaries to,
issue, deliver or sell, or authorize or propose to issue, deliver or sell, any
shares of its capital stock of any class, any Company Voting Debt or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, Company Voting Debt or convertible securities, other than
(i) the issuance of shares of Company Common Stock upon the exercise of
stock options that are outstanding on the date hereof pursuant to the Company
Stock Plans; (ii) the issuance of stock options with three year vesting
and restricted stock to existing employees and directors and newly-hired
employees and directors of the Company or its Subsidiaries, not to exceed
300,000 shares of Company Common Stock reserved for issuance under the Company
Stock Plans on the date hereof; and (iii) issuances by a wholly owned
Subsidiary of its capital stock to the Company.


 


(d)           Governing Documents. 
The Company shall not amend or propose to amend its Second Amended and
Restated Certificate of Incorporation or Fourth Amended and Restated Bylaws,
nor shall it permit any of its Subsidiaries to amend or propose to amend its
charter or bylaws in any manner that would hinder the consummation of the
transactions contemplated by this Agreement.


 


(e)           Acquisitions.  Other than (i) purchases from vendors or
suppliers in the ordinary course of business consistent with past practice,
(ii) exercises of preferential rights, (iii) any single or series of
acquisitions whether or not related, where the fair market value of the total
consideration payable in all such acquisitions does not exceed $25.0 million in
the aggregate or (iv) with respect to the transaction described in
Section 4.2 of the Spinco Disclosure Schedule, the Company shall not, nor
shall it permit any of its Subsidiaries to, in a single transaction or a series
of transactions, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof;
provided, however, that in any event, the Company shall not, nor shall it
permit any of its Subsidiaries to, make any such acquisition, agreement or
purchase if it would hinder in any material respect the consummation of the
transactions contemplated by this Agreement or the other Transaction
Agreements.


 


(f)            Dispositions. 
Subject to Section 6.11, and other than product sales and other
dispositions in connection with normal equipment maintenance or salvage in the
ordinary course of business consistent with past practice and Permitted Liens,
the Company shall not, nor shall it permit any of its Subsidiaries to, in a
single transaction or a series of related or unrelated transactions, sell
(including sale-leaseback), lease, pledge, encumber or otherwise dispose
of, or agree to sell (or engage in a sale-leaseback), lease (whether such
lease is an operating or capital lease), pledge, encumber or otherwise directly
or indirectly dispose of, any of its assets that in the aggregate have a fair
market value in excess of $10 million; provided, that the Company shall not
consummate or agree to consummate any such transaction with respect to any
securities of any of its Subsidiaries.


 


(g)           Indebtedness; Leases. 
The Company shall not, nor shall it permit any of its Subsidiaries to,
incur any indebtedness for borrowed money or guarantee or otherwise become
contingently liable for any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the Company or
any of its Subsidiaries or guarantee any


 


45





















 


debt securities of
others or enter into any material lease (whether such lease is an operating or
capital lease, but excluding compressor leases) or otherwise incur any material
obligation or liability (absolute or contingent) other than indebtedness to the
Company or a wholly owned Subsidiary of the Company, or under the Credit
Agreement dated as of March 2, 2004, among the Company and the lenders
party thereto, as amended from time to time, or any replacement thereof;
provided, however, that the aggregate outstanding indebtedness under such
credit agreement shall not exceed $170 million (exclusive of indebtedness
incurred to fund (A) costs related to the transactions contemplated by
this Agreement and (B) payments made to Company executives pursuant to non-compete,
employment and severance agreements and similar agreements and arrangements).


 


(h)           Capital Expenditures. 
Except as required by law, the Company shall continue its 2005 budgeted
capital expenditure program for exploration and development as described in the
capital expenditure budget dated as of September 8, 2005 provided to Forest
prior to the date hereof, and shall perform, to the extent reasonably practicable,
all scheduled capital expenditures set forth in such capital expenditure
program at an aggregate cost not exceeding 120% of the aggregate costs set
forth therein (it being understood that particular projects set forth on such
budget may be substituted with other projects, so long as the aggregate maximum
set forth above is not exceeded).  In the
event that the Effective Time does not occur in 2005, the parties shall
reasonably consult regarding the Company’s capital expenditure budget for 2006.


 


(i)            Employee Arrangements.  The Company and its Subsidiaries shall not:


 


(i)            grant
any material increases in the compensation of any of its directors, officers or
employees, except in the ordinary course of business consistent with past
practice;


 


(ii)           pay
or agree to pay to any director, officer or employee, whether past or present,
any pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing benefit, severance, termination, pension or
employment plans, Contracts or arrangements as in effect on the date hereof;


 


(iii)          except
in the ordinary course of business consistent with past practice, enter into
any new, or materially amend any existing, employment or severance or
termination Contract with any director or officer; or


 


(iv)          except
(x) in the ordinary course of business consistent with past practice or
(y) as may be required to comply with applicable law, become obligated
under any new pension plan, welfare plan, multiemployer plan, employee benefit
plan, severance plan, benefit arrangement or similar plan or arrangement that
was not in existence on the date hereof, or amend any such plan or arrangement
in existence on the date hereof if such amendment would have the effect of
materially enhancing any benefits thereunder.


 


(j)            Compliance with Laws;
Licenses.  Except as would not individually or in the
aggregate have a Material Adverse Effect on the Company, the Company shall not,
nor shall it permit any of its Subsidiaries to: 
(i) fail to comply with any laws, ordinances or regulations
applicable to it or to the conduct of its business or (ii) permit to
expire or terminate without


 


46





















 


renewal any
License that is necessary to the operation of the business of such party, any
facilities associated therewith or any other business.


 


(k)           No Liquidation or
Dissolution.  The Company shall not authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation or dissolution of the Company or any of its Subsidiaries.


 


(l)            Accounting Methods. 
The Company shall not make any material change in its methods of
accounting in effect at December 31, 2004, except (i) as required by the
Financial Accounting Standards Board or changes in GAAP as agreed to by the
Company’s independent auditors, (ii) in response to comments made by the SEC
with respect to any Registration Statement or (iii) as otherwise agreed to
in this Agreement.  The Company and Merger
Sub shall not change their respective fiscal years.


 


(m)          Affiliate Transactions. 
The Company shall not, nor shall it permit any of its Subsidiaries to,
enter into or amend any agreement or arrangement with any of their respective
Affiliates (including any Company Employees), other than with wholly owned
Subsidiaries of the Company, on terms materially less favorable to the Company
or such Subsidiary, as the case may be, than could be reasonably expected to
have been obtained with an unaffiliated third party on an arm’s-length
basis.


 


(n)           Contracts. 
The Company shall not, nor shall it permit any of its Subsidiaries to,
except in the ordinary course of business consistent with past practice,
modify, amend, terminate or renew any material Contract to which it or any of
its Subsidiaries is a party or waive, release or assign any material rights or
claims, in each case if such action would have a Material Adverse Effect on the
Company or impair in any material respect the Company’s ability to perform its
obligations under this Agreement and the other Transaction Agreements.  The Company shall not, and shall not permit
any of its Subsidiaries to, waive any preferential rights.  The Company shall not, nor shall it permit
any of its Subsidiaries to, enter into any Contract not in the ordinary course
of business involving total consideration of $2 million or more with a term
longer than one year which is not terminable by the Company or any such
Subsidiary of the Company without penalty upon no more than 30 days’ prior
notice.


 


(o)           Insurance. 
The Company shall, and shall cause its Subsidiaries to, maintain with
financially responsible insurance companies insurance in such amounts and
against such risks and losses as are customary for companies engaged in their
respective businesses; provided, however, that the Company may self-insure
with respect to operators’ extra expense insurance, physical damage to well
site real and personal property insurance and business interruption insurance.


 


(p)           Tax Matters.  The Company shall not (i) make or
rescind any material express or deemed election relating to Taxes unless such
action will not materially and adversely affect the Company or any of its
Affiliates, or the Surviving Corporation on a going-forward basis after
the Effective Date, including elections for any and all joint ventures,
partnerships, limited liability companies, working interests or other
investments where the Company has the capacity to make such binding election,
(ii) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to Taxes,
except where such 


 


47





















 


settlement or
compromise will not result in a Material Adverse Effect on the Company,
(iii) amend any material Tax Returns, except where such amendment would
not adversely affect the Company or any of its Affiliates, or the Surviving
Corporation on a going-forward basis after the Effective Date or
(iv) change in any material respect any of its methods of reporting income
or deductions for federal income tax purposes from those expected to be
employed in the preparation of its federal income tax return for the taxable
year ended December 31, 2004, except as may be required by applicable law
or except for such changes that are reasonably expected not to result in a
Material Adverse Effect on the Company; provided, however, that the Company may
make or rescind any such election, settle or compromise any such claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or controversy,
change any such method of reporting or amend any such Tax Return without
Forest’s prior written consent if the amount of Tax liabilities relating to
such action does not exceed $500,000.


 


(q)           Discharge of Liabilities.  Unless otherwise provided in this Agreement
or required by applicable law, the Company shall not, nor shall it permit any
of its Subsidiaries to, pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business (which includes the payment of final and
unappealable judgments) or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of the Company as of
and for the twelve months ended December 31, 2004, or incurred in the
ordinary course of business.


 


(r)            Tax Treatment. 
Neither the Company nor Merger Sub shall take or cause or permit to be
taken any action (i) that would disqualify the Distribution from
constituting a tax-free distribution under Section 355 of the Code
or the Contribution from constituting a tax-free reorganization under
Section 368(a) of the Code or (ii) that would disqualify the Merger
from constituting a tax-free reorganization under Section 368(a) of
the Code.


 


(s)           Advice of Changes. 
Subject to the provisions of the Confidentiality Agreement, the Company
shall promptly advise Forest and Spinco orally and in writing of any change or
event having, or that, insofar as can reasonably be foreseen, could have,
either individually or together with other changes or events, a Material
Adverse Effect on the Company.


 


(t)            No Action.  Subject
to the terms and conditions of this Agreement, the Company shall not, nor will
it permit any of its Subsidiaries to, intentionally take or agree or commit to
take any action that would result in any of the conditions set forth in
Article VII not being satisfied at the Effective Time.


 


(u)           Hedging Activities. 
The Company shall not, nor shall it permit any of its Subsidiaries to,
enter into (i) any Derivative Transaction or (ii) any fixed price
commodity sales agreement with a term of more than 60 days.


 


(v)           Lender Consent.  The Company shall use reasonable commercial
efforts to obtain the lender consent referenced in Section 5.3 of the
Company Disclosure Schedule and to enter into the new credit facility
referenced in Section 7.3(b).


 


48





















 


(w)          Agreements. 
The Company shall not, nor shall it permit any of its Subsidiaries to,
agree in writing or otherwise to take any action inconsistent with the
foregoing.


 


Section 6.2             Conduct of Business
by Spinco and Forest Pending the Merger.  Following the date of
this Agreement and prior to the earlier of the Effective Time and the
Termination Date, except as specifically contemplated or permitted by this
Agreement or the other Transaction Agreements or described in Section 6.2
of the Spinco Disclosure Schedule or to the extent that the Company shall
otherwise consent in writing (such consent not to be unreasonably withheld or
delayed), Forest and Spinco severally agree as follows:


 


(a)           Ordinary Course. 
Forest (in regard to the Spinco Business only) and each of Spinco and
its Subsidiaries shall conduct its operations in accordance with its ordinary
course of business consistent with past practice and use all commercially
reasonable efforts to preserve intact its present business organization,
maintain its material rights and franchises, keep available the services of its
current officers and key employees and preserve its relationships with material
customers, suppliers and others having business dealings with it in such a
manner that its goodwill and ongoing businesses are not impaired in any
material respect.  Spinco shall not, nor
shall it permit any of its Subsidiaries to, enter into any new material line of
business.


 


(b)           Dividends; Changes in
Stock.  Except as expressly permitted in the Tax
Sharing Agreement, Spinco shall not, nor shall it permit any of its
Subsidiaries to, nor shall it or any of its Subsidiaries propose to,
(i) declare or pay any dividends on or make other distributions in respect
of any shares of its capital stock or partnership interests (whether in cash,
securities or property), except for the declaration and payment of cash
dividends or distributions paid on or with respect to a class of capital stock
or partnership interests all of which shares of capital stock or partnership
interests (with the exception of directors’ qualifying shares and other
similarly nominal holdings required by law to be held by Persons other than
Spinco or its wholly owned Subsidiaries), as the case may be, of the applicable
corporation or partnership are owned directly or indirectly by Spinco;
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for, shares of its capital stock, except as
contemplated by the Distribution Agreement or (iii) redeem, repurchase or
otherwise acquire, or permit any Subsidiary to redeem, repurchase or otherwise
acquire, any shares of its capital stock (including any securities convertible
or exchangeable into such capital stock).  
Forest shall not, nor shall it permit any of its Subsidiaries to, nor
shall it or any of its Subsidiaries propose to, declare or pay any dividends on
or make other distributions in respect of any shares of its capital stock or
partnership interests (whether in cash, securities or property), to the extent
such dividend or distribution would impact Spinco or the Spinco Business, or
would prevent Forest from consummating the Contribution or the Distribution.  None of Forest, Spinco or any of their
respective Subsidiaries shall form or propose to form a new Subsidiary of
Spinco.


 


(c)           Issuance of Securities. 
Spinco shall not, nor shall it permit any of its Subsidiaries to, issue,
deliver or sell, or authorize or propose to issue, deliver or sell, any shares
of Spinco’s capital stock or capital stock of any Spinco Subsidiary of any
class, any Spinco Voting Debt or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, Spinco Voting Debt or
convertible securities, other than (i) pursuant to this Agreement and
pursuant to the other Transaction Agreements; and (ii) issuances by a
wholly owned Subsidiary


 


49





















 


of Spinco of its
capital stock to Spinco.   Without
limiting the foregoing, Forest shall not issue, deliver or sell, or authorize
or propose to issue, deliver or sell, any additional options or other equity-based
awards that could be converted into any option to acquire Spinco Common Stock,
pursuant to the Employee Benefits Agreement or otherwise.


 


(d)           Governing Documents. 
Spinco shall not amend or propose to amend Spinco’s Certificate of
Incorporation or Bylaws, nor shall it permit any of its Subsidiaries to amend
or propose to amend its charter or bylaws except as explicitly provided herein
or in the Distribution Agreement, in each case with a Company Consent.


 


(e)           Acquisitions. 
Other than (i) purchases from vendors or suppliers in the ordinary
course of business consistent with past practice, (ii) exercises of
preferential rights, or (iii) any single or series of acquisitions,
whether or not related, where the fair market value of the total consideration
payable in all such acquisitions does not exceed $25 million in the aggregate,
Forest (in regard to the Spinco Business only) shall not, and Spinco shall not,
nor shall they permit any of their respective Subsidiaries to, in a single
transaction or a series of transactions, acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof; provided, however, that in any event, Forest shall not, and
Spinco shall not, nor shall they permit any of their respective Subsidiaries
to, make any such acquisition, agreement or purchase if it would hinder in any
material respect the consummation of the transactions contemplated by this
Agreement or the other Transaction Agreements.


 


(f)            Dispositions. 
Other than product sales and other dispositions in connection with
normal equipment maintenance or salvage in the ordinary course of business
consistent with past practice and Permitted Liens, Forest (in regard to the
Spinco Business only) shall not, and Spinco shall not, nor shall they permit
any of their respective Subsidiaries to, in a single transaction or a series of
related or unrelated transactions, sell (including sale-leaseback),
lease, pledge, encumber or otherwise dispose of, or agree to sell (or engage in
a sale-leaseback), lease (whether such lease is an operating or capital
lease), pledge, encumber or otherwise directly or indirectly dispose of, any of
its assets that in the aggregate have a fair market value in excess of $10
million, except as otherwise provided in this Agreement and the other
Transaction Agreements; provided, that Forest shall not consummate or agree to
consummate any such transaction with respect to any securities of Spinco or any
of its Subsidiaries.


 


(g)           Indebtedness; Leases. 
Forest (in regard to the Spinco Business only) shall not, and Spinco
shall not, nor shall they permit any of their respective Subsidiaries to, incur
any indebtedness for borrowed money or guarantee or otherwise become
contingently liable for any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of Spinco or
any of its Subsidiaries or guarantee any debt securities of others or enter
into any material lease (whether such lease is an operating or capital lease,
but excluding compressor leases) or otherwise incur any material obligation or
liability (absolute or contingent) other than indebtedness of Spinco to be
incurred by Spinco and obligations or liabilities to be assumed by Spinco in
connection with the consummation of the transactions contemplated by the
Distribution Agreement.


 


50





















 


(h)           Capital Expenditures.  Except
as required by law, Forest and Spinco shall continue the capital expenditure
program for exploration and development with respect to the Spinco Assets as
described in the capital expenditure budget dated as of September 8, 2005
provided to the Company prior to the date hereof, and shall perform, to the
extent reasonably practicable, such capital expenditures at an aggregate cost
not exceeding 120% of the aggregate costs set forth therein (it being
understood that particular projects set forth in such budget may be substituted
with other projects, so long as the aggregate maximum set forth above is not
exceeded).  In the event that the
Effective Time does not occur in 2005, the parties shall reasonably consult regarding
the Spinco Business’ capital expenditure budget for 2006.


 


(i)            Employee Arrangements. 
Forest (in regard to the Spinco Employees only) shall not, and Spinco
shall not, nor shall Forest (in regard to the Spinco Employees only) or Spinco
permit any of their respective Subsidiaries to:


 


(i)            grant
any material increases in the compensation of any of its directors, officers or
employees, except in the ordinary course of business consistent with past
practice;


 


(ii)           pay
or agree to pay to any director, officer or employee, whether past or present,
any pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing benefit, severance, termination, pension or
employment plans, Contracts or arrangements as in effect on the date hereof;


 


(iii)          hire
any new director, officer or, except in the ordinary course of business
consistent with past practice, employee, or enter into any new, or materially
amend any existing, employment or severance or termination Contract with any
director, officer or employee; or


 


(iv)          except
as may be required to comply with applicable law, become obligated under any
new pension plan, welfare plan, multiemployer plan, employee benefit plan,
severance plan, benefit arrangement or similar plan or arrangement that was not
in existence on the date hereof, or amend any such plan or arrangement in
existence on the date hereof solely with respect to Spinco Employees if such
amendment would have the effect of enhancing any benefits thereunder.


 


(j)            Compliance with Laws;
Licenses.  Except as would not individually or in the
aggregate have a Material Adverse Effect on Spinco or the Spinco Assets, Forest
(in regard to the Spinco Business only) shall not, and Spinco shall not, nor
shall they permit any of their respective Subsidiaries to, (i) fail to
comply with any laws, ordinances or regulations applicable to it or to the
conduct of its business or (ii) permit to expire or terminate without
renewal any License that is necessary to the operation of the business of
Spinco or its Subsidiaries, any facilities associated therewith, the Spinco
Business, or any other business.


 


(k)           No Liquidation or
Dissolution.  Neither Forest nor Spinco shall authorize,
recommend, propose or announce an intention to adopt a plan of complete or
partial liquidation or dissolution of Spinco or any of its Subsidiaries.


 


51





















 


(l)            Accounting Methods. 
Neither Forest (in regard to the Spinco Business only) nor Spinco shall
make any material change in Forest’s methods of accounting in effect at
December 31, 2004, except (i) as required by the Financial Accounting
Standards Board or changes in GAAP as agreed to by Forest’s or Spinco’s
independent auditors, (ii) in response to comments made by the SEC with respect
to any Registration Statement or (iii) as otherwise agreed to in this
Agreement.  Spinco shall not change its
fiscal year.


 


(m)          Affiliate Transactions. 
Forest (in regard to the Spinco Business only) shall not, and Spinco
shall not, nor shall Forest (in regard to the Spinco Business only) or Spinco
permit any of their respective Subsidiaries to, enter into or amend any
agreement or arrangement with any of their respective Affiliates (including any
Spinco Employees), other than with wholly owned Subsidiaries of Spinco, on terms
materially less favorable to Spinco or such Subsidiary, as the case may be,
than could be reasonably expected to have been obtained with an unaffiliated
third party on an arm’s-length basis.


 


(n)           Contracts. 
Neither Forest nor Spinco shall, nor shall they permit any of their
respective Subsidiaries to, except in the ordinary course of business
consistent with past practice, modify, amend, terminate or renew any material
Contract to which Spinco or any of its Subsidiaries is a party or which
otherwise is or will be, a Spinco Asset, or waive, release or assign any
material rights or claims which is or will be a Spinco Asset, in each case if
such action would have a Material Adverse Effect on Spinco or the Spinco
Business, or impair in any material respect Forest’s or Spinco’s ability to
perform their respective obligations under this Agreement and the other
Transaction Agreements.  Forest, Spinco
or their respective Subsidiaries shall reasonably consult with the Company before
entering into any new Contract material to Spinco or the Spinco Business.  Neither Forest nor Spinco shall, nor shall
they permit any of their respective Subsidiaries to, waive any preferential
rights that constitute Spinco Assets. 
Neither Forest nor Spinco shall, nor shall they permit any of their
respective Subsidiaries to, enter into any Contract to which Spinco or any of
its Subsidiaries will be a party or which otherwise will be a Spinco Asset,
which Contract is not in the ordinary course of business, involves total
consideration of $2 million or more, has a term longer than one year and which
is not terminable by Spinco or any such Subsidiary of Spinco without penalty
upon no more than 30 days’ prior notice.


 


(o)           Insurance. 
Forest and Spinco shall, and shall cause their respective Subsidiaries
to, maintain with financially responsible insurance companies insurance for the
Spinco Business and the Spinco Assets in such amounts and against such risks
and losses as are customary for companies engaged in their respective
businesses.


 


(p)           Tax Matters. 
Forest and Spinco shall not (i) make or rescind any material
express or deemed election relating to Taxes of Spinco or the Spinco Business
unless such action will not materially and adversely affect Spinco or the
Surviving Corporation on a going-forward basis after the Effective Date,
including elections for any and all joint ventures, partnerships, limited
liability companies, working interests or other investments where Forest or
Spinco has the capacity to make such binding election, (ii) settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes of Spinco or
the Spinco Business, except where such settlement or compromise will not result
in a Material Adverse Effect on Spinco or the Spinco Business, (iii) amend
any material Tax Returns of


 


52





















 


Spinco or relating
to the Spinco Business or (iv) change in any material respect any method
of reporting income or deductions of Spinco or the Spinco Business for federal
income tax purposes from those expected to be employed in the preparation of
its federal income tax return for the taxable year ended December 31,
2004, except as may be required by applicable law or except for such changes
that are reasonably expected not to result in a Material Adverse Effect on
Spinco or the Spinco Business, provided, however, that Spinco may make or
rescind any such election, settle or compromise any such claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy,
change any such method of reporting or amend any such Tax Return without the
Company’s prior written consent if the amount of Tax liabilities relating to
such action does not exceed $500,000.


 


(q)           Discharge of Liabilities. 
Unless otherwise provided in this Agreement or required by applicable
law, Forest (in regard to the Spinco Business only) shall not, and Spinco shall
not, nor shall Forest (in regard to the Spinco Business only) or Spinco permit
any of their respective Subsidiaries to, pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business (which includes the payment of final and
unappealable judgments).


 


(r)            Tax Treatment. 
Neither Forest nor Spinco shall take or cause or permit to be taken any
action (i) that would disqualify the Distribution from constituting a tax-free
distribution under Section 355 of the Code or the Contribution from
constituting a tax-free reorganization under Section 368(a) of the
Code or (ii) that would disqualify the Merger from constituting a tax-free
reorganization under Section 368(a) of the Code.


 


(s)           Advice of Changes. 
Subject to the provisions of the Confidentiality Agreement, Forest and
Spinco shall promptly advise the Company orally and in writing of any change or
event having, or that, insofar as can reasonably be foreseen, could have, either
individually or together with other changes or events, a Material Adverse
Effect on the Spinco Business or Spinco.


 


(t)            No Action. 
Neither Forest nor Spinco shall, nor will they permit any of their
respective Subsidiaries to, intentionally take or agree or commit to take any
action that would result in any of the conditions set forth in Article VII
not being satisfied at the Effective Time.


 


(u)           Hedging Activities. 
Forest (in regard to the Spinco Business only) shall not, and Spinco
shall not, nor shall they permit any of their respective Subsidiaries to, enter
into (i) any Derivative Transaction or (ii) any fixed price commodity
sales agreement with a term of more than 60 days.


 


(v)           Agreements. 
Neither Forest nor Spinco shall, nor shall they permit any of their
respective Subsidiaries to, agree in writing or otherwise to take any action
inconsistent with the foregoing.


 


Section 6.3             Proxy
Statement/Prospectus.


 


(a)           As
promptly as practicable following the date hereof, the Company shall prepare
and file with the SEC the Proxy Statement/Prospectus and the Registration
Statement on


 


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Form S-4
(the Proxy Statement/Prospectus will be included as a prospectus in the
Registration Statement on Form S-4) with respect to the transactions
contemplated by this Agreement.  As
promptly as practicable following the date hereof, the Company shall prepare
and file with the SEC an amendment to its Registration Statement on Form S-1
to reflect the transactions contemplated by this Agreement.  The Company shall use its reasonable best
efforts to have such Proxy Statement/Prospectus cleared by the SEC under the
Exchange Act and the Registration Statements declared effective by the SEC
under the Securities Act and the Exchange Act, as the case may be, as promptly
as practicable after such filings.  The
status or timing of the adjustment condition described in Section 4.2 of
the Spinco Disclosure Schedule shall not serve as a basis for delaying the
Company’s efforts to seek effectiveness of the Registration Statements and mail
to its stockholders the Proxy Statement/Prospectus.


 


(b)           As
promptly as practicable after the Registration Statements shall have become
effective, the Company shall mail the Proxy Statement/Prospectus to its
stockholders.


 


(c)           No
amendment or supplement to the Proxy Statement/Prospectus or any Registration
Statement will be made by the Company without the approval of Forest and Spinco
(such approval not to be unreasonably withheld or delayed).  The Company will advise Forest and Spinco,
promptly after it receives notice thereof, of the time when any Registration
Statement has become effective or any supplement or amendment has been filed,
of the issuance of any stop order, of the suspension of the qualification of
the Company Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or of any request by the SEC for amendment of the
Proxy Statement/Prospectus or any Registration Statement or comments thereon
and responses thereto or requests by the SEC for additional information.


 


(d)           If,
at any time prior to the Effective Time, any event or circumstance should occur
that results in the Proxy Statement/Prospectus or the Registration Statements
containing an untrue statement of a material fact or omitting to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are made, not
misleading, or that otherwise should be described in an amendment or supplement
to the Proxy Statement/Prospectus or the Registration Statements, Forest,
Spinco and the Company shall promptly notify each other of the occurrence of
such event and then promptly prepare, file and clear with the SEC and mail to
the Company’s stockholders each such amendment or supplement.


 


Section 6.4             Cooperation.  Forest,
Spinco and the Company shall together, or pursuant to the allocation of
responsibility set forth below or otherwise to be agreed upon between them,
take action as follows:


 


(a)           The
Company shall take all such action as may reasonably be required under state
securities or “blue sky” laws in connection with the issuance of shares of
Company Common Stock pursuant to the Merger;


 


(b)           Forest,
Spinco and the Company shall cooperate with one another to the extent
reasonably necessary or commercially appropriate in promptly making any filings
with, and seeking any consents or approvals from, Governmental Authorities
necessary for the consummation of the transactions contemplated by this
Agreement;


 


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(c)           As
promptly as practicable, the Company shall make application to the NYSE or
Nasdaq for the listing or quotation of the shares of Company Common Stock to be
issued pursuant to the transactions contemplated by this Agreement and the
Distribution Agreement and use all commercially reasonable efforts to cause
such shares to be Approved for Listing;


 


(d)           Forest,
Spinco and the Company shall, as promptly as practicable, make any required
filings and any other required or requested submissions under the HSR Act,
promptly respond to any requests for additional information from either the
Federal Trade Commission or the Department of Justice; and cooperate in the
preparation of, and coordinate, such filings, submissions and responses
(including the exchange of drafts between each party’s outside counsel) so as
to reduce the length of any review periods; and


 


(e)           Forest,
Spinco and the Company shall promptly provide outside counsel for the other
parties for their confidential review copies of all filings proposed to be made
by such party with any Governmental Authority in connection with this Agreement
and the other Transaction Agreements and the transactions contemplated hereby
and thereby.


 


Section 6.5             Letter of Spinco’s
Accountants.  In connection with the information
regarding Spinco or its Subsidiaries or the transactions contemplated by this
Agreement provided by Spinco specifically for inclusion in, or incorporation by
reference into, the Proxy Statement/Prospectus and the Registration Statements,
Spinco shall use all commercially reasonable efforts to cause to be delivered
to the Company a letter of KPMG, LLP, dated the date on which the Registration
Statement on Form S-4 shall become effective and as of the Effective
Time and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement on Form S-4.


 


Section 6.6             Letter of the
Company’s Accountants.  In connection with the information
regarding the Company or its Subsidiaries or the transactions contemplated by
this Agreement provided by the Company specifically for inclusion in, or
incorporation by reference into, the Proxy Statement/Prospectus and the
Registration Statements, the Company shall use all commercially reasonable
efforts to cause to be delivered to Spinco a letter of Deloitte & Touche
LLP, dated the date on which the Registration Statements shall become effective
and as of the Effective Time and addressed to Forest and Spinco, in form and
substance reasonably satisfactory to Forest and Spinco and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement
on Form S-4.


 


Section 6.7             Forest/Spinco
Employee Stock Options, Incentive and Benefit Plans.  Spinco
and the Company shall take all such steps as may be required to cause any
dispositions of Company Common Stock (including derivative securities with
respect to Company Common Stock) and any acquisitions of Spinco Common Stock,
as the case may be, resulting from the transactions contemplated by this
Agreement by each officer or director of the Company or Spinco who is subject
to the reporting requirements of Section 16(a) of the Exchange Act to be
exempt under Rule 16b-3 promulgated under the Exchange Act, such
steps to be taken in


 


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accordance with the No-Action Letter,
dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate,
Meagher & Flom LLP.


 


Section 6.8             Employee Benefit
Plans.


 


(a)           Subject
to the remaining provisions of this Section 6.8, Spinco and the Company
shall take all acts necessary to cause Spinco Employees who remain employed by
Spinco, the Company or their Subsidiaries from and after the Effective Time
(“Continuing Spinco Employees”) to participate in the Company Benefit Plans
maintained by the Company as of the Effective Time on a basis no less favorable
than that applicable to similarly situated Company Employees who remain
employed by the Company or its Affiliates as of the Effective Time (the “Continuing
Company Employees”).  Notwithstanding the
foregoing, if the Effective Time occurs in 2006, then Spinco and the Company
shall cause each Continuing Spinco Employee to receive vacation benefits for
the period beginning on the Effective Time and ending on December 31,
2006, that are equal to (i) such employee’s accrued and unused vacation under
Forest’s vacation policy as of the Effective Time plus (ii) if the Company’s
vacation policy is more generous than Forest’s vacation policy with respect to
such Continuing Spinco Employee based on his years of service recognized by
Forest as of the Effective Time for purposes of such policy, any additional
vacation entitlement earned by such employee under the terms of the Company’s
vacation policy.  In the event the
employment of a Spinco Employee is terminated by Forest with the Company’s
consent prior to the Effective Time (other than pursuant to a Termination for
Cause), (i) such employee shall not receive a Retention Benefit, (ii) Forest
shall provide such employee with the severance benefits described on Exhibit E, Part B (provided such
employee executes a release of claims in favor of Forest, Spinco, the Company
and their respective Affiliates (which release shall be in a form agreed to by
Forest, Spinco and the Company)), and (iii) as soon as practicable after the
Effective Time, the Company shall reimburse Forest for such severance benefits
actually paid by Forest to such employee; provided that the Company shall not
be responsible for any reimbursement of severance amounts paid to any such
Spinco Employee who is subsequently re-hired by Forest or any Forest Subsidiary
during the six-month period following the Effective Time (in which case Forest
shall refund any reimbursement so made by the Company).


 


(b)           Neither
Spinco nor the Company shall establish or maintain effective as of the
Effective Time (i) any plan providing supplemental executive retirement
benefits that is not an individual account plan, (ii) any plan providing
retiree medical benefits or (iii) any defined benefit pension plan.


 


(c)           Spinco
and the Company shall cause each Continuing Spinco Employee to be given full
credit for all service with Forest, Spinco and their Affiliates before the
Effective Time for all purposes under each Company Benefit Plan (except to the
extent necessary to avoid the duplication of benefits).  Such service credit for each such purpose
shall be in an amount equal to the service credit recognized under the
corresponding Spinco Benefit Plan as of the Effective Time for such
purpose.  For purposes of determining the
terms and conditions of a Continuing Spinco Employee’s participation in any
Company Benefit Plan that is an employee welfare benefit plan (the “Company
Welfare Plans”), the Company shall, and shall cause its Affiliates to,
(i) waive all limitations as to pre-existing condition exclusions
and waiting periods with respect to the Continuing Spinco Employee or his or
her dependents under the Company Welfare Plans,


 


56





















 


other than to the
extent limitations or waiting periods that are already in effect with respect
to the Continuing Spinco Employee or his or her dependents have not been
satisfied as of the Effective Time under the corresponding welfare benefit
plans maintained for the Continuing Spinco Employee immediately before the
Effective Time, and (ii) provide each Continuing Spinco Employee with
credit for any co-payments and deductibles paid in the year of the
Closing before the Effective Time in satisfying any deductible or out-of-pocket
requirements under the Company Welfare Plans (on a pro-rata basis in the
event of a difference in plan years).


 


(d)           As
soon as practicable following the Effective Time, Forest shall cause to be
transferred from the trustee of Forest’s Retirement Savings Plan (the “Forest
Savings Plan”) to the trustee of the Company’s Employee Capital Accumulation
Plan (the “Company Savings Plan”) an amount in cash equal to the aggregate
account balances of the Continuing Spinco Employees under the Forest Savings
Plan determined as of the transfer date; provided, however, that to the extent
any Continuing Spinco Employee owes any amount to the Forest Savings Plan
pursuant to the terms of a loan from such plan to such Continuing Spinco
Employee, an in-kind transfer of such loan shall be made in addition to
the transfer of cash for the remaining account balance.  All account investments (other than any such
loan amounts), including investments in shares of Forest Common Stock and/or
Company Common Stock, shall be converted to cash prior to the account transfer
to the Company Savings Plan.  From and
after the date of such transfer, Spinco and the Company shall cause the Company
Savings Plan to assume the obligations of the Forest Savings Plan with respect to
benefits accrued by the Continuing Spinco Employees under the Forest Savings
Plan, and the Forest Savings Plan shall cease to be responsible therefor.  Spinco, the Company and Forest shall
cooperate in making all appropriate arrangements and filings, if any, in
connection with the transfer described above. 
Further, Spinco, the Company and Forest shall cooperate and take such
actions as are necessary to permit the continuation of loan repayments by
Continuing Spinco Employees to the Forest Savings Plan by payroll deductions
during the period beginning on the Effective Time and ending on the date of the
transfer described in this paragraph. 
Forest represents, covenants and agrees with respect to the Forest
Savings Plan, and the Company represents, covenants and agrees with respect to
the Company Savings Plan, that, as of the date of the transfer described in
this paragraph, such plan will satisfy the requirements of Code Sections
401(a), (k), and (m) and will have received, or a pending application has been
timely filed for, a favorable determination letter from the IRS regarding such
qualified status and covering amendments required to have been adopted prior to
the expiration of the GUST remedial amendment period.


 


(e)           If,
during the period beginning on the Effective Time and ending on the later of
June 30, 2006 or the date which is six months after the Effective Time (the
“Retention Period”), the Company or a Subsidiary of the Company desires to
relocate the principal place of employment of a Continuing Spinco Employee
(other than a scheduled rotational employee) by 50 miles or more from the
location of his principal place of employment immediately prior to the
Effective Time, then Spinco and the Company shall cause any such employee who
accepts such relocation to receive the relocation benefits described on Exhibit E, Part A.  If, during the Retention Period, (i) a
Continuing Spinco Employee voluntarily terminates his employment with the
Company and its Subsidiaries within 30 days after the date of a reduction in
his base salary or base wages from that in effect immediately prior to the
Effective Time, (ii) a Continuing Spinco Employee voluntarily terminates his
employment with the Company and its Subsidiaries after the date upon which he
is notified that the principal place of his employment is changing to a


 


57





















 


location that is
50 miles or more from the location of his principal place of employment
immediately prior to the Effective Time (provided, however, that if the Company
or a Subsidiary of the Company permits the employee to continue to work at his
original location, then such termination of employment may not occur prior to a
date determined by the Company, which date shall be no later than the last day
of the Retention Period), or (iii) the employment of a Continuing Spinco
Employee is involuntarily terminated by the Company or a Subsidiary of the
Company other than pursuant to a Termination for Cause, then, in any such case,
Spinco and the Company shall cause such employee to receive the severance
benefits described on Exhibit E,
Part B, provided (A) such employee executes a release of
claims in favor of Forest, Spinco, the Company and their respective Affiliates
(which release shall be in a form agreed to by Forest, Spinco and the Company),
(B) such employee is not subsequently re-hired by Forest or any Forest
Subsidiary during the Retention Period (in which case Forest shall refund any
severance so paid by the Company), and (C) the amount of such severance
benefit paid to such employee shall be reduced by the portion, if any, of such
employee’s Retention Benefit that was paid to such employee in accordance with
Section 6.8(g).  Exhibit E,
Part B sets forth the maximum aggregate severance amount payable by
the Company to the Continuing Spinco Employees pursuant to this Section
6.8.  Notwithstanding any other provision
of this Agreement, except as specifically provided in the preceding provisions
of this Section 6.8(e), neither Spinco nor the Company shall be responsible for
the payment of, or reimbursement of Forest for, severance paid to any Spinco
Employee who voluntarily resigns employment from Spinco or the Company if such
Spinco Employee was not required to relocate in order to maintain such employment.  No Continuing Spinco Employee shall be
eligible for severance pursuant to the Company’s severance plan at any time
while the provisions of this Section 6.8(e) apply to such Continuing Spinco
Employee.


 


(f)            The
Company shall implement in all material respects (without any enhancement) the
agreements with its officers described in Section 6.8(f) of the Company
Disclosure Schedule. The Company shall obtain the written agreement of the
officers described in Section 6.8(f) of the Company Disclosure Schedule on or
before the Effective Time.


 


(g)           In
lieu of the payment of any annual bonuses for 2005 to the Continuing Spinco
Employees under the annual incentive and bonus plans maintained by Forest, the
Company and Spinco shall provide the Continuing Spinco Employees with the
retention benefits described in this Section 6.8(g).  Each Continuing Spinco Employee’s aggregate
potential retention benefit (“Retention Benefit”) shall be in an amount equal
to 250% of such employee’s target annual bonus for 2005 under the annual
incentive or bonus plan maintained by Forest and applicable to such employee
(with such target annual bonus determined as of the Effective Time based upon
such Continuing Spinco Employee’s annual base salary in effect as of such
time).  Retention Benefits shall be paid
by Spinco (prior to the Effective Time) or the Company (after the Effective
Time) in four installments, the first of which will equal 25% of the employee’s
target annual bonus for 2005, and the remaining three of which will each equal
75% of the employee’s target annual bonus for 2005; provided, however, that (i)
any payment of an installment of a Retention Benefit prior to the Effective
Time shall be made to each individual who is a Spinco Employee on the date of
the payment of such installment and such payment shall be based on such Spinco
Employee’s annual base salary in effect on such payment date and (ii) if such
Spinco Employee’s annual base salary changes between the date of any such
payment and the Effective Time, the first installment of a Retention Benefit
paid to such employee on or after the


 


58





















 


Effective Time
shall be adjusted so that, immediately after the payment of such installment,
the employee will have received the correct amount of his or her Retention
Benefit through the date of payment of such installment determined based on his
or her annual base salary in effect as of the Effective Time.  The first such installment shall be paid on
October 14, 2005, the second such installment shall be paid on February 15,
2006, the third such installment shall be paid on May 1, 2006, and the fourth
such installment shall be paid on June 30, 2006.  Retention Benefits shall be subject to
applicable withholding of taxes. 
Notwithstanding the foregoing, except as hereinafter provided, in order
for a Continuing Spinco Employee to be eligible to receive an installment
payment of his or her Retention Benefit, such Continuing Spinco Employee must
remain in the employ of the Company, Spinco or any of their Subsidiaries with
at least a satisfactory performance rating until the date of the payment of
such installment.  If the employment of a
Continuing Spinco Employee is involuntarily terminated after the Effective Time
by the Company or a Subsidiary of the Company (other than pursuant to a
Termination for Cause), then, in addition to any severance benefit to which
such employee may be entitled pursuant to Section 6.8(e), the Company shall pay
or cause to be paid to such employee, within 10 days after the date of such
termination of employment, an amount equal to the next unpaid installment, if
any, of such employee’s Retention Benefit that would have been paid to such
employee if his or her employment had not terminated; provided, that in no event
shall any such involuntarily terminated Continuing Spinco Employee receive less
(in the aggregate) than 100% of such employee’s target annual bonus for 2005
pursuant to this Section 6.8(g), unless the employment of such Continuing
Spinco Employee was terminated pursuant to a Termination for Cause.  If a Continuing Spinco Employee voluntarily
terminates his or her employment after the Effective Time or if the employment
of a Continuing Spinco Employee is involuntarily terminated after the Effective
Time by the Company or a Subsidiary of the Company pursuant to a Termination
for Cause, then no further installments of such employee’s Retention Benefit
shall be paid to such employee. 
Notwithstanding any other provision of this Agreement, neither Spinco
nor the Company shall be responsible for the payment of, or reimbursement of
Forest for, Retention Benefits in excess of the aggregate amount set forth on Exhibit E, Part C.


 


(h)           The
Company hereby acknowledges that it consents to, and shall cause any action
required on its behalf to implement, the transactions and agreements
contemplated by the Employee Benefits Agreement.


 


Section 6.9             Investigation.  Upon
reasonable notice, each of Forest, Spinco, the Company and Merger Sub shall
afford to each other and to its respective officers, employees, accountants,
counsel and other authorized representatives, reasonable access during normal
business hours, throughout the period prior to the earlier of the Effective
Time or the Termination Date, to its and its Subsidiaries’ plants, properties,
Contracts, commitments, books, records and any report, schedule or other
document filed or received by it pursuant to the requirements of the federal or
state securities laws, and shall use all commercially reasonable efforts to cause
its respective representatives to furnish promptly to the other such additional
financial and operating data and other information, including environmental
information, as to its and its Subsidiaries’ respective businesses and
properties as the other or its duly authorized representatives, as the case may
be, may reasonably request.  The parties
hereby agree that the provisions of the Confidentiality Agreement shall apply
to all information and material furnished by any party or its representatives
thereunder and hereunder.  No
investigation made at any time


 


59





















 


by or on behalf of any of the Company, Merger
Sub, Forest or Spinco shall affect the representations and warranties of the
parties hereto.


 


Section 6.10           Reasonable Efforts;
Further Assurances.  


 


(a)           Subject to the terms and conditions of this Agreement,
each of Forest, Spinco, the Company and Merger Sub shall use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the other Transaction Agreements, including providing information and using
all commercially reasonable efforts to obtain all necessary exemptions,
rulings, consents, authorizations, approvals and waivers to effect all
necessary registrations and filings and to lift any injunction or other legal
bar to the Merger and the other transactions contemplated hereby and thereby as
promptly as practicable, and to take all other actions necessary to consummate
the transactions contemplated hereby and thereby in a manner consistent with
applicable law.  Without limiting the
generality of the foregoing, Forest, Spinco, the Company and Merger Sub agree
to cooperate and to use their respective commercially reasonable efforts to
obtain any government clearances required to consummate the Merger (including
through any required compliance with the HSR Act and any applicable foreign
government reporting requirements) and to respond to any government requests
for information.  The parties hereto will
consult and cooperate with one another, and consider in good faith the views of
one another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
the HSR Act or any other federal, state or foreign antitrust or fair trade law.


 


(b)           Subject
to Section 6.10(a), in case at any time any further action is reasonably
necessary to carry out the purposes of this Agreement, Forest, Spinco and the
Company shall take all such commercially reasonable necessary action.


 


Section 6.11           No Solicitation by the
Company.


 


(a)           The
Company agrees that neither it nor any of its Subsidiaries nor any of the
officers and directors of it or its Subsidiaries shall, and that it shall use
all reasonable efforts to cause its and its Subsidiaries’ employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to (and shall not authorize any
of them to), directly or indirectly: (i) solicit, initiate, encourage, facilitate
or induce any inquiry with respect to, or the making, submission or
announcement of, any Acquisition Proposal with respect to itself, (ii)
participate in any discussions or negotiations regarding, or furnish to any
person or entity any nonpublic information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition Proposal
with respect to itself, (iii) engage in discussions with any person or entity
with respect to any Acquisition Proposal with respect to itself, except as to
the existence of these provisions, (iv) approve, endorse or recommend any
Acquisition Proposal with respect to itself (except to the extent specifically
permitted pursuant to Section 6.11 and Section 8.1(g)), or (v) enter
into any letter of intent or similar document or any contract, agreement or
commitment contemplating or otherwise relating to any Acquisition Proposal or
transaction contemplated thereby with respect to itself (except as permitted
pursuant 


 


60





















 


to
Section 6.11 and Section 8.1(g)). 
The Company and its Subsidiaries shall, and the Company shall use all
reasonable efforts to cause its and its Subsidiaries’ officers, directors,
employees, agents and representatives (including any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) to,
immediately cease any and all existing activities, discussions or negotiations
with any third parties conducted heretofore with respect to any Acquisition
Proposal with respect to itself.  The
Company shall ensure that its officers, directors and key employees and its
investment bankers, attorneys and other representatives are aware of the provisions
of this Section.


 


(b)           (i)  As promptly as practicable after receipt of
any Acquisition Proposal or any request for nonpublic information or inquiry
which it reasonably believes could lead to an Acquisition Proposal, the Company
shall provide Forest and Spinco with oral and written notice of the material
terms and conditions of such Acquisition Proposal, request or inquiry, and the
identity of the person, entity or Acquisition Group making any such Acquisition
Proposal, request or inquiry and a copy of all written materials provided in
connection with such Acquisition Proposal, request or inquiry.  Upon receipt of the Acquisition Proposal,
request or inquiry, the Company shall provide Forest and Spinco as promptly as
practicable oral and written notice setting forth all such information as is
reasonably necessary to keep Forest and Spinco informed in all material
respects of the status and details (including material amendments or proposed
material amendments) of any such Acquisition Proposal, request or inquiry and
shall promptly provide to Forest and Spinco (A) a copy of all written materials
subsequently provided by the person making the Acquisition Proposal in
connection with such Acquisition Proposal, request or inquiry and (B) a copy of
all material written materials subsequently provided to the person making the
Acquisition Proposal in connection with such Acquisition Proposal, request or
inquiry to the extent not previously provided to Forest and Spinco.


 


(ii)           The
Company shall provide Forest and Spinco with forty eight (48) hours prior
notice (or such lesser prior notice as is provided to the members of its Board
of Directors) of any meeting of its Board of Directors at which its Board of
Directors is reasonably expected to consider any Acquisition Proposal.


 


(c)           Notwithstanding
anything to the contrary contained in Section 6.11 and under circumstances in
which the Company has complied with all of its obligations under Section
6.11(a) and (b), in the event that, prior to the approval of the Merger and
this Agreement by the stockholders of the Company as provided herein, the
Company receives an unsolicited, bona fide written Acquisition Proposal with
respect to itself from a third party that its Board of Directors has in good
faith concluded (following the receipt of the advice of its outside legal
counsel and its financial advisor) is, or is reasonably likely to result in, a
Superior Offer, it may then take the following actions: (i) furnish nonpublic
information to the third party making such Acquisition Proposal, provided that
(A) (1) concurrently with furnishing any such nonpublic information to such
party, its gives Forest and Spinco written notice of its intention to furnish
nonpublic information and (2) it receives from the third party an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
third party on its behalf, the terms of which are at least as restrictive as
the terms contained in the Confidentiality Agreement (and containing additional
provisions that expressly permit the Company to comply with the provisions of
this Section 6.11) and (B) contemporaneously with furnishing any material
nonpublic information to such third


 


61





















 


party, it
furnishes such material nonpublic information to Forest and Spinco  (to the extent such nonpublic information has
not been previously so furnished); and (ii) engage in negotiations with the
third party with respect to the Acquisition Proposal, provided that
concurrently with entering into negotiations with such third party, it gives
Forest and Spinco  written notice of its
intention to enter into negotiations with such third party.


 


(d)           In
response to the receipt of a Superior Offer, the Board of Directors of the
Company may withhold, withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify, its recommendation in favor of the Merger, and, in
the case of a Superior Offer that is a tender or exchange offer made directly
to its stockholders, may recommend that its stockholders accept the tender or
exchange offer (any of the foregoing actions, whether by a Board of Directors
or a committee thereof, a “Change of Recommendation”), if all of the following
conditions in clauses (i) through (iv) are met: (i) a Superior Offer with
respect to it has been made and has not been withdrawn; (ii) approval of the
Merger and this Agreement by the stockholders of the Company as provided herein
has not occurred; (iii) it shall have (A) provided to Forest and Spinco written
notice which shall state expressly  (1)
that it has received a Superior Offer, (2) the material terms and conditions of
the Superior Offer (including the most current version of any definitive
agreement proposed to be entered into in connection therewith) and the identity
of the person, entity or Acquisition Group making the Superior Offer, and (3)
that it intends to effect a Change of Recommendation and the manner in which it
intends to do so, (B) provided to Forest and Spinco a copy of all material
written materials delivered to the person, entity or Acquisition Group making
the Superior Offer in connection with such Superior Offer that were not
previously provided to Forest and Spinco, and (C) made available to Forest and
Spinco all materials and information made available to the person, entity or
Acquisition Group making the Superior Offer in connection with such Superior
Offer; and (iv) it shall not have breached in any material respect any of the
provisions set forth in Section 6.11.


 


(e)           Notwithstanding
anything to the contrary contained in this Agreement, and subject to Section
2.4, the obligation of the Company to call, give notice of, convene and hold
its stockholders’ meeting as contemplated in Section 2.4 shall not be limited
or otherwise affected by the commencement, disclosure, announcement or
submission to it of any Acquisition Proposal with respect to it unless this
Agreement is terminated.  Notwithstanding
anything to the contrary contained in this Agreement, prior to the termination
of this Agreement, the Company shall not (i) submit to the vote of its
stockholders any Acquisition Proposal other than the Merger, or (ii) enter into
any agreement, agreement in principle or letter of intent (other than the
confidentiality agreement referenced in Section 6.11) with respect to or accept
any Acquisition Proposal other than the Merger (or resolve to or publicly
propose to do any of the foregoing).


 


(f)            Nothing
contained in this Agreement shall prohibit the Company or its Board of
Directors from taking and disclosing to its stockholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d 9
and 14e 2(a) promulgated under the Exchange Act to the extent required by
applicable law; provided that the content of any such disclosure thereunder
shall be governed by the terms of this Agreement; and provided further that the
Board of Directors or the Company shall not recommend that the stockholders of
the Company tender their Company Common Stock in connection with any such
tender or exchange offer unless the Board of Directors of the Company
determines in good faith (after receiving the advice of its outside legal
counsel and its financial adviser) that such Acquisition Proposal is a


 


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Superior
Offer.  Without limiting the foregoing
sentence, the Company shall not make a Change of Recommendation to recommend
that its stockholders accept a tender or exchange offer unless specifically
permitted pursuant to the terms of Section 6.11.


 


(g)           For
purposes of this Agreement, the following terms shall have the following
meanings: (i) “Acquisition Proposal” shall mean any inquiry, offer or proposal
relating to any transaction or series of related transactions involving: (A)
any purchase from the Company or acquisition by any person, entity or
“Acquisition Group” (as “Group” is defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more than a fifteen
percent (15%) interest in the total outstanding voting securities of the
Company or any tender offer or exchange offer that if consummated would result
in any person, entity or Acquisition Group beneficially owning fifteen percent
(15%) or more of the total outstanding voting securities of the Company or any
merger, consolidation, business combination or similar transaction involving
the Company, (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than fifteen percent (15%) of the
assets of the Company and its Subsidiaries, taken as a whole, or (C) any
liquidation or dissolution of the Company or any of its Subsidiaries; and (ii)
“Superior Offer” shall mean an unsolicited, bona fide written proposal made by
a third party to acquire, directly or indirectly, pursuant to a tender offer,
exchange offer, merger, consolidation or other business combination, all or
substantially all of the assets of the Company or substantially all of the
total outstanding voting securities of the Company on terms that the Board of
Directors of the Company has in good faith concluded (following the receipt of
advice of its outside legal counsel and its financial adviser), taking into
account, among other things, all legal, financial, regulatory and other aspects
of the offer and the person, entity or Acquisition Group making the offer, to
be more favorable, from a financial point of view, to the Company’s
stockholders (in their capacities as stockholders) than the terms of the Merger
and is reasonably capable of being consummated.


 


Section 6.12           Director and Officer
Indemnification; Insurance.


 


(a)           From
and after the Effective Time, Spinco shall indemnify, defend and hold harmless
to the fullest extent permitted under applicable law each person who is, or has
been at any time prior to the Effective Time, an officer or director of the
Company and each Subsidiary of the Company and each person who served at the
request of the Company or any Company Subsidiary as a director, officer,
trustee, partner, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, pension or other employee benefit plan or
enterprise (individually, an “Indemnified Party” and, collectively, the
“Indemnified Parties”) against all losses, claims, damages, liabilities, costs
and expenses (including attorneys’ fees), judgments, fines, penalties and
amounts paid in settlement with approval of the indemnifying party (which
approval shall not be unreasonably delayed or withheld) in connection with any
Action arising out of or pertaining to acts or omissions, or alleged acts or
omissions, by them in their capacities as such, whether commenced, asserted or
claimed before or after the Effective Time. 
In the event of any such Action: 
(i) Spinco shall pay, as incurred, the reasonable fees and expenses
of counsel selected by the Indemnified Party, which counsel shall be reasonably
acceptable to Spinco, in advance of the final disposition of any such Action to
the fullest extent permitted by applicable law and, if required, upon receipt
of any undertaking required by applicable law, and (ii) Spinco will
cooperate in the defense of any such Action; provided, however, Spinco shall
not 


 


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be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed), and provided further, that Spinco shall not
be obligated pursuant to this Section 6.12(a) to pay the fees and
disbursements of more than one counsel for all Indemnified Parties in a single
Action, unless, in the good faith judgment of any of the Indemnified Parties,
there is or may be a conflict of interests between two or more of such
Indemnified Parties, in which case there may be separate counsel for each
similarly situated group (which counsel shall be reasonably acceptable to
Spinco).  In the event of any Action, any
Indemnified Party wishing to claim indemnification will promptly notify Spinco
thereof (provided, that failure to so notify Spinco will not affect the
obligations of Spinco except to the extent that Spinco shall have been
materially prejudiced as a result of such failure).  Notwithstanding the foregoing, nothing
contained in this Section 6.12 shall be deemed to grant any right to any
Indemnified Party which is not permitted to be granted to an officer or
director of Spinco under Delaware law, assuming for such purposes that Spinco’s
Certificate of Incorporation and Bylaws provide for the maximum indemnification
permitted by law.


 


(b)           Without
limiting the rights that any indemnified person may have under applicable law,
the parties agree that all rights of indemnification existing as of the date
hereof as provided in the respective charter and bylaws of the Company and
Spinco shall survive the Merger and shall continue in full force and effect in
accordance with their terms.


 


(c)           For
a period of six years following the Effective Time, Spinco shall cause to be
maintained directors’ and officers’ liability insurance policies covering the
Indemnified Parties who are or at any time prior to the Effective Time were
covered by the Company’s existing directors’ and officers’ liability insurance
policies on terms substantially no less advantageous to the Indemnified Parties
than such insurance with respect to claims arising from facts or events that
occurred up to and including the Effective Time to the extent available;
provided, however, that Spinco may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions that are no less
advantageous to the covered persons; provided further, that Spinco shall not be
required to pay an annual premium for such insurance in excess of 500% of the
last annual premium paid by the Company prior to the date hereof and, if such
insurance is not available within such limit, Spinco shall be required to
obtain only such insurance as is available within such limit.


 


(d)           This
Section 6.12 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives, and shall be binding on Spinco and the Company and their
respective successors and assigns.  In
the event Spinco or the Company or any of their respective successors or
assigns (i) consolidates with or merges into any other Person and shall
not be the continuing or surviving corporation or entity in such consolidation
or merger or (ii) transfers all or substantially all its properties and
assets to any Person, then, and in each case, proper provision shall be made so
that the successors and assigns of Spinco or the Company, as the case may be,
honor the indemnification obligations set forth in this Section 6.12.


 


Section 6.13           Rule 145
Affiliates.  Spinco shall, at least 10 days
prior to the Effective Time, cause to be delivered to the Company a list,
reviewed by its counsel, identifying all persons who, in its reasonable
judgment, are at such time, or will be at the Effective Time, “affiliates” of
Spinco for purposes of Rule 145 promulgated by the SEC under the
Securities Act


 


64





















 


(each, a “Rule 145 Affiliate”).  Spinco shall furnish such information and
documents as the Company may reasonably request for the purpose of reviewing
such list.  Spinco shall use all
commercially reasonable efforts to cause each person who is identified as a
Rule 145 Affiliate in the list furnished pursuant to this
Section 6.13 to execute a written agreement (each, a “Rule 145
Affiliate Agreement”), substantially in the form of Exhibit F
to this Agreement, at or prior to the Effective Time.


 


Section 6.14           Public Announcements. 
Except with respect to a Change in Recommendation, Forest and the
Company shall consult with each other and shall mutually agree upon any press
release or public announcement relating to the transactions contemplated by
this Agreement and neither of them shall issue any such press release or make
any such public announcement prior to such consultation and agreement, except
as may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange, in which case the party
proposing to issue such press release or make such public announcement shall
use all commercially reasonable efforts to consult in good faith with the other
party before issuing any such press release or making any such public
announcement.


 


Section 6.15           Defense of Litigation.  Each
of Forest, Spinco, the Company and Merger Sub shall use all commercially
reasonable efforts to defend against all Actions in which such party is named
as a defendant that challenge or otherwise seek to enjoin, restrain or prohibit
the transactions contemplated by this Agreement or seek damages with respect to
such transactions.  None of Forest,
Spinco, the Company or Merger Sub shall settle any such Action or fail to
perfect on a timely basis any right to appeal any judgment rendered or order
entered against such party therein without having previously consulted with the
other parties.  Each of Forest, Spinco
and the Company shall use all commercially reasonable efforts to cause each of
its Affiliates, directors and officers to use all commercially reasonable
efforts to defend any such Action in which such Affiliate, director or officer
is named as a defendant and which seeks any such relief to comply with this
Section 6.15 to the same extent as if such Person was a party.


 


Section 6.16           Notification.


 


(a)           From
time to time prior to the Effective Time, each of Forest, Spinco and the
Company shall supplement or amend its respective Disclosure Schedule with
respect to any matter hereafter arising that, if existing or occurring at the
date of this Agreement, would have been required to be set forth or described
in such Disclosure Schedule or that is necessary to complete or correct
(i) any information in such Disclosure Schedule that is or has been
rendered untrue, inaccurate, incomplete or misleading, (ii) any
representation or warranty of such party in this Agreement that contains a
qualification as to materiality or Material Adverse Effect that has been
rendered untrue or inaccurate, in any respect, thereby or (iii) any
representation or warranty of such party in this Agreement that is not so
qualified and that has been rendered untrue or inaccurate, in any material
respect, thereby.  Delivery of such
supplements shall be for informational purposes only and shall not expand or
limit the rights or affect the obligations of any party hereunder.  Such supplements shall not constitute a part
of the Forest Disclosure Schedule, the Spinco Disclosure Schedule or the
Company Disclosure Schedule, as the case may be, for purposes of this
Agreement.


 


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(b)           Each
of Forest, Spinco, the Company and Merger Sub shall give prompt notice to the
other of the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which has caused or is reasonably likely to cause (i) any
covenant or agreement of such party contained in this Agreement not to be
performed or complied with, in any material respect or (ii) any condition
contained in Article VII to become incapable of being fulfilled at or
prior to the Effective Time; provided, however, that the delivery of any notice
pursuant to this Section 6.16(b) shall not cure such breach or
noncompliance or limit or otherwise affect the remedies available hereunder to
the party receiving such notice.


 


(c)           Each
of the parties hereto shall keep the others informed on a timely basis as to
the status of the transactions contemplated by the Transaction Agreements and
the obtaining of all necessary and appropriate exemptions, rulings, consents,
authorizations and waivers related thereto.


 


Section 6.17           Obligations of Merger
Sub.  The Company shall take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the conditions set
forth in this Agreement.


 


Section 6.18           Accounting Matters.  The
parties will use their commercially reasonable efforts to ensure that,
following the Effective Time, the Company will establish a fiscal year ending
on December 31.


 


Section 6.19           Reorganization
Treatment.


 


(a)           Forest
(with respect to Spinco) and the Company (on its behalf and on behalf of Merger
Sub) shall execute and deliver to each of Weil, Gotshal & Manges LLP,
special tax counsel to Forest and Spinco, and Baker Botts L.L.P., counsel to
the Company, certificates substantially in the forms attached hereto as Exhibits G and H at such time or times as reasonably
requested by each such law firm in connection with its delivery of the opinion
referred to in Section 7.2(c) or Section 7.3(c), as the case may be.  Prior to the Effective Time, neither Forest,
Spinco, the Company or Merger Sub shall take or cause to be taken any action
which would cause to be untrue any of the representations in such certificates.


 


(b)           Forest,
Spinco, the Company and Merger Sub intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and the parties
will take the position for all Tax purposes that the Merger so qualifies unless
a contrary position is required by a final determination within the meaning of
Section 1313 of the Code.  Forest,
Spinco, the Company and Merger Sub shall each use their respective commercially
reasonable efforts to cause the Merger to qualify as a reorganization within
the meaning of Section 368(a) of the Code, and shall not take actions, cause
actions to be taken or fail to take actions that are reasonably likely to
prevent such result.


 


Section 6.20           Performance Bond.  The Company shall obtain and maintain the
performance bond as described on Section 6.20 of the Company Disclosure
Schedule.


 


Section 6.21           Estimated Basis. 
Forest has provided the Company with an estimate of
the tax basis of the Spinco Assets as of June 30, 2005 (the “Estimated
Basis.”)  The Estimated Basis included capitalized intangible drilling
costs incurred with respect to the Spinco Business


 


66





















 


in Forest’s tax
year ended December 31, 2004 (the “2004 Spinco IDC”).  In respect of this Section 6.21, and for the
sake of clarity, Forest agrees that it will capitalize the 2004 Spinco IDC in
its Tax Return filing for the year ended December 31, 2004 pursuant to Section
59(e) of the Code and in a manner consistent with the computation of the
estimated basis. Forest intends to deduct all 2005 IDC with respect to all of
its U.S. assets, including the Spinco Assets in 2005.


 


ARTICLE VII



CONDITIONS TO THE MERGER


 


Section 7.1             Conditions to the
Obligations of Spinco, Forest, the Company and Merger Sub to Effect the Merger.  The
respective obligations of Spinco, Forest, the Company and Merger Sub to consummate
the Merger shall be subject to the fulfillment (or waiver by Forest and the
Company) at or prior to the Effective Time of the following conditions:


 


(a)           Prior
to the Effective Time, the Distribution shall have been consummated in
accordance with the Distribution Agreement and the conditions to the
consummation of the Distribution set forth in Section 9.1 of the
Distribution Agreement shall have been satisfied or shall have been waived with
a Company Consent;


 


(b)           All
material consents, approvals and authorizations of any Governmental Authority
legally required for the consummation of the transactions contemplated by this
Agreement and the other Transaction Agreements shall have been obtained and be
in effect at the Effective Time;


 


(c)           Any
applicable waiting period (including any extended waiting period arising as a
result of a request for additional information by either HSR Agency) under the
HSR Act shall have expired or been terminated;


 


(d)           The
Registration Statements shall have become effective in accordance with the
Securities Act and the Exchange Act and shall not be the subject of any stop
order or proceedings seeking a stop order; all necessary permits and
authorizations under state securities or “blue sky” laws, the Securities Act
and the Exchange Act relating to the issuance and trading of shares of Company
Common Stock to be issued in connection with the Merger shall have been
obtained and shall be in effect; and such shares of Company Common Stock and
such other shares required to be reserved for issuance in connection with the
Merger shall have been Approved for Listing;


 


(e)           The
Requisite Approval shall have been obtained;


 


(f)            No
court of competent jurisdiction or other Governmental Authority shall have
issued an Order that is still in effect restraining, enjoining or prohibiting
the Distribution or the Merger;


 


(g)           No
Action by any Governmental Authority with respect to the Merger shall be
pending that seeks to restrain, enjoin, prohibit or delay consummation of the
transactions


 


67





















 


contemplated by
this Agreement or to impose any material restrictions or requirements thereon
or on Spinco or the Company with respect thereto;


 


(h)           The
Company Common Stock shall have been approved for listing on the NYSE or
Nasdaq, subject only to official notice of issuance; and


 


(i)            No
action shall have been taken, and no statute, rule, regulation or executive
order shall have been enacted, entered, promulgated or enforced, by any
Governmental Authority with respect to the Merger that, individually or in the
aggregate, would (i) restrain, prohibit or delay the consummation of the
Merger or (ii) impose material restrictions or requirements thereon or on
Spinco or the Company with respect thereto.


 


Section 7.2             Additional Conditions
to the Obligations of Forest and Spinco.  The obligation of Forest
and Spinco to consummate the Merger shall be subject to the fulfillment (or
waiver by Forest) at or prior to the Effective Time of the following additional
conditions:


 


(a)           The
Company shall have performed in all material respects its covenants and
agreements contained in this Agreement required to be performed at or prior to
the Effective Time and the representations and warranties of the Company
contained in this Agreement (which for purposes of this Section 7.2(a)
shall be read as though none of them contained any materiality or material
adverse effect qualifications) shall be true and correct in all respects as of
the date of this Agreement and as of the Effective Time as if made at and as of
the Effective Time (except to the extent such representations and warranties
address matters as of a particular date), except in each case (i) where
the failure to be true and correct, individually or in the aggregate, would not
have a Material Adverse Effect on Spinco or the Company or (ii) to the
extent specifically contemplated or permitted by this Agreement;


 


(b)           The
Company shall have delivered to Forest a certificate, dated as of the Effective
Time, of a senior officer of the Company certifying the satisfaction by the
Company of the conditions set forth in subsection (a) of this
Section 7.2;


 


(c)           Forest
and Spinco shall have received an opinion of Weil, Gotshal & Manges LLP to
the effect that the Merger will constitute a reorganization under
Section 368(a) of the Code.  In
rendering such opinion, Weil, Gotshal & Manges LLP may require and rely
upon representations contained in certificates of officers of Forest (with
respect to Spinco) and the Company (on its behalf and on behalf of Merger Sub)
substantially in the forms attached hereto in Exhibits G
and H;


 


(d)           Forest
shall have received the bondholder consents referenced in Section 3.2 of the
Forest Disclosure Schedule; and


 


(e)           Forest
shall have received the consents of its lenders under its credit facility
referenced in Section 3.2 of the Forest Disclosure Schedule.


 


Section 7.3             Additional Conditions
to the Obligations of the Company and Merger Sub.  The
obligation of the Company and Merger Sub to consummate the Merger shall be subject
to the fulfillment (or waiver by the Company) at or prior to the Effective Time
of the following additional conditions:


 


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(a)           Spinco
and Forest shall have performed in all material respects their respective
covenants and agreements contained in this Agreement required to be performed
at or prior to the Effective Time and the representations and warranties of
Spinco and Forest contained in this Agreement (which for purposes of this
Section 7.3(a) shall be read as though none of them contained any
materiality or material adverse effect qualifications) shall be true and
correct in all respects as of the date of this Agreement and as of the
Effective Time as if made at and as of the Effective Time (except to the extent
such representations and warranties address matters as of a particular date),
except in each case (i) where the failure to be true and correct,
individually or in the aggregate, would not have a Material Adverse Effect on
the Spinco Business, Spinco or the Company or (ii) to the extent
specifically contemplated or permitted by this Agreement;


 


(b)           The
Company shall have received the consent of the lenders under its credit
facility referenced in Section 5.3 of the Company Disclosure Schedule, and
Spinco and/or the Company shall have entered into a new or amended credit
facility with available borrowing capacity sufficient to operate the Spinco
Business and the Company’s business after the Closing consistent with past
practice;


 


(c)           Spinco
shall have delivered to the Company a certificate, dated as of the Effective
Time, of a senior officer of Forest certifying the satisfaction of the
conditions set forth in subsection (a) of this Section 7.3;


 


(d)           The
Company shall have received an opinion from Baker Botts L.L.P. to the effect
that the Merger will constitute a reorganization under Section 368(a) of
the Code.  In rendering such opinion,
Baker Botts L.L.P. may require and rely upon representations contained in
certificates of officers of Forest (with respect to Spinco) and the Company (on
its behalf and on behalf of Merger Sub) substantially in the forms attached
hereto in Exhibits H and I; and


 


(e)           The
Company shall be reasonably satisfied that the Contribution and Distribution
have taken place in accordance with the terms set forth in the Distribution
Agreement.


 


Section 7.4             Frustration of Conditions. 
None of Forest, Spinco or the Company 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 commercially
reasonable efforts to consummate the Merger and the other transactions
contemplated by this Agreement and the other Transaction Agreements.


 


ARTICLE VIII



TERMINATION, AMENDMENT AND WAIVERS


 


Section 8.1             Termination.  This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned prior to the Effective Time (notwithstanding the Requisite Approval)
as follows:


 


(a)           by
the mutual written consent of each party hereto, which consent shall be
effected by action of the Board of Directors of each such party;


 


69





















 


(b)           by
any party hereto if the Effective Time shall not have occurred on or before
March 31, 2006 provided that the right to terminate this Agreement pursuant to
this clause (b) shall not be available to any party whose failure to
perform any of its obligations under this Agreement required to be performed by
it at or prior to such date has been a cause of, or contributed to, the failure
of the Merger to have become effective on or before such date;


 


(c)           by
any party hereto if (i) any court of competent jurisdiction or any other
Governmental Authority shall have issued an Order restraining, enjoining or
otherwise prohibiting the Merger and such Order shall have become final and
nonappealable, provided that, if the party seeking to terminate this Agreement
pursuant to this Section 8.1(c)(i) is a party to the applicable proceeding,
such party shall have used all commercially reasonable efforts to remove such
Order; or (ii) the Requisite Approval is not obtained; provided, that the right
to terminate this Agreement pursuant to this Section 8.1(c)(ii) shall not be
available to the Company where the failure to obtain the Requisite Approval
shall have been caused by the action or failure to act by the Company and such
action or failure to act constitutes a breach by the Company of Section 6.11 in
any respect or a material breach by the Company of any of the other covenants
or agreements contained in this Agreement;


 


(d)           by
the Company if (i) either Forest or Spinco shall have failed to perform in
any material respect any of its respective covenants and agreements contained
in this Agreement required to be performed at or prior to the Effective Time,
or (ii) the respective representations and warranties of Forest or Spinco
contained in this Agreement are or shall become untrue (without giving effect
to any materiality qualification or standard contained in any such representations
and warranties) in any respect at any time prior to the Effective Time (except
to the extent such representations and warranties address matters as of a
particular date), except where the failure to be true and correct, individually
or in the aggregate, would not have a Material Adverse Effect on the Spinco
Business, Spinco or the Company; provided that the right of the Company to
terminate this Agreement pursuant to this subsection (d) shall not be
available unless such failure or untruth is incapable of cure or Forest and
Spinco shall have been unable to cure such failure or such untruth for 30
calendar days after the Company shall have given Forest and Spinco notice of
such failure or such untruth;


 


(e)           by
Forest if (i) the Company shall have failed to perform in any material
respect any of its covenants and agreements contained in this Agreement
required to be performed at or prior to the Effective Time, or (ii) the
representations and warranties of the Company contained in this Agreement are
or shall become untrue (without giving effect to any materiality qualification
or standard contained in any such representations and warranties) in any
respect at any time prior to the Effective Time (except to the extent such
representations and warranties address matters as of a particular date), except
where the failure to be true and correct, individually or in the aggregate,
would not have a Material Adverse Effect on the Company, the Spinco Business or
Spinco; provided that the right of Forest to terminate this Agreement pursuant
to this subsection (e) shall not be available unless such failure or
untruth is incapable of cure or the Company shall have been unable to cure such
failure or such untruth for 30 calendar days after Forest shall have given the Company
notice of such failure or such untruth;


 


(f)            by
Forest in the event that (i) the Board of Directors of the Company shall have
failed to reaffirm publicly its approval, as soon as reasonably practicable,
and in no event later


 


70





















 


than three
business days, after Forest’s request for such reaffirmation, of the Merger and
the transactions contemplated by this Agreement, or shall have resolved not to
reaffirm the Merger, (ii) the Board of Directors of the Company shall have
failed to include in the Proxy Statement/Prospectus its recommendation, without
modification or qualification, that the Company stockholders approve and adopt
this Agreement and approve the Merger, (iii) the Board of Directors of the Company
shall have withheld, withdrawn, amended or modified, or proposed publicly to
withdraw, amend or modify, in a manner adverse to Forest and Spinco, the
recommendation of such Board of Directors to the Company stockholders that they
approve and adopt this Agreement and approve the Merger, (iv) the Board of
Directors of the Company shall have a Change of Recommendation or (v) the Board
of Directors of the Company, within ten business days after commencement of any
tender or exchange offer for any shares of Company Common Stock, shall have
failed to recommend against acceptance of such tender or exchange offer by its
stockholders or takes no position with respect to the acceptance of such tender
or exchange offer by its stockholders; or


 


(g)           by
the Company if the Board of Directors of the Company has made a Change of
Recommendation in order to approve and permit the Company to accept a Superior
Offer; provided, however, that (i) the Company is not then in breach of Section
6.11 or material breach of any other covenant or other agreement contained in
this Agreement and has not breached any of its representations and warranties
contained in this Agreement in any material respect, (ii) Forest does not make,
within three (3) business days after receipt of the Company’s written notice
pursuant to Section 6.11(d), an offer that the Board of Directors of the
Company shall have concluded in good faith (following consultation with its
financial advisor and outside legal counsel) is at least as favorable, from a
financial point of view, to the Company stockholders as such Superior Offer,
(iii) the Board of Directors of the Company authorizes the Company, subject to
complying with the terms of Section 6.11 and this clause (g), to enter into a
binding written agreement concerning a transaction that constitutes a Superior
Offer and the Company notifies Forest and Spinco in writing that it intends to
enter into such an agreement, attaching the most current version of such
agreement to such notice, and (iv) the Company shall have tendered to Forest
payment in full of the amount specified in Section 8.3 concurrently with
delivery of notice of termination pursuant to this Section 8.1(g).


 


Section 8.2             Effect of Termination.  In
the event of termination of this Agreement pursuant to Section 8.1, this
Agreement shall terminate (except to the extent set forth in the last sentence
of Section 9.1(a) and in Section 9.2), without any liability on the
part of any party or its directors, officers or stockholders except as set
forth in Section 8.3; provided, that nothing in this Agreement shall
relieve any party of liability for breach of this Agreement or prejudice the
ability of the non-breaching party to seek damages from any other party
for any breach of this Agreement, including attorneys’ fees and the right to
pursue any remedy at law or in equity.


 


Section 8.3             Termination Fee;
Expenses.


 


(a)           Expenses Payable upon Breach.  If
this Agreement is terminated pursuant to one (but not both) of
Section 8.1(d) or Section 8.1(e), then the breaching party shall
promptly (but not later than five (5) business days after receipt of
notice of the amount due from the other party) pay to the terminating party an
amount equal to all documented out-of-pocket expenses and fees
incurred by such terminating party (including fees and expenses payable to all
legal,


 


71





















 


accounting,
financial, public relations and other professional advisors arising out of, in
connection with or related to the transactions contemplated by this Agreement
and the Transaction Documents) not to exceed $5 million in the aggregate
(“Out-of-Pocket Expenses”).


 


(b)           Termination
Fee Payable in Certain Circumstances.


 


(i)            If
(x) this Agreement is terminated by Forest or the Company pursuant to Section
8.1(c)(ii) (as it relates to failure to obtain the Requisite Approval), (y)
Forest or the Company terminates this Agreement pursuant to Section 8.1(b), or
(z) Forest terminates this Agreement pursuant to Section 8.1(e)(i); and


 


as
to any of clauses (x), (y) or (z) above, prior to the termination of this
Agreement, there has been publicly announced an Acquisition Proposal (other
than the Merger) and within twelve months of such termination the Company shall
either (1) consummate an Acquisition Proposal (whether or not such Acquisition
Proposal is the same Acquisition Proposal that had been publicly announced
prior to termination of this Agreement) or (2) enter into an agreement with
respect to an Acquisition Proposal or recommend approval of an Acquisition
Proposal (whether or not such Acquisition Proposal is the same Acquisition
Proposal that had been publicly announced prior to termination of this
Agreement), which Acquisition Proposal is subsequently consummated (whether or
not such consummation occurs within such twelve-month period); or


 


(ii)           If
Forest shall terminate this Agreement pursuant to Section  8.1(f); or


 


(iii)          If
the Company shall terminate this Agreement pursuant to Section 8.1(g);


 


then
the Company shall pay to Forest an amount equal to $25 million (the
“Termination Fee”), plus Out of Pocket Expenses.  The Company hereby waives its right to set
off or counterclaim against such amount. 
If the Termination Fee shall be payable pursuant to subsection (b)(i) of
this Section 8.3, the Termination Fee shall be paid in same day funds at or
prior to the date of consummation of such Acquisition Proposal.  If the Termination Fee shall be payable
pursuant to subsection (b)(ii) of this Section 8.3, the Termination Fee shall
be paid in same day funds no later than one business day after the date of
termination of this Agreement.  If the
Termination Fee shall be payable pursuant to subsection (b)(iii) of this
Section 8.3, the Termination Fee shall be paid in same day funds concurrently
with the delivery of the notice of termination of this Agreement pursuant to
Section 8.1(g).


 


(c)           The
parties hereto acknowledge that the agreements contained in paragraph (b) of
this Section 8.3 are an integral part of the transactions contemplated by this
Agreement, and that without these agreements, they would not enter into this
Agreement.  Accordingly, if the Company
fails to pay promptly any fee payable by it pursuant to this Section 8.3, then
the Company shall pay to Forest all of Forest’s costs and expenses (including
attorneys’ fees) in connection with collecting such fee, together with interest
on the amount of the fee at the rate of 5% from the date such payment was due
under this Agreement until the date of payment.


 


Section 8.4             Amendment.  This
Agreement may be amended by Forest, Spinco, the Company and Merger Sub at any
time before or after adoption of this Agreement by the stockholders of the
Company; provided, however, that after such adoption, no amendment shall be
made that by law requires further approval by such stockholders without such
further


 


72





















 


approval. 
This Agreement may not be amended except by an instrument in writing
signed by Forest, Spinco, the Company and Merger Sub.


 


Section 8.5             Waivers.  At
any time prior to the Effective Time, Forest, Spinco and the Company may, to
the extent legally allowed, (i) extend the time for the performance of any
of the obligations or acts of the other party; (ii) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant to this Agreement; and (iii) waive
compliance with any of the agreements or conditions of the other party
contained herein; provided, however, that no failure or delay by Forest, Spinco
or the Company in exercising any right hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right hereunder.  Any agreement on the part of Forest, Spinco
or the Company to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.


 


ARTICLE IX



MISCELLANEOUS


 


Section 9.1             Survival of
Representations, Warranties and Agreements; Indemnification.


 


(a)           The
covenants and agreements in this Agreement or in any certificate or instrument
delivered pursuant to this Agreement shall survive the Effective Time in
accordance with their respective terms. 
None of the representations or warranties in this Agreement or in any
certificate or instrument delivered pursuant to this Agreement (except for the
certificates substantially in the forms attached hereto in Exhibits G and H) shall survive the
Effective Time.  Subject to
Section 9.14, the Confidentiality Agreement shall survive the execution
and delivery of this Agreement and any termination of this Agreement, and the
provisions of the Confidentiality Agreement shall apply to all information and
material furnished by any party or its representatives thereunder or hereunder.


 


(b)           Following
the Effective Time, Forest will indemnify, defend and hold harmless Spinco, the
Company and each Person, if any, who controls, within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
(any such person being hereinafter referred to as a “Controlling Person”),
Spinco or the Company from and against, and pay or reimburse each of the
foregoing for, all losses, claims, damages, liabilities, actions, costs and
expenses, joint or several, including reasonable attorneys’ fees (collectively,
“Losses”), arising out of or resulting from, directly or indirectly, or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in or incorporated by reference into either of the Registration
Statements or in the Proxy Statement/Prospectus (or any amendment or supplement
thereto) or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that Forest shall not be responsible for information
provided by the Company as to itself and its Subsidiaries specifically for
inclusion in, or incorporation by reference into, any such Proxy
Statement/Prospectus or Registration Statement.


 


73





















 


(c)                                  Following
the Effective Time, Spinco will indemnify, defend and hold harmless Forest and
each Controlling Person of Forest from and against, and pay or reimburse each
of the foregoing for, all Losses arising out of or resulting from, directly or
indirectly, or in connection with any untrue statement or alleged untrue
statement of a material fact contained in or incorporated by reference into
either of the Registration Statements or in the Proxy Statement/Prospectus (or
any amendment or supplement thereto) or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, but only with respect to information provided by the
Company as to itself and its Subsidiaries specifically for inclusion in, or
incorporation by reference into, any such Proxy Statement/Prospectus or
Registration Statement.


 


Section 9.2                                      Expenses.  Except as otherwise provided in the
Distribution Agreement or in Section 8.3, whether or not the Merger or the
other transactions contemplated by this Agreement are consummated, all costs
and expenses incurred by Forest or Spinco in connection with this Agreement and
the transactions contemplated hereby shall be paid by Spinco (provided that
Spinco shall not be obligated to pay more than $7 million, exclusive of
the expenses described in the exception below), and all costs and expenses
incurred by the Company in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Company, except that the Company and
Spinco each shall pay one-half of all expenses relating to printing,
filing and mailing the Registration Statements and the Proxy
Statement/Prospectus and all SEC and other regulatory filing fees incurred in
connection with the Registration Statements and the Proxy Statement/Prospectus.


 


Section 9.3                                      Notices.  All notices and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed given upon (a) a transmitter’s confirmation of a receipt of a
facsimile transmission (but only if followed by confirmed delivery of a
standard overnight courier the following business day or if delivered by hand
the following business day), (b) confirmed delivery of a standard
overnight courier or when delivered by hand or (c) the expiration of five
business days after the date mailed by certified or registered mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other addresses for a party as shall be specified by like notice):


 


If to Spinco (prior to the Effective Time) or Forest,
to:


 


SML Wellhead Corporation
or Forest Oil Corporation

707 17th Street, Suite 3600

Denver, Colorado 80202

Attn:  General Counsel

Facsimile:  (303) 812-1510


 


74





















 


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


 


Vinson & Elkins LLP

666 Fifth Avenue

New York, New York 10103

Attn:  Alan P. Baden

Facsimile:  (212) 849-5337


 


If to Spinco (following the Effective Time), to:


 


SML Wellhead Corporation

c/o Mariner Energy, Inc.

2101 CityWest Boulevard

Building 4, Suite 900

Houston, Texas 77042

Attn:  General Counsel

Facsimile:  (713) 954-3820


 


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


 


Baker Botts L.L.P.

One Shell Plaza

Houston, Texas 77002

Attn:  Kelly B. Rose

Facsimile:  (713) 229-7996


 


If to the Company, to:


 


Mariner Energy, Inc.

2101 CityWest Boulevard

Building 4, Suite 900

Houston, Texas 77042

Attn:  General Counsel

Facsimile:  (713) 954-3820


 


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


 


Baker Botts L.L.P.

One Shell Plaza

Houston, Texas 77002

Attn:  Kelly B. Rose

Facsimile:  (713) 229-7996


 


Section 9.4                                      Certain
Construction Rules.  The article and section headings and
the table of contents contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.  As used in this Agreement,
unless otherwise provided to the contrary, (a) all references to days or
months shall be deemed


 


75





















 


references to calendar days or months and (b) any reference to a “Section,”
“Article,” “Exhibit” or “Schedule” shall be deemed to refer to a section or
article of this Agreement or an exhibit or schedule to this Agreement.  The words “hereof,” “herein” and “hereunder”
and words of similar import referring to this Agreement refer to this Agreement
as a whole and not to any particular provision of this Agreement.  Whenever the words “include,” “includes” or “including”
are used in this Agreement, they shall be deemed to be followed by the words “without
limitation.” Unless otherwise specifically provided for herein, the term “or”
shall not be deemed to be exclusive.  Any
matter disclosed in any particular Section or Subsection of the Spinco
Disclosure Schedule, the Forest Disclosure Schedule or the Company Disclosure
Schedule shall be deemed to have been disclosed in any other Section or
Subsection of Articles III, IV, V or VI of this Agreement, as applicable, with
respect to which such matter is relevant so long as the applicability of such
matter to such Section or Subsection is reasonably apparent.  For avoidance of doubt, “consistent with past
practice” when used with respect to Spinco, any of its Subsidiaries, any Spinco
Asset or the Spinco Business shall mean the past practice of Forest.


 


Section 9.5                                      Severability.  If
any provision of this Agreement or the application of any such provision to any
Person or circumstance, shall be declared judicially to be invalid,
unenforceable or void, such decision shall not have the effect of invalidating
or voiding the remainder of this Agreement, it being the intent and agreement
of Spinco, Forest, the Company and Merger Sub that this Agreement shall be
deemed amended by modifying such provision to the extent necessary to render it
valid, legal and enforceable while preserving its intent or, if such
modification is not possible, by substituting therefor another provision that
is legal and enforceable and that achieves the same objective.


 


Section 9.6                                      Assignment;
Binding Effect.  Neither this Agreement nor any of the
rights, benefits or obligations hereunder may be assigned by Spinco, Forest,
the Company or Merger Sub (whether by operation of law or otherwise) without
the prior written consent of all of the other parties.  Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
Spinco, Forest, the Company and Merger Sub and their respective successors and
permitted assigns.


 


Section 9.7                                      No
Third Party Beneficiaries.  Except as provided in Sections 2.2,
2.8, 2.9 and 6.12 (collectively, the “Third Party Provisions”), nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
(other than Forest, Spinco and the Company and their respective successors and
permitted assigns) any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement, and no Person (other
than as so specified) shall be deemed a third party beneficiary under or by
reason of this Agreement.  The Third
Party Provisions may be enforced by the beneficiaries thereof after the
Effective Time.  Subject to
Section 6.12, Spinco shall reimburse all expenses, including reasonable
attorneys’ fees, that are incurred by any Person who prevails in any litigation
or other proceeding required to enforce the obligations of the Surviving
Corporation and Spinco under the Third Party Provisions.


 


Section 9.8                                      Limited
Liability.  Notwithstanding any other provision of
this Agreement, no stockholder, director, officer, Affiliate, agent or
representative of Spinco, Forest, the Company or Merger Sub, in its capacity as
such, shall have any liability in respect of or relating to the covenants,
obligations, representations or warranties of such party under this Agreement
or


 


76





















 


in respect of any certificate delivered with respect hereto or thereto
and, to the fullest extent legally permissible, each of Spinco, Forest, the
Company and Merger Sub, for itself and its stockholders, directors, officers
and Affiliates, waives and agrees not to seek to assert or enforce any such liability
that any such Person otherwise might have pursuant to applicable law.


 


Section 9.9                                      Entire
Agreement.  This Agreement (together with the
other Transaction Agreements, the Confidentiality Agreement, the exhibits and
the Disclosure Schedules and the other documents delivered pursuant hereto)
constitutes the entire agreement of all the parties hereto and supersedes all
prior and contemporaneous agreements and understandings, both written and oral,
between the parties, or any of them, with respect to the subject matter
hereof.  All exhibits attached to this
Agreement and the Disclosure Schedules are expressly made a part of, and
incorporated by reference into, this Agreement. 
Each section of the Company Disclosure Schedule, the Forest Disclosure
Schedule and the Spinco Disclosure Schedule qualifies the corresponding
numbered representation and warranty or covenant to the extent specified
therein, and any other representation, warranty or covenant to which such
matter is relevant so long as the applicability of such matter to any such
representation, warranty or covenant is reasonably apparent.


 


Section 9.10                                Governing
Law.  This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware without
giving effect to the conflicts of law principles thereof.  EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY
CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE,
(ii) TO THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF
PROCESS IN THE STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST
COMPANY, AS SUCH PARTY’S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL
PROCESS AND (iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN
(ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON
SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE.


 


Section 9.11                                Counterparts.  This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one
agreement binding on Spinco, Forest, the Company and Merger Sub,
notwithstanding that not all parties are signatories to the original or the
same counterpart.


 


Section 9.12                                Specific
Performance.  The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.


 


Section 9.13                                Waiver
of Jury Trial.  Each of the parties hereto irrevocably
and unconditionally waives all right to trial by jury in any Action or
counterclaim (whether based in contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of the parties hereto in the
negotiation, administration, performance and enforcement thereof.


 


77





















 


Section 9.14                                Confidentiality.  Subject to Section 7.2 and Section 7.5 of the
Distribution Agreement, for a period of eighteen months following the Effective
Time, each of Forest and the Company shall hold, and shall cause its Affiliates
and Representatives to hold, in strict confidence all Information concerning
the other party and its Affiliates obtained by it prior to the Effective Date
or furnished to it by such other party and its Affiliates pursuant to this
Agreement or the other Transaction Agreements (including, with respect to
Forest and its Affiliates and Representatives, Information of Forest, its
Affiliates and Representatives to the extent related to Spinco, the Spinco
Assets or the Spinco Business) and shall not release or disclose such
Information to any other Person, except its Affiliates and Representatives, who
shall be advised of the provisions of this Section 9.14, and shall not use such
Information except as required pursuant to the terms of the Transaction
Agreements, and each party shall be responsible for a breach by any of its
Affiliates or Representatives; provided, however, that any member of the Forest
Group or the Company and its Affiliates may disclose such Information to the
extent that (a) disclosure is compelled by judicial or administrative process
or, based on advice of such Person’s counsel, by other requirements of law, or
(b) such party can show that such Information was (i) in the public domain
through no fault of such Person or (ii) lawfully acquired by such Person from
another source after the time that it was furnished to such Person by the other
party or its Affiliates, and not acquired from such source subject to any
confidentiality obligation on the part of such source known to the acquiror.  Notwithstanding the foregoing, each of Forest
and the Company shall be deemed to have satisfied its obligations under this
Section 9.14 with respect to any Information (other than Privileged
Information) if it exercises the same care with regard to such Information as
it takes to preserve confidentiality for its own similar Information.


 


78





















 


IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.


 


	
   

  	
  FOREST OIL CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SML WELLHEAD CORPORATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MARINER ENERGY, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MEI SUB, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 


79





















 


EXHIBIT B


TO


AGREEMENT AND PLAN
OF MERGER


 


Initial Officers
of the Company


 


	
  Scott D. Josey

  	
   

  	
  Chairman of the Board,
  Chief Executive Officer and President

  
	
  Dalton F. Polasek

  	
   

  	
  Chief Operating Officer

  
	
  Rick G. Lester

  	
   

  	
  Vice President, Chief
  Financial Officer and Treasurer

  
	
  Jesus G. Melendrez

  	
   

  	
  Vice President—
  Corporate Development

  
	
  Mike C. van den Bold

  	
   

  	
  Vice President and
  Chief Exploration Officer

  
	
  Teresa G. Bushman

  	
   

  	
  Vice President, General
  Counsel and Secretary

  
	
  Judd A. Hansen

  	
   

  	
  Vice President— Shelf
  and Onshore

  
	
  Cory L. Loegering

  	
   

  	
  Vice President—
  Deepwater

  



 


B-1





















 


EXHIBIT C


TO


AGREEMENT AND PLAN
OF MERGER


 


Certificate of
Incorporation of the Company


 


C-1





















 


SECOND AMENDED AND
RESTATED


 


CERTIFICATE OF
INCORPORATION


 


OF


 


MARINER ENERGY, INC.


 


The original Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on August 3, 1983 under the
name Trafalgar House Oil and Gas Inc. A Certificate of Amendment was filed on
June 2, 1989 changing the name from Trafalgar House Oil and Gas Inc. to Hardy
Oil & Gas USA Inc.  A Restated
Certificate of Incorporation changing the name of the corporation from Hardy
Oil & Gas USA Inc. to Mariner Energy, Inc. was filed on June 12, 1996.


 


ARTICLE ONE: Name. The name of the corporation is
Mariner Energy, Inc. (the “Corporation”).


 


ARTICLE TWO: Address. The address of the Corporation’s
registered office in the State of Delaware is The Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware
19801. The name of the Corporation’s registered agent at such address is The
Corporation Trust Company.


 


ARTICLE THREE: Purpose. The purpose of the Corporation
shall be to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware (“DGCL”).


 


ARTICLE FOUR: Stock. The
total number of shares of all classes of capital stock which the Corporation
shall have authority to issue is 90 million shares, of which 70 million shares
shall be shares of Common Stock, par value $.0001 per share (“Common Stock”),
and 20 million shares shall be shares of Preferred Stock, par value $.0001 per
share (“Preferred Stock”). Upon the effectiveness of this Second Amended and
Restated Certificate of Incorporation, the 1,380 shares of Common Stock, par
value $1.00 per share, of the Corporation that are currently issued and
outstanding, shall automatically be reclassified, changed and converted into
29,748,130 shares of Common Stock, par value $.0001 per share.  The powers, designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions of each class of capital stock
shall be governed by the following provisions:


 


Section 1. Preferred
Stock. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized (i) to provide by
resolution or resolutions from time to time for the issuance of shares of
Preferred Stock in one or more series, (ii) to establish from time to time the
number of shares to be included in each such series, (iii) (to the extent not expressly
provided for herein) to fix the designations, powers, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations or restrictions, if any, thereof, by
filing on or more certificates pursuant to the DGCL (hereinafter, referred to
as a “Preferred


 


C-2





















 


Stock Designation”), and (iv) to increase or decrease
the number of shares of any such series to the extent permitted by the DGCL and
the Preferred Stock Designation (but not below the number of shares thereof
then outstanding).  The authority of the
Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:


 


a)                                      The
designation of the series, which may be by distinguishing the number, letter or
title of such series.


 


b)                                     The
number of shares of the series.


 


c)                                      Whether
dividends, if any, shall be paid in cash or in capital stock or other
securities, whether such dividends shall be cumulative (and, if so, from which
date or dates for each such series) or noncumulative, the preference or
relation which such dividends, if any, shall bear to the dividends payable on
any other class or classes or any other series of capital stock, and the
dividend rate, if any, of the series.


 


d)                                     Conditions
and dates upon which dividends, if any, shall be payable.


 


e)                                      The
redemption rights and redemption price or prices, if any, for shares of


the series.


 


f)                                        The
terms and amount of any sinking fund provided for the purchase or redemption of
shares of the series.


 


g)                                     The
amounts payable on and the preferences, if any, of shares of the series in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation.


 


h)                                     Whether
the shares of the series shall be convertible into or exchangeable for shares
of any other class or series of capital stock, or any other security, of the
Corporation or any other corporation and, if so, the specification of such other
class or series or such other security, the conversion or exchange price or
prices or rate or rates, any adjustments thereof, the date or dates at which
such shares shall be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made.


 


i)                                         Restrictions
on the issuance of shares of the same series or of any other class or series.


 


j)                                         The
voting rights, if any, of the holders of shares of the series, whether as a
class or otherwise, with respect to the election of directors or otherwise.


 


C-3





















 


k)                                      The
price or other consideration for which shares of the series shall be issued
and, if deemed desirable, the stated value or other valuation of the shares
constituting such series.


 


l)                                         Any
other relative rights, preferences and limitations of that series.


 


Section 2. Common Stock.


 


(a)                                  General.
All shares of Common Stock shall be identical and will entitle holders thereof
to the same rights and privileges, except as otherwise provided herein. Subject
to the prior rights and preferences, if any, applicable to shares of the
Preferred Stock or any series thereof, the holders of shares of Common Stock
shall be entitled to receive such dividends (payable in cash, stock, or
otherwise) as may be declared thereon by the Board of Directors at any time and
from time to time out of any funds of the Corporation legally available
therefore.


 


(b)                                 Voting
Rights.


 


(i)                                     Each
registered holder of Common Stock shall be entitled to one vote for each share
of Common Stock held by such holder.


 


(ii)                                  Except
as otherwise provided by law, each registered holder of Common Stock shall be
entitled to vote for the election of directors of the Corporation as provided
for in Section 2 of Article Five of this Second Amended and Restated
Certificate of Incorporation and shall be entitled to vote on all other matters
submitted to a vote of stockholders of the Corporation.


 


(c)                                  Dividends.
Any dividend or distribution on Common Stock shall be payable on shares of
Common Stock ratably.


 


(d)                                 Liquidation.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding-up of the Corporation, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of shares of Preferred Stock
or any series thereof, the holders of shares of Common Stock shall be entitled
to receive all of the remaining assets of the Corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
of Common Stock held by them. A liquidation, dissolution, or winding-up of the
Corporation, as such terms are used in this paragraph (d), shall not be deemed
to be occasioned by or to include any consolidation or merger of the
Corporation with or into any other corporation or corporations or other entity
or a sale, lease, exchange, or conveyance of all or a part of the assets of the
Corporation.


 


ARTICLE FIVE: Directors. The Board of Directors of the
Corporation shall consist of such number of directors as may be determined from
time to time by the Board of Directors in its sole discretion in accordance
with Article III of the Bylaws of the Corporation; subject, however, to the
rights of the holders of any series of Preferred Stock of the Corporation,


 


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as set forth in a Preferred Stock Designation, to
elect additional Directors under specified circumstances and shall be subject
to the following provisions:


 


Section 1.
Classification. The directors shall be divided into three classes as nearly
equal in size as is practicable, hereby designated Class I, Class II and Class
III. The term of office of the initial Class I directors shall expire on the
date of the first annual meeting of stockholders following adoption of this
Second Amended and Restated Certificate of Incorporation by the affirmative
vote of the stockholders (the “Effective Time”), the term of office of the
initial Class II directors shall expire at the second annual meeting of the
stockholders after the Effective Time and the term of office of the initial
Class III directors shall expire at the third annual meeting of the
stockholders after the Effective Time. At each annual stockholders’ meeting
after the Effective Time, directors to replace those of a class whose terms
expire at such annual meeting shall be elected to hold office until the third
succeeding annual meeting of stockholders and until their respective successors
shall have been duly elected and qualified. 
If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable.


 


Section 2. Election.
Holders of Common Stock shall elect all directors of the Corporation (other
than directors, if any, which holders of any series of Preferred Stock are
entitled to elect pursuant to the provisions of the Preferred Stock Designation
establishing such series).


 


Section 3. Written
Ballot. The election of directors need not be by written ballot except as may
otherwise be provided in the Bylaws.


 


Section 4. Cumulative
Voting: Cumulative voting for the election of directors is not allowed.


 


Section 5. Removal.
Subject to the rights of the holders of any series of Preferred Stock to remove
directors under specified circumstances, (i) no director may be removed without
cause and (ii) the affirmative vote of the holders of at least eighty percent
(80%) of the voting power of all of the then-outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to remove any
director or the entire Board of Directors for cause.


 


ARTICLE SIX: Bylaws. The Board of Directors shall have
the power to adopt, amend or repeal the Bylaws of the Corporation. Any
adoption, amendment or repeal of the Bylaws of the Corporation by the Board of
Directors shall require the approval of a majority of the total number of
authorized directors regardless of whether there exist any vacancies in such
authorized directorships. The stockholders shall also have the power to adopt,
amend or repeal the Bylaws of the Corporation; provided, however, that, in
addition to any vote of the holders of any class or series of capital stock of
the Corporation required by law or by this Second Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least


 


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eighty percent (80%) of the voting power of all of the
then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to adopt, amend or repeal any provision of the Bylaws of the
Corporation.


 


ARTICLE SEVEN: Action Without a Meeting. Any action
required or permitted to be taken by the stockholders of the Corporation must
be effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders.


 


ARTICLE EIGHT: Vacancies. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall, unless
otherwise required by law or by resolution of the Board of Directors, be filled
by the affirmative vote of a majority of the directors then in office, though
less than a quorum (and not by stockholders), and directors so chosen shall
hold office for a term expiring at the next annual meeting of stockholders and
until such director’s successor shall have been duly elected and qualified. No
decrease in the authorized number of directors shall shorten the term of any
incumbent director.


 


ARTICLE NINE: Arrangements with Creditors. Whenever a
compromise or arrangement is proposed between the Corporation and its creditors
or any class of them and/or between the Corporation and its stockholders or any
class of them, any court of equitable jurisdiction within the State of Delaware
may, on the application in a summary way of the Corporation or of any creditor
or stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of Section 291 of the DGCL
or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
the DGCL, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.


 


ARTICLE TEN: Section 203. The Corporation elects not
to be governed by Section 203 of the DGCL until the first date on which MEI
Acquisitions Holdings, LLC and its current (as of the Effective Time) and
future Affiliates (as defined in Article Thirteen of this Third Amended and
Restated Certificate of Incorporation) cease to beneficially own fifteen
percent (15%) or more of the voting power of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, at which time Section 203 of the DGCL shall apply to the
Corporation.


 


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ARTICLE ELEVEN: Liability of Directors. No director of
the Corporation shall be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director’s duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. If the DGCL hereafter is amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended DGCL. Any repeal or modification of
this Article Eleven by the stockholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability
of a director of the Corporation existing at the time of such repeal or
modification.


 


ARTICLE TWELVE: Indemnification. The Corporation shall
indemnify, to the full extent permitted by the laws of the State of Delaware as
from time to time in effect, each director and officer of the Corporation, and
may indemnify each employee and agent of the Corporation, and all other persons
whom the Corporation is authorized to indemnify under the provisions of the
DGCL.


 


ARTICLE THIRTEEN: Corporate Opportunities. If MEI
Acquisitions Holdings, LLC or any of its current (as of the Effective Time) or
future Affiliates (except the Corporation) (collectively, the “Group”) or any
director of the Corporation who is a director, officer or employee of the Group
acquires knowledge of a potential transaction or matter that may be a Corporate
Opportunity or otherwise is then exploiting any Corporate Opportunity, the
Corporation shall have no interest in, and no expectation that, such Corporate
Opportunity be offered to it, any such interest or expectation being hereby
renounced so that the Group and such individuals (1) shall (i) have no duty to
communicate or present such Corporate Opportunity to the Corporation and (ii)
have the right to hold any such Corporate Opportunity for the Group’s (and its
officers’, directors’, agents’, stockholders’, members’, partners’, Affiliates’
or Subsidiaries’) own account and benefit; or to recommend, assign, or
otherwise transfer or deal in such Corporate Opportunity to Persons other than
the Corporation or any Affiliate of the Corporation and (2) cannot be, and
shall not be, liable to the Corporation or its stockholders for breach of any
fiduciary duty as a stockholder or director of the Corporation by reason of the
fact that the Group or any such individual pursues or acquires such Corporate
Opportunity for the Group, directs, sells, assigns or otherwise transfers or
deals in such Corporate Opportunity to another Person, or does not communicate
information regarding such Corporate Opportunity to the Corporation; provided,
however, that nothing in this Article Thirteen shall change a director’s duties
or obligations with respect to proprietary or confidential information of the
Corporation or prohibit the Corporation from pursuing any Corporate
Opportunity.


 


(a)                                  Definitions


 


(i)                         Affiliate
means, as applied to a Person, any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person. For
purposes of this definition, “control” (including, with correlative meanings,
the terms “controlling,” “controlled by” and “under common control with”), as
applied to 


 


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any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise.


 


(ii)                      Capital
Stock of any Person means any and all shares, interests, rights to purchase,
options, warrants, participation or other equivalents of or interest in
(however designated) the equity of such Person, including any preferred stock.


 


(iii)                   Corporate
Opportunity means an investment or business opportunity or prospective economic
or competitive advantage in which the Corporation could have an interest or
expectancy.


 


(iv)                  Person means any
individual, firm, corporation, partnership, limited partnership, limited
liability partnership, business trust, limited liability company,
unincorporated association, or joint venture or other entity, and shall include
any successor (by merger or otherwise) of such entity.


 


(v)                     Subsidiary of
any Person means any other Person of which more than fifty percent (50%) of the
total Voting Power thereof of the Capital Stock thereof is at the time owned or
controlled, directly or indirectly, by the first Person and/or one or more of
its Subsidiaries.


 


(vi)                  Voting Power
means, as of the date of determination, the voting power in the general election
of directors, managers or trustees, as applicable.


 


ARTICLE FOURTEEN: Issuance of Rights. The Board of
Directors is expressly authorized to cause the Corporation to issue rights
pursuant to Section 157 of the DGCL and, in that connection, to enter into any
agreements necessary or convenient for such issuance, and to enter into other
agreements necessary and convenient to the conduct of the business of the
Corporation. Any such agreement may include provisions limiting, in certain
circumstances, the ability of the Board of Directors to redeem the securities
issued pursuant thereto or to take other action thereunder or in connection
therewith unless there is a specified number or percentage of Continuing
Directors then in office. Pursuant to Section 141(a) of the DGCL, Continuing
Directors shall have the power and authority to make all decisions and
determinations, and exercise or perform such other acts, that any such
agreement provides that such Continuing Directors shall make,  exercise or perform. For purposes of this
Article Fourteen and any such agreement, the term, “Continuing Directors,”
shall mean (1) those directors who were members of the Board of Directors at
the time the Corporation entered into such agreement and any director who
subsequently becomes a member of the Board of Directors, if such director’s
nomination for election or appointment to the Board of Directors is recommended
or approved by the majority vote of the Continuing Directors then in office and
(2) such other members of the


 


C-8





















 


Board of Directors, if any, designated in, or in the
manner provided in, such agreement as Continuing Directors.


 


ARTICLE FIFTEEN: Amendment. The Corporation shall have
the right, subject to any express provisions or restrictions contained in this
Second Amended and Restated Certificate of Incorporation or the Bylaws of the
Corporation, from time to time, to amend this Second Amended and Restated
Certificate of Incorporation or any provision hereof in any manner now or
hereafter provided by law, and all rights and powers of any kind conferred upon
a director or stockholder of the Corporation by this Second Amended and
Restated Certificate of Incorporation or any amendment hereof are subject to
such right of the Corporation; provided however, that the affirmative vote of
the holders of at least eighty percent (80%) of the voting power of all of the
then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to amend or repeal Article Five, Six, Seven, Eight, Ten,
Eleven, Twelve, Thirteen, Fourteen or Fifteen of this Second Amended and
Restated Certificate of Incorporation.


 


 IN WITNESS
WHEREOF, this Second Amended and Restated Certificate of Incorporation, which
restates and integrates and further amends the provisions of the Amended and
Restated Certificate of Incorporation of the Corporation, and which has been
duly adopted in accordance with Section 242 and 245 of the DGCL, has been
executed by its duly authorized officer this 3rd day of August, 2005.


 


	
   

  	
  MARINER ENERGY,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jesus G. Melendrez

  	
   

  
	
   

  	
  Name:

  	
  Jesus G. Melendrez

  
	
   

  	
  Title:

  	
  Vice President-Corporate Development

  



 


C-9





















 


CERTIFICATE OF AMENDMENT
OF


SECOND AMENDED AND RESTATED


CERTIFICATE OF INCORPORATION OF


MARINER ENERGY, INC.


 


Mariner Energy, Inc., a
corporation duly organized and existing under the General Corporation Law of
the State of Delaware (the “Corporation”), does hereby certify that:


 


First: The amendment to
the Corporation’s Second Amended and Restated Certificate of Incorporation set
forth below was duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware and has been authorized
by the stockholders in accordance with Section 242 of the General Corporation
Law of the State of Delaware.


 


Second: The first
sentence of Article Four of the Corporation’s Certificate of Incorporation is
amended to read in its entirety as follows:


 


“The total number of
shares of all classes of capital stock which the Corporation shall have
authority to issue is 200 million shares, of which 180 million shares shall be
shares of Common Stock, par value $.0001 per share (“Common Stock”), and 20
million shares shall be shares of Preferred Stock, par value $.0001 per share (“Preferred
Stock”).”


 


IN WITNESS WHEREOF,
Mariner Energy, Inc. has caused this Certificate to be executed by  its duly authorized officer on this               
day of                             ,
                     .


 


	
   

  	
  MARINER
  ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  



 


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EXHIBIT D


TO


AGREEMENT AND PLAN
OF MERGER


 


Bylaws of the
Company


 


D-1





















 


BYLAWS


 


OF


 


MARINER ENERGY, INC.


 


ARTICLE I

OFFICES


 


Section 1.1                                      Registered Office


 


The
registered office of Mariner Energy, Inc. (the “Corporation”) required by
the state of incorporation of the Corporation to be maintained in the state of
incorporation of the Corporation shall be the registered office named in the
certificate of incorporation of the Corporation, or such other office as may be
designated from time to time by the Board of Directors in the manner provided
by law.


 


Section 1.2                                      Other Offices


 


The
Corporation may also have offices at such other places both within and without
the state of incorporation of the Corporation as the Board of Directors may
from time to time determine or the business of the Corporation may require.


 


ARTICLE II

STOCKHOLDERS


 


Section 2.1                                      Place of Meetings


 


All
meetings of the stockholders shall be held at the principal office of the
Corporation, or at such other place within or without the state of incorporation
of the Corporation as shall be specified or fixed in the notices or waivers of
notice thereof.


 


Section 2.2                                      Quorum; Adjournment of Meetings


 


Unless
otherwise required by law or provided in the certificate of incorporation of
the Corporation or these Bylaws, (i) the holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at any meeting of stockholders
for the transaction of business, (ii) in all matters other than the
election of directors, the affirmative vote of the holders of a majority of
such stock so present or represented at any meeting of stockholders at which a
quorum is present shall constitute the act of the stockholders, and (iii) where
a separate vote by a class or classes is required, a majority of the
outstanding shares of such class or classes, present in person or represented
by proxy shall constitute a quorum entitled to take action with respect to that
vote on that matter and the affirmative vote of the majority of the shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class. The stockholders present at a 


 


D-2





















 


duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum, subject to the provisions of clauses (ii) and (iii) above.


 


Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.


 


Notwithstanding
the other provisions of the certificate of incorporation of the Corporation or
these Bylaws, the chairman of the meeting or the holders of a majority of the
issued and outstanding stock, present in person or represented by proxy and
entitled to vote thereat, at any meeting of stockholders, whether or not a
quorum is present, shall have the power to adjourn such meeting from time to
time, without any notice other than announcement at the meeting of the time and
place of the holding of the adjourned meeting. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at such meeting. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally called.


 


Section 2.3                                      Annual Meetings


 


An
annual meeting of the stockholders, for the election of directors to succeed
those whose terms expire and for the transaction of such other business as may
properly come before the meeting, shall be held at such place (within or
without the state of incorporation of the Corporation), on such date, and at
such time as the Board of Directors shall fix and set forth in the notice of
the meeting, which date shall be within thirteen (13) months subsequent to the
last annual meeting of stockholders.


 


Section 2.4                                      Special Meetings


 


Unless
otherwise provided in the certificate of incorporation of the Corporation,
special meetings of the stockholders for any purpose or purposes may be called
at any time by the Board of Directors acting pursuant to a resolution adopted
by a majority of the total number of authorized directors regardless of whether
there exist any vacancies in such authorized directorships, and not by
stockholders, at such time and at such place as may be stated in the notice of
the meeting. Business transacted at a special meeting shall be confined to the
purpose(s) stated in the notice of such meeting.


 


Section 2.5                                      Record Date


 


For
the purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors of the Corporation may fix a date as the record date for any such
determination of stockholders, which record date shall not precede the date on
which the resolutions fixing the record date are adopted and which record date
shall not be more than sixty 


 


D-3





















 


(60) days nor less than ten (10) days before the date of such
meeting of stockholders, nor more than sixty (60) days prior to any other
action to which such record date relates.


 


If the
Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice
of or to vote at such meeting shall be at the close of business on the day
immediately preceding the day on which notice is given, or, if in accordance
with Article VIII, Section 3 of these Bylaws notice is waived, at the
close of business on the day immediately preceding the day on which the meeting
is held. The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.


 


Section 2.6                                      Notice of Meetings


 


Written
notice of the place, date and hour of all meetings, and, in the case of a
special meeting, the purpose or purposes for which the special meeting is
called, shall be given to each stockholder entitled to vote thereat not less
than ten (10) nor more than sixty (60) days before the date of the
meeting. Such notice may be delivered either personally or by mail. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at such stockholder’s address as it appears on the
records of the Corporation.


 


Section 2.7                                      Nomination of Directors


 


Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors, except as otherwise provided in Article Eight
of the Certificate of Incorporation. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of stockholders (a) by
or at the direction of the Board of Directors or (b) by any stockholder of
the Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section, who shall be entitled to vote for the election of
directors at the meeting and who complies with the notice procedures set forth
in this Section. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder’s notice shall
be delivered to or mailed and received at the principal executive offices of
the Corporation (i) with respect to an election of directors to be held at
the annual meeting of the stockholders of the Corporation, not later than one
hundred twenty (120) days prior to the anniversary date of the proxy statement
for the immediately preceding annual meeting of stockholders of the
Corporation, and (ii) with respect to an election of directors to be held
at a special meeting of stockholders of the Corporation, not later than the
close of business on the 10th day following the day on which such notice of the
date of the special meeting was first mailed to the Corporation’s stockholders
or public disclosure of the date of the special meeting was first made,
whichever first occurs. Such stockholder’s notice to the Secretary shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, all information relating to the person
that is required to be disclosed in solicitations for proxies for election of
directors, or is otherwise required, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including the written consent of 


 


D-4





















 


such person to be named in the proxy statement as a nominee and to
serve as a director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Corporation’s
books, of such stockholder, and (ii) the class and number of shares of
capital stock of the Corporation that are beneficially owned by the
stockholder. At the request of any officer of the Corporation, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation the information required to be set forth in a stockholder’s
notice of nomination that pertains to the nominee.


 


In the
event that a person is validly designated as nominee to the Board and shall
thereafter become unable or unwilling to stand for election to the Board of
Directors, the Board of Directors or the stockholder who proposed such nominee,
as the case may be, may designate a substitute nominee. Except as otherwise
provided in Article Eight of the Certificate of Incorporation, no person
shall be eligible to serve as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section. The chairman of the
meeting of stockholders shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures prescribed
by the Bylaws, and if the chairman should so determine, the chairman shall so
declare to the meeting and the defective nomination shall be disregarded.


 


Notwithstanding
the foregoing provisions of this Section, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth
in this Section 7.


 


Section 2.8                                      Business to be Brought Before a Meeting of Stockholders


 


To be
properly brought before a meeting of stockholders, business must be either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before an annual meeting by a stockholder of the Corporation
who is a stockholder of record at the time of giving of notice provided for in
this Section, who shall be entitled to vote at such annual meeting and who
complies with the notice procedures set forth in this Section. In addition to
any other applicable requirements, for business to be brought before an annual
meeting by a stockholder of the Corporation, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder’s notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than one hundred
twenty (120) days prior to the anniversary date of the proxy statement for the
preceding annual meeting of stockholders of the Corporation. A stockholder’s
notice to the Secretary shall set forth as to each matter (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the
name and address, as they appear on the Corporation’s books, of the stockholder
proposing such business, (iii) the acquisition date, the class and the
number of shares of voting stock of the Corporation which are owned
beneficially by the stockholder, (iv) any material interest of the
stockholder in such business, and (v) a representation that the
stockholder intends to appear in person or by proxy at the annual meeting to
bring the proposed business before the meeting.


 


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Section 2.9                                      Stockholder List


 


A
complete list of stockholders entitled to vote at any meeting of stockholders,
arranged in alphabetical order for each class of stock and showing the address
of each such stockholder and the number of shares registered in the name of
such stockholder, shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held.


 


The
stockholder list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.


 


Section 2.10                                Proxies


 


Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for him by proxy. 
Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to
time determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed by the chairman of the meeting, in which event such inspector or
inspectors shall decide all such questions.


 


No
proxy shall be valid after three (3) years from its date, unless the proxy
provides for a longer period. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and coupled with an interest sufficient in
law to support an irrevocable power.


 


Should
a proxy designate two or more persons to act as proxies, unless such instrument
shall provide the contrary, a majority of such persons present at any meeting
at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting thereby conferred, or if only one be present,
then such powers may be exercised by that one; or, if an even number attend and
a majority do not agree on any particular issue, each proxy so attending shall
be entitled to exercise such powers in respect of such portion of the shares as
is equal to the reciprocal of the fraction equal to the number of proxies
representing such shares divided by the total number of shares represented by
such proxies.


 


Section 2.11                                Voting; Elections; Inspectors


 


Unless
otherwise required by law or provided in the certificate of incorporation of
the Corporation, each stockholder shall on each matter submitted to a vote at a
meeting of stockholders have one vote for each share of the stock entitled to
vote which is registered in his name on the record date for the meeting. For
the purposes hereof, each election to fill a directorship shall constitute a
separate matter. Shares registered in the name of another entity, domestic or
foreign, may be voted by such officer, agent or proxy as the organizational
documents of such entity may determine. Shares registered in the name of a
deceased person may be voted by the executor or administrator of such person’s
estate, either in person or by proxy. All voting, except as required by the
certificate of incorporation of the Corporation or 


 


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where otherwise required by law, may be by a voice vote; provided,
however, upon request of the chairman of the meeting or upon demand therefor by
stockholders holding a majority of the issued and outstanding stock present in
person or by proxy at any meeting a stock vote shall be taken. Every stock vote
shall be taken by written ballots, each of which shall state the name of the
stockholder or proxy voting and such other information as may be required under
the procedure established for the meeting. All elections of directors shall be
by written ballots, unless otherwise provided in the certificate of
incorporation of the Corporation.


 


At any
meeting at which a vote is taken by written ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector’s
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the
office of director shall be appointed as an inspector.


 


Unless
otherwise provided in the certificate of incorporation of the Corporation,
cumulative voting for the election of directors shall be prohibited.


 


Section 2.12                                Conduct of Meetings


 


The
meetings of the stockholders shall be presided over by the Chairman of the
Board or such other officer of the Corporation as designated by the Chairman of
the Board or the Board of Directors. The Secretary of the Corporation, if
present, shall act as secretary of such meetings, or, if the Secretary is not
present, such other officer of the Corporation as designated by the Board of
Directors or the chairman of the meeting shall so act.


 


The
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to the chairman in order.


 


Section 2.13                                Treasury Stock


 


The
Corporation shall not vote, directly or indirectly, shares of its own stock
owned by it and such shares shall not be counted for quorum purposes.


 


Nothing
in this Section 13 shall be construed as limiting the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.


 


ARTICLE III

BOARD OF DIRECTORS


 


Section 3.1                                      Power; Number; Term of Office


 


The
business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors, and, subject to the restrictions imposed by
law or the certificate of 


 


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incorporation of the Corporation, the Board of Directors may exercise
all the powers of the Corporation.


 


Unless
otherwise provided in the certificate of incorporation of the Corporation, the
number of directors which shall constitute the whole Board of Directors shall
be determined from time to time by the Board of Directors (provided that no
decrease in the number of directors which would have the effect of shortening
the term of an incumbent director may be made by the Board of Directors). If
the Board of Directors makes no such determination, the number of directors
shall be three. Each director shall hold office for the term for which such
director is elected, and until such director’s successor shall have been
elected and qualified or until such director’s earlier death, resignation or
removal.


 


The
Board of Directors may elect one of its members to serve as the Chairman of the
Board. If elected, the Chairman of the Board shall have such powers and duties
as designated in these Bylaws and as from time to time may be assigned to him
or her by the Board of Directors.


 


Unless
otherwise provided in the certificate of incorporation of the Corporation,
directors need not be stockholders nor residents of the state of incorporation
of the Corporation.


 


Section 3.2                                      Quorum; Voting


 


Unless
otherwise provided in the certificate of incorporation of the Corporation, a
quorum of the Board of Directors shall be deemed to be present at any meeting
if a majority of the total number of directors are present at the meeting. The
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.


 


Section 3.3                                      Place of Meetings; Order of Business


 


The
directors may hold their meetings and may have an office and keep the books of
the Corporation, except as otherwise provided by law, in such place or places,
within or without the state of incorporation of the Corporation, as the Board
of Directors may from time to time determine. At all meetings of the Board of
Directors business shall be transacted in such order as shall from time to time
be determined by the Chairman of the Board, or in the Chairman of the Board’s
absence by the Chief Executive Officer (should the Chief Executive Officer be a
director), or in the Chief Executive Officer’s absence by the President (should
the President be a director), or in the President’s absence by such officer of
the Corporation as designated by the Board of Directors, or by a majority of
the Board of Directors.


 


Section 3.4                                      First Meeting


 


Each
newly elected Board of Directors may hold its first meeting for the purpose of
organization and the transaction of business, if a quorum is present,
immediately after and at the same place as the annual meeting of the
stockholders. Notice of such meeting shall not be required. At the first
meeting of the Board of Directors in each year at which a quorum shall be
present, held next after the annual meeting of stockholders, the Board of
Directors shall elect the  officers of
the Corporation.


 


D-8





















 


Section 3.5                                      Regular Meetings


 


Regular
meetings of the Board of Directors shall be held at such times and places as
shall be designated from time to time by the Chairman of the Board or, in the
absence of the Chairman of the Board, by the Chief Executive Officer (should
the Chief Executive Officer be a director), or in the Chief Executive Officer’s
absence, by the President (should the President be a director), or in the
President’s absence, by such officer of the Corporation as designated by the
Board of Directors, or by a majority of the Board of Directors. Notice of such
regular meetings shall not be required.


 


Section 3.6                                      Special Meetings


 


Special
meetings of the Board of Directors may be called by the Chairman of the Board,
the Chief Executive Officer (should the Chief Executive Officer be a director),
the President (should the President be a director) or such other officer of the
Corporation as designated by the Board of Directors, or, on the written request
of any two directors, by the Secretary, in each case on at least twenty-four
(24) hours’ personal, written, telegraphic, cable or wireless notice to each
director. Such notice, or any waiver thereof pursuant to Article VIII, Section 3
of these Bylaws, need not state the purpose or purposes of such meeting, except
as may otherwise be required by law or provided for in the certificate of
incorporation of the Corporation or these Bylaws. Meetings may be held at any
time without notice if all the directors are present or if those not present
waive notice of the meeting in writing.


 


Section 3.7                                      Compensation


 


Unless
otherwise restricted by the certificate of incorporation of the Corporation,
the Board of Directors shall have the authority to fix the compensation of
directors.


 


Section 3.8                                      Action Without a Meeting; Telephone Conference Meeting


 


Unless
otherwise restricted by the certificate of incorporation of the Corporation,
any action required or permitted to be taken at any meeting of the Board of
Directors or any committee designated by the Board of Directors may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee.


 


Such
consent shall have the same force and effect as a unanimous vote at a meeting,
and may be stated as such in any document or instrument filed with the
Secretary of State of the state of incorporation of the Corporation.


 


Unless
otherwise restricted by the certificate of incorporation of the Corporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors,
may participate in a meeting of such Board of Directors or committee, as the
case may be, by means of a conference telephone connection or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened.


 


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Section 3.9                                      Approval or Ratification of Acts or Contracts by Stockholders


 


The
Board of Directors in its discretion may submit any act or contract for
approval or ratification at any annual meeting of the stockholders, or at any
special meeting of the stockholders called for the purpose of considering any
such act or contract, and any act or contract that shall be approved or be
ratified by the vote of the stockholders holding a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote and present in
person or by proxy at such meeting (provided that a quorum is present) shall be
as valid and as binding upon the Corporation and upon all the stockholders as
if it has been approved or ratified by every stockholder of the Corporation.


 


ARTICLE IV

COMMITTEES


 


Section 4.1                                      Designation; Powers


 


The
Board of Directors may, by resolution passed by a majority of the whole board,
designate one or more committees, including, if they shall so determine, an
executive committee, with each such committee to consist of one or more of the
directors of the Corporation. Except as otherwise provided by the certificate
of incorporation of the Corporation or applicable law, any such designated
committee shall have and may exercise such of the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation as may be provided in such resolution. Any such designated
committee may authorize the seal of the Corporation to be affixed to all papers
which may require it. In addition to the above, such committee or committees
shall have such other powers and limitations of authority as may be determined
from time to time by the Board of Directors.


 


Section 4.2                                      Procedure; Meetings; Quorum


 


Any
committee designated pursuant to this Article IV shall keep regular
minutes of its actions and proceedings in a book provided for that purpose and
report the same to the Board of Directors at its meeting next succeeding such
action, shall fix its own rules or procedures, and shall meet at such
times and at such place or places as may be provided by such rules, or by such
committee or the Board of Directors. Should a committee fail to fix its own
rules, the provisions of these Bylaws, pertaining to the calling of meetings
and conduct of business by the Board of Directors, shall apply as nearly as may
be possible. At every meeting of any such committee, a quorum shall be present
if a majority of all the members of the committee are present. The affirmative
vote of a majority of the members present at a meeting at which there is a
quorum shall be necessary for the adoption by it of any resolution.


 


Section 4.3                                      Substitution and Removal of Members; Vacancies


 


The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of such committee. In the absence or disqualification of a member of a
committee, the member or members present at any meeting and not disqualified
from voting, whether or not constituting a quorum, may unanimously appoint
another member of the Board of Directors to act at the 


 


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meeting in the place of the absent or disqualified member. The Board of
Directors shall have the power at any time to remove any member(s) of a
committee and to appoint other directors in lieu of the person(s) so removed
and shall also have the power to fill vacancies in a committee.


 


ARTICLE V

OFFICERS


 


Section 5.1                                      Number, Titles and Term of Office


 


The
officers of the Corporation shall be a Chief Executive Officer, President,
Chief Operating Officer, one or more Vice Presidents (any one or more of whom
may be designated Executive Vice President or Senior Vice President), a General
Counsel, a Treasurer, a Secretary, and such other officers as the Board of
Directors may from time to time elect or appoint. If the Board of Directors so
elects, it may designate the Chairman of the Board, if any, as an officer.


 


Each
officer shall hold office until such officer’s successor shall be duly elected
and shall qualify or until such officer’s death or until such officer shall
resign or shall have been removed. Any number of offices may be held by the
same person, unless the certificate of incorporation of the Corporation provide
otherwise. Except for the Chairman of the Board in the case where the Chairman
of the Board is designated an officer, no officer need be a director.


 


Section 5.2                                      Powers and Duties of the Chief Executive Officer


 


Subject
to the direction and control of the Board of Directors, the Chief Executive
Officer shall have general executive charge, management and control of the
properties, business and operations of the Corporation with all such powers as
may be reasonably incident to such responsibilities; may agree upon and execute
all leases, contracts, evidences of indebtedness and other obligations in the
name of the Corporation and may sign all certificates for shares of capital
stock of the Corporation; and shall have such other powers and duties as
designated in accordance with these Bylaws and as from time to time may be
assigned to the Chief Executive Officer by the Board of Directors or the
Chairman of the Board.


 


Section 5.3                                      Powers and Duties of the President


 


Unless
the Board of Directors otherwise determines and subject to the authority of the
Chief Executive Officer, the President shall have general responsibility for
the management and control of the operations of the Corporation with all such
powers as may be reasonably incident to such responsibilities; may agree upon
and execute all leases, contracts, evidences of indebtedness and other obligations
in the name of the Corporation; and shall have such other powers and duties as
designated in accordance with these Bylaws and as from time to time may be
assigned to the President by the Board of Directors, the Chairman of the Board
or the Chief Executive Officer.


 


Section 5.4                                      Powers and Duties of Chief Operating Officer


 


Unless
the Board of Directors otherwise determines and subject to the authority of the
Chief Executive Officer and the President, the Chief Operating Officer shall
have general 


 


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responsibility for the management and control of the operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; may agree upon and execute all leases, contracts, evidences
of indebtedness and other obligations in the name of the Corporation; and shall
have such other powers and duties as designated in accordance with these Bylaws
and as from time to time may be assigned to the Chief Operating Officer by the Board
of Directors, the Chairman of the Board, the Chief Executive Officer or the
President.


 


Section 5.5                                      Vice Presidents


 


Each
Vice President shall have such powers and duties as from time to time may be
assigned to such Vice President by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or such other officer as
designated by the Board of Directors.


 


Section 5.6                                      General Counsel


 


The
General Counsel shall act as legal advisor to the Corporation. The General
Counsel may have one or more staff attorneys and assistants, and may retain
other attorneys to conduct the legal affairs and litigation of the Corporation
under the General Counsel’s supervision.


 


Section 5.7                                      Secretary


 


The
Secretary shall keep the minutes of all meetings of the Board of Directors,
committees of the Board of Directors and the stockholders, in books provided
for that purpose; shall attend to the giving and serving of all notices; may in
the name of the Corporation affix the seal of the Corporation to all contracts
and attest the affixation of the seal of the Corporation thereto; may sign with
the other appointed officers all certificates for shares of capital stock of
the Corporation; shall have charge of the certificate books, transfer books and
stock ledgers, and such other books and papers as the Board of Directors may
direct, all of which shall at all reasonable times be open to inspection of any
director upon application at the office of the Corporation during business
hours; shall have such other powers and duties as designated in these Bylaws
and as from time to time may be assigned to the Secretary by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, the
President or such other officer as designated by the Board of Directors and
shall in general perform all acts incident to the office of Secretary, subject
to the direction and control of the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or such other officer as
designated by the Board of Directors.


 


Section 5.8                                      Treasurer


 


The
Treasurer shall have responsibility for the custody and control of all the
funds and securities of the Corporation, and shall have such other powers and
duties as designated in these Bylaws and as from time to time may be assigned
to the Treasurer by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer, the President or such other officer as designated by
the Board of Directors. The Treasurer shall perform all acts incident to the
position of Treasurer, subject to the direction and control of the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, the
President and such other officer as designated by the Board of Directors; and
the Treasurer shall, if required by the Board of Directors, give such bond 


 


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for the faithful discharge of the Treasurer’s duties in such form as
the Board of Directors may require.


 


Section 5.9                                      Action with Respect to Securities of Other Corporations


 


Unless
otherwise directed by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer, the President or such other officer as designated by
the Board of Directors, together with the Secretary or any assistant Secretary
appointed by the Board of Directors shall have power to vote and otherwise act
on behalf of the Corporation, in person or by proxy, at any meeting of security
holders of or with respect to any action of security holders of any other
corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.


 


Section 5.10                                Delegation


 


For
any reason that the Board of Directors may deem sufficient, the Board of
Directors may, except where otherwise provided by statute, delegate the powers
or duties of any officer to any other person, and may authorize any officer to
delegate specified duties of such office to any other person. Any such
delegation or authorization by the Board shall be effected from time to time by
resolution of the Board of Directors.


 


ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS


 


Section 6.1                                      Indemnification


 


Each
person who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a “proceeding”), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the DGCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys’ fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in Article VI, Section 2 of these Bylaws, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of 


 


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Directors of the Corporation. The right to indemnification conferred in
this paragraph of Article VI shall be a contract right and shall include
the right to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition; provided, however, that if
the DGCL requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified
under this Article VI or otherwise.


 


The
Corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (whether
or not an action by or in the right of the Corporation) by reason of the fact
that the person is or was an employee (other than an officer) or agent of the
Corporation, or, while serving as an employee (other than an officer) or agent
of the Corporation, is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the extent (i) permitted by the
laws of the State of Delaware as from time to time in effect, and (ii) authorized
in the sole discretion of the Chief Executive Officer and a Vice President of
the Corporation (the Chief Executive Officer and the Vice President so
authorizing such indemnification, the “Authorizing Officers”). The Corporation
may, to the extent permitted by Delaware law and authorized in the sole
discretion of the Authorizing Officers, pay expenses (including attorneys’
fees) reasonably incurred by any such employee or agent in defending any civil,
criminal, administrative or investigative action, suit or proceeding in advance
of the final disposition of such action, suit or proceeding, upon such terms
and conditions as the Authorizing Officers authorizing such expense advancement
determine in their sole discretion. The provisions of this paragraph of Article VI
shall not constitute a contract right for any such employee or agent.


 


Section 6.2                                      Suit


 


If a
claim under Article VI, Section 1 of these Bylaws is not paid in full
by the Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including the
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of 


 


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Directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.


 


Section 6.3                                      Nonexclusivity of Rights


 


The
right to indemnification and the payment of expenses incurred in defending a
proceeding in advance of its final disposition conferred in this Article VI
shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the certificate of
incorporation of the Corporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.


 


Section 6.4                                      Insurance


 


The
Corporation may maintain insurance, at its expense, to protect itself and any
director, employee, agent or consultant of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.


 


Section 6.5                                      Savings Clause


 


If
this Article VI or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify and hold harmless each director and officer of the Corporation, as to
costs, charges and expenses (including attorneys’ fees), judgments, fines, and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative to the full extent
permitted by any applicable portion of this Article VI that shall not have
been invalidated and to the fullest extent permitted by applicable law.


 


Section 6.6                                      Definitions


 


For
purposes of this Article VI, reference to the “Corporation” shall include,
in addition to the Corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger prior to
(or, in the case of an entity specifically designated in a resolution of the
Board of Directors, after) the adoption hereof and which, if its separate
existence had continued, would have had the power and authority to indemnify
its directors, officers and employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Article VI with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.


 


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ARTICLE VII

CAPITAL STOCK


 


Section 7.1                                      Certificates of Stock


 


The
Board of Directors may provide by resolution or resolutions that some or all of
any or all classes or series of its capital stock shall be uncertificated
shares. The certificates for shares of the capital stock of the Corporation
shall be in such form, not inconsistent with that required by law and the
certificate of incorporation of the Corporation, as shall be approved by the
Board of Directors. Every holder of capital stock represented by certificates
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman of the Board, the Chief Executive Officer,
President, a Vice President or such other officer as designated by the Board of
Directors and the Secretary or an assistant Secretary or the Treasurer or an assistant
Treasurer of the Corporation representing the number of shares (and, if the
capital stock of the Corporation shall be divided into classes or series,
certifying the class and series of such shares) owned by such stockholder which
are registered in certified form; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time determine. In case any officer, transfer agent or registrar who
shall have signed or whose facsimile signature or signatures shall have been
placed upon any such certificate or certificates shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. The stock certificates shall be consecutively
numbered and shall be entered in the books of the Corporation as they are
issued and shall exhibit the holder’s name and number of shares.


 


Section 7.2                                      Transfer of Shares


 


In
respect of certificated shares of capital stock, such shares of capital stock
of the Corporation shall be transferable only on the books of the Corporation
by the holders thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of such certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
In respect of uncertificated shares of capital stock, such shares of capital
stock of the Corporation shall be transferable only on the books of the
Corporation by the holders thereof in person or by their duly authorized
attorneys or legal representatives upon the compliance with such rules and
procedures as may be proscribed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or such other officer as
designated by the Board of Directors.


 


Section 7.3                                      Ownership of Shares


 


The
Corporation shall be entitled to treat the holder of record of any share or
shares of capital stock of the Corporation as the holder in fact thereof and,
accordingly, shall not be bound 


 


D-16





















 


to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the state
of incorporation of the Corporation.


 


Section 7.4                                      Regulations Regarding Certificates


 


The
Board of Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.


 


Section 7.5                                      Lost or Destroyed Certificates


 


The
Board of Directors may determine the conditions upon which the Corporation may
issue a new certificate for shares of capital stock in place of a certificate
theretofore issued by it which is alleged to have been lost, stolen or destroyed
and may require the owner of such certificate or such owner’s legal
representative to give bond, with surety sufficient to indemnify the
Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate in the place of
the one so lost, stolen or destroyed.


 


ARTICLE VIII

MISCELLANEOUS PROVISIONS


 


Section 8.1                                      Fiscal Year


 


The
fiscal year of the Corporation shall begin on the first day of January of
each year.


 


Section 8.2                                      Corporate Seal


 


The
corporate seal shall be circular in form and shall have inscribed thereon the
name of the Corporation and the state of its incorporation, which seal shall be
in the charge of the Secretary and shall be affixed to certificates of stock,
debentures, bonds, and other documents, in accordance with the direction of the
Board of Directors or a committee thereof, and as may be required by law;
however, the Secretary may, if the Secretary deems it expedient, have a
facsimile of the corporate seal inscribed on any such certificates of stock,
debentures, bonds, contract or other documents.


 


Section 8.3                                      Notice and Waiver of Notice


 


Whenever
any notice is required to be given by law, the certificate of incorporation of
the Corporation or under the provisions of these Bylaws, said notice shall be
deemed to be sufficient if given (i) by telegraphic, cable or wireless
transmission (including by telecopy or facsimile transmission) or (ii) by
deposit of the same in a post office box or by delivery to an overnight courier
service company in a sealed prepaid wrapper addressed to the person entitled
thereto at such person’s post office address, as it appears on the records of
the Corporation, and such notice shall be deemed to have been given on the day
of such transmission or mailing or delivery to courier, as the case may be.


 


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Whenever
notice is required to be given by law, the certificate of incorporation of the
Corporation or under any of the provisions of these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person, including without limitation a director, at a meeting shall constitute
a waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the certificate of incorporation of the Corporation or these
Bylaws.


 


Section 8.4                                      Facsimile Signatures


 


In
addition to the provisions for the use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors.


 


Section 8.5                                      Reliance upon Books, Reports and Records


 


A
member of the Board of Directors, or a member of any committee designated by
the Board of Directors, shall, in the performance of such person’s duties, be
protected to the fullest extent permitted by law in relying upon the records of
the Corporation and upon information, opinions, reports or statements presented
to the Corporation.


 


Section 8.6                                      Application of Bylaws


 


In the
event that any provisions of these Bylaws is or may be in conflict with any law
of the United States, of the state of incorporation of the Corporation or of
any other governmental body or power having jurisdiction over the Corporation,
or over the subject matter to which such provision of these Bylaws applies, or
may apply, such provision of these Bylaws shall be inoperative to the extent
only that the operation thereof unavoidably conflicts with such law or
provision, and shall in all other respects be in full force and effect.


 


ARTICLE IX

AMENDMENTS


 


The
Board of Directors shall have the power to adopt, amend and repeal from time to
time these Bylaws, subject to the right of the stockholders entitled to vote
with respect thereto to amend or repeal such Bylaws as adopted or amended by
the Board of Directors.


 


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EXHIBIT E

TO

AGREEMENT AND PLAN OF MERGER


 


Part A
– Relocation Benefits


 


All of the following
benefits:


 


A relocation allowance
payable in a lump sum cash payment in an amount equal to (i) in the case
of a salaried Continuing Spinco Employee, three Months of Pay (as defined in Part B
of this Exhibit but determined based on the base monthly rate of pay in
effect as of the date of the relocation), or (ii) in the case of an hourly
Continuing Spinco Employee, 12 Weeks of Pay (as defined in Part B of this Exhibit but
determined based on the scheduled hours of work and rate of pay in effect as of
the date of the relocation).


 


The reasonable costs of
shipping the employee’s household goods and personal effects from the employee’s
principal residence immediately prior to the time of the relocation (the “prior
location”) to the location of the employee’s principal residence immediately
after the relocation.  Included is the
cost of packing and unpacking the household goods and personal effects,
transportation and insurance of those items while in transit, and normal
appliance connection at destination.


 


The actual cost of real
estate sales commissions, at a rate not to exceed the standard local sales
commission rate, and other reasonable and customary closing costs incurred in
the sale of the employee’s primary residence at the prior location.  In addition, if the employee purchases a new
primary residence in the area of his relocation within one year after the date
of the relocation, then the employee will be reimbursed for the reasonable and
customary closing costs incurred by the employee in connection with such
purchase (including mortgage points (but not in excess of one total point) and
related fees, title company fees, etc.).


 


The actual cost incurred
in terminating a lease or rental obligation for the employee’s primary
residence at the prior location in an amount not to exceed one year’s
lease.  The lesser of required remaining
lease payments or lease cancellation fee will be reimbursed.


 


Actual reasonable
transportation, lodging, meals and miscellaneous expenses for the employee and
his spouse, if any, for one trip from the prior location to the area of
relocation to search for a new primary residence.


 


Actual reasonable
temporary living expenses in the area of relocation if the employer requires
the employee to begin his assignment in the new location prior to the employee
having had a reasonable opportunity to secure a new primary residence at the
new location.


 


Part B
– Severance Benefits


 


Salaried Continuing
Spinco Employees – One-half Month of Pay per Year of Service, with a minimum of
six Months of Pay and a maximum of 12 Months of Pay.  “Month of Pay” means the employee’s base
monthly rate of pay, excluding overtime, bonuses, commissions, premium pay,
shift differentials, employee benefits, expense reimbursements, and similar
amounts.  A 


 


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salaried Continuing
Spinco Employee’s base monthly rate of pay shall be determined based upon the
highest rate in effect (1) immediately prior to the Effective Time, (2) 60
days prior to the date of such employee’s termination of employment, or (3) the
date of such employee’s termination of employment.


 


Hourly Continuing Spinco
Employees – Two Weeks of Pay per Year of Service, with a minimum of 26 Weeks of
Pay and a maximum of 52 Weeks of Pay.  “Week
of Pay” means the employee’s regular hourly rate of pay multiplied by his
regularly scheduled hours per week; provided, however, that if the employee is
working a regular rotational schedule immediately prior to his termination
of employment, then “Week of Pay” shall mean the sum of such employee’s regular
hourly rate of pay multiplied by his regularly scheduled straight-time hours
per week plus his regular overtime rate of pay multiplied by his regularly
scheduled overtime hours per week.  An
hourly Continuing Spinco Employee’s Week of Pay shall be the greatest of the
amounts determined to be in effect (1) immediately prior to the Effective
Time, (2) 60 days prior to the date of such employee’s termination of
employment, or (3) the date of such employee’s termination of employment.


 


“Year of Service” means
each continuous year (365 days) of service with Forest, Spinco, the Company or
any of their Subsidiaries without a break in service.  Any fractional or partial Year of Service
shall be rounded up to the nearest full year.


 


Severance benefits are
subject to reduction as described in Section 6.8(e) of the
Agreement.  Severance benefits shall be
paid in a single lump sum cash payment on or before the fifth business day
after the release described in Section 6.8(a) or 6.8(e), as
applicable, of the Agreement becomes effective. The maximum aggregate severance
amount payable by the Company to the Continuing Spinco Employees pursuant to Section 6.8
is $5,370,000.


 


Part C
- Retention Benefits


 


The maximum amount payable
by Spinco or the Company for the payment of, or reimbursement of Forest for,
Retention Benefits pursuant to Section 6.8(g) is $2,660,000.


 


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EXHIBIT F

TO

AGREEMENT AND PLAN OF MERGER


 


RULE 145 AFFILIATE LETTER


 


Forest Oil Corporation


707 17th Street, Suite 3600


Denver, Colorado 80202


 


Ladies and Gentlemen:


 


Reference
is made to the Agreement and Plan of Merger (the “Merger Agreement”) dated as
of September 9, 2005, is among Forest Oil Corporation, a New York
corporation (“Forest”), SML Wellhead Corporation, a Delaware corporation and a
wholly owned subsidiary of Forest (“Spinco”), Mariner Energy, Inc., a
Delaware corporation (the “Company”), and MEI Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company (“Merger Sub”),
pursuant to which Merger Sub will be merged with and into Spinco (the “Merger”).


 


The
undersigned understands that for purposes of Rule 145 promulgated under
the Securities Act of 1933 (the “Act”) he may be deemed to be an underwriter
with respect to the Shares (as defined below). 
The undersigned is delivering this letter of undertaking and commitment
pursuant to Section 6.14 of the Merger Agreement.


 


With
respect to such securities of the Company as may be received by the undersigned
pursuant to the Merger Agreement (the “Shares”), the undersigned represents to
and agrees with the Company that:


 


A.                                   The
undersigned will not make any offer to sell or any sale, transfer or other
disposition of all or any part of the Shares in violation of the Act or the rules and
regulations thereunder, including Rule 145, and will hold all the Shares
subject to all applicable provisions of the Act and the rules and
regulations thereunder.


 


B.                                     The
undersigned has been advised that the offering, sale and delivery of the Shares
to the undersigned pursuant to the Merger Agreement will be registered under
the Act on a Registration Statement on Form S 4.  The undersigned has also been advised and
agrees, however, that, since the undersigned may be deemed an underwriter of
the Shares, the undersigned may not offer, sell, pledge, hypothecate, transfer
or otherwise dispose of any of the Shares except (i) in a transaction
permitted by Rule 145 under the Act, or (ii) pursuant to an effective
registration statement under the Act or (iii) in a transaction that, in
the opinion of counsel, reasonably satisfactory to the Company, is not required
to be registered under the Act.


 


C.                                     The
undersigned understands and agrees that neither the Company nor any of its
current or future affiliates is under any obligation to register the sale,
transfer or 


 


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other
disposition of any Shares by the undersigned or on the undersigned’s behalf
under the Act or to take any other action necessary in order to make compliance
with an exemption from such registration available.


 


D.                                    The
undersigned also understands that the Company will give stop transfer
instructions to its transfer agents with respect to the Shares and that there
will be placed on the certificates for the Shares, or any substitutions
therefor, a legend stating in substance:


 


“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED TO OR TRANSFERRED
TO THE REGISTERED HOLDER AS A RESULT OF A TRANSACTION TO WHICH RULE 145 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), MAY APPLY AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT (i) IN
A TRANSACTION PERMITTED BY RULE 145 UNDER THE ACT, AND AS TO WHICH THE ISSUER
HAS RECEIVED REASONABLE SATISFACTORY EVIDENCE OF COMPLIANCE WITH RULE 145, OR (ii) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (iii) IN A
TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER, IS NOT REQUIRED TO BE REGISTERED UNDER THE ACT.”


 


It is understood and agreed that the legend set forth
in paragraph (D) above shall be removed by delivery of substitute
certificates without such legend at such time as the Company receives an
opinion of counsel reasonably satisfactory to the Company that the undersigned (i) is
not an affiliate of and (ii) otherwise may transfer the Shares without
restriction under Rule 145(d)(3) of the Act.


 


If any of the undersigned’s Shares are initially
issued to the undersigned in the Merger in other than certificated form, the
undersigned agrees that following the Merger the undersigned will have such
Shares issued in certificated form so that the legend provided for above may be
placed on the certificates.


 


E.                                      The
undersigned also understands that unless the transfer by the undersigned of any
Shares has been registered under the Act or is a sale made in conformity with
the provisions of Rule 145 under the Act, the Company reserves the right
to place the following legend on the certificates issued to any transferee:


 


“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH
SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, MAY APPLY. 
THE SECURITIES HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW TO, OR
FOR RESALE 


 


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IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF SUCH ACT AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.


 


It is
understood and agreed that the legend set forth in paragraph (E) above
shall be removed by delivery of substitute certificates without such legend at
such time as the Company receives an opinion of counsel reasonably satisfactory
to the Company that the holder (i) is not an affiliate of the Company and (ii) otherwise
may transfer the Shares without restriction under Rule 145(d)(3) of
the Act.


 


The
undersigned acknowledges that (i) the undersigned has carefully read this
letter and the Merger Agreement and discussed the requirements of such
documents and other applicable limitations upon the undersigned’s ability to
sell, transfer or otherwise dispose of the Shares, to the extent the
undersigned felt necessary, with the undersigned’s counsel or counsel for
Spinco and (ii) the receipt by the Company of this letter is an inducement
and a condition to the Company’s obligation to consummate the Merger.


 


Execution
of this letter shall not be considered an admission on the part of the
undersigned that the undersigned is an underwriter of the Shares for purposes
of Rule 145 under the Act or as a waiver of any rights the undersigned may
have to any claim that the undersigned is not such an underwriter on or after
the date of this letter.


 


Very
truly yours,


 


 


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