EXHIBIT 10.50
INTERCOMPANY SERVICES AGREEMENT
This INTERCOMPANY OPERATING AGREEMENT ("Agreement") is entered into as
of November 1, 2006, and is by and between FOREST OIL CORPROATION, a New York
corporation ("Forest"), and FOREST ALASKA OPERATING LLC, a Delaware limited
liability company (the "Company"). Forest and the Company are sometimes
hereinafter referred to individually as "Party" or collectively as "Parties".
WITNESSETH
WHEREAS, Forest holds one hundred percent (100%) of the interests in
Forest Alaska Holding LLC ("Forest Holding") and Forest Holding holds 100% of
the Membership Interest in the Company;
WHEREAS, Forest has transferred, assigned and conveyed to the Company
certain producing oil and gas properties located in the State of Alaska along
with certain assets used in the operation and conduct of such properties and
related oil and gas exploration and production business activities (the "Alaska
Operations"), including the oil and gas leases related to the Alaska Operations
and other assets and certain liabilities related to the Alaska Operations (the
"Properties");
WHEREAS, Forest currently serves as the operator of certain of the
Properties and will continue as the operator of such Properties until Forest and
the Company determine otherwise;
WHEREAS, the Company desires to obtain from Forest operational and
administrative and staff support services necessary for the continued conduct of
the Alaska Operations and to appoint Forest to serve as the Company's agent to
perform certain functions necessary for the continued operation of the
Properties; and
WHEREAS, Forest has the expertise and resources and is willing and able
to provide services, personnel, and equipment to the Company and to act as the
Company's agent;
NOW, THEREFORE, for and in consideration of the mutual promises
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
SERVICES AND PERSONNEL
1.1 SERVICES. During the term of this Agreement, Forest agrees
to perform for the Company the services described in Section 1.2 and SCHEDULE A
attached hereto (collectively, the "Services") and to provide all necessary
support personnel and operational equipment in the performance of the Services
in exchange for the fees described in Article II. Forest shall perform the
Services in a good and workmanlike manner as would a prudent service provider
under the same or similar circumstances.
1.2 OPERATOR SUPPORT SERVICES. From and after November 1,
2006, the Company hereby designates and appoints Forest as its agent and grants
Forest all power and authority to perform management, administrative and
technical support activities with respect to the operation of the Properties.
Specifically, during the term of this Agreement, Forest shall have the power and
authority to undertake the following activities in the name and on behalf of the
Company:
(i) open, close and operate bank accounts in the name
of and for the benefit of the Company;
(ii) process, record and make payments to working
interest holders, overriding royalty interest owners, royalty owners (including
but not limited to the State of Alaska and the Minerals Management Service of
the U.S. Department of Interior), vendors, suppliers, and other third parties,
including without limitation processing and making payments to third parties in
connection with day-to-day operations and approved capital expenditures;
(iii) invoice, collect and deposit in the Company's
bank accounts all amounts received from third parties; and
(iv) prepare and maintain accounting books and
records and other financial support information.
1.3 BANK ACCOUNTS; LIENS AND ENCUMBRANCES. Forest agrees that,
in the course of performing the Services, it shall establish, maintain and
operate separate bank accounts in the name of the Company and deposit in such
bank accounts all funds collected or received on behalf of the Company and the
Properties. Forest shall keep all bank accounts opened or maintained for and on
behalf of the Company free from all liens, security interests and other
encumbrances, other than liens and security interests in favor of creditors of
the Company.
1.4 CASH DISBURSEMENTS. As soon as reasonably practicable
after the end of each month during which Forest provides Services under this
Agreement, Forest will prepare a summary showing amounts remitted by Forest on
behalf of the Company in connection with the Alaska Operations and Properties
("cash disbursements") during the preceding month. The Company agrees to pay
Forest an amount representing the total cash disbursements within 30 days
following the receipt of the cash disbursements summary. If the Parties mutually
agree, any remittance under this paragraph may be accomplished by an accounting
entry to an intercompany
2
account as provided in Section 2, which amount shall bear interest at the rate
described in paragraph 2.3.
ARTICLE II
FEES FOR SERVICES AND PAYMENT
2.1 FEES. In consideration of the Services performed by Forest
pursuant to this Agreement and of Forest making itself available to perform the
Services, the Company agrees to pay Forest the fees and amounts described in
SCHEDULE B attached hereto (the "Fees").
2.2 MONTHLY INVOICES. Each month Forest agrees to prepare an
invoice for the Services provided during the preceding month, which shall be
issued as soon as reasonably practicable after the end of the month. Each
invoice shall be for an amount equal to the total Fees for all Services
performed during the preceding month. Fees are intended to cover the value of
the Services provided. All invoices shall be issued and payable in U.S. dollars.
The intercompany billing may be reflected by an intercompany accounting entry
with an offsetting entry to the "intercompany" accounts of Forest and the
Company, so long as mutually agreed upon by the parties.
2.3 PAYMENT OF FEES: INTEREST. The Company agrees to pay all
invoices in U.S. dollars within 30 days following the receipt of the monthly
invoice described in paragraph 2.2. Payment of the amounts detailed in invoices
may be made in cash, by offset of intercompany accounts or any combination
thereof. Offsets may be accomplished through electronic entries in the Company's
and Forest's respective company ledgers. Unless otherwise stated, payments or
credits to the intercompany account will be considered to be applied against
outstanding amounts on a first-in, first-out (FIFO) order. Interest shall accrue
at a rate of 12% per annum on the aggregate monthly average amount of
indebtedness, as represented by the intercompany account.
ARTICLE III
TERM AND TERMINATION
3.1 TERM; TERMINATION. (a) This Agreement shall have a term of
twelve months, ending on August 31, 2007, and shall continue in successive three
month terms until terminated in accordance with this Article III; provided that
this Agreement shall automatically terminate without further notice, on the date
a Disposition (as defined below) is completed. For purposes of this Agreement, a
Disposition means the sale by Forest Holding of all ownership interests in the
Company or the sale of all or substantially all assets of the Company, or the
sale or other disposition by Forest of all ownership interests in Forest Holding
or the sale of all or substantially all assets of Forest Holding.
(b) On termination of this Agreement: (i) all intercompany
amounts payable, including any interest on such amounts, between Forest and the
Company shall become immediately due and payable; (ii) Forest shall ensure the
full and complete transfer of all accrued liabilities and accounts payable that
may have been recorded on Forest's books on behalf of the Company during the
term of this Agreement; and (iii) Forest shall immediately transfer to the
Company all books and records related to activities undertaken on the Company's
behalf during the term of this Agreement.
3
(c) In the event of a termination of the Services as provided
under this Article In, the Company shall pay and remain obligated for: (i) the
reasonable costs and expenses, directly related to this Agreement, incurred or
to be incurred by Forest as a result of such termination; plus (ii) the
aggregate amount of the Fees and any other sums otherwise due Forest, through
the date of termination.
3.2 NOTICE OF TERMINATION. Either party may terminate this
Agreement at any time by giving the other party hereto 90 days' prior written
notice.
3.3 MANDATORY TERMINATION. If, at any time during the term of
this Agreement, any government or any governmental agency should require
directly or indirectly, alteration or modification of any term or condition of
this Agreement or of the performance of the parties in a manner which is
material and adverse to either party, then such party may, in its sole
discretion, terminate this Agreement immediately in its entirety by giving
written notice to the other party; provided that changes to the Fee structure
shall not be cause for immediate termination. In such cases the parties agree to
modify the Fee structure in a manner to comply with the modifications or
alterations required by any such governmental agency and adjust prior Fees
accordingly.
3.4 SURVIVAL UPON TERMINATION. Termination shall not affect any
rights or obligations which have accrued hereunder prior to termination or which
relate to Services performed prior to termination or to the period prior to
termination. In addition, termination shall not affect the parties' rights and
obligations under Articles V, VI, VII, VIII, and IX and this paragraph 3.4.
ARTICLE IV
SUBCONTRACTORS
Forest may enter into subcontracts in connection with performance of
any of the Services hereunder.
ARTICLE V
CONFIDENTIALITY
5.1 CONFIDENTIALITY. In the performance of the Services,
either party may acquire or be made aware of certain confidential information
(as defined below), in particular, but not limited to, confidential information
regarding geophysical and seismic data, processes and operations, financial
data, personnel information, as well as present and contemplated activities of
the other party and its affiliates. Each of the parties, their respective
employees and others whose services may be procured to assist in the performance
of the Services hereunder shall not divulge or disclose any confidential
information to others (except (i) to affiliates or subsidiaries as may be
required in order to perform the Services contemplated hereunder and (ii) to the
agents or the lenders under the First Lien Credit Agreement and Second Lien
4
Credit Agreement) without first having obtained specific written permission to
do so. Agents and subcontractors of either party shall be contractually required
to comply with the restrictions of the preceding sentence. For purposes hereof,
(a) the "First Lien Term Loan Agreement" means the First Lien Credit Agreement
by and among the Company, Forest Holding, the lenders party thereto and Credit
Suisse, as administrative agent, as the same may be amended, supplemented or
otherwise modified, renewed or replaced and (b) the "Second Lien Term Loan
Agreement" means the Second Lien Credit Agreement by and among the Company,
Forest Holding, the lenders party thereto and Credit Suisse, as administrative
agent, as the same may be amended, supplemented or otherwise modified, renewed
or replaced.
5.2 CONFIDENTIAL INFORMATION. The term "confidential
information", as used herein, shall mean any and all business, seismic,
financial, operational, personnel, or other information disclosed by either
party hereunder that is designated in writing by either party as being of a
confidential nature, except:
(i) information which at the time of disclosure is in
the public domain or which, after disclosure, becomes part of the public domain
by means other than by breach of this Agreement;
(ii) information which the parties can show was in
their possession at the time of disclosure and did not previously acquire
directly or indirectly from the other Party; or
(iii) information which is received from a third
party by either party and which information was not, to the best of either
party's knowledge, received as a result of a violation of any law or of any
obligation of confidentiality or non-disclosure to the other party.
5.3 CONFIDENTIALITY TERM. The foregoing restrictions on
divulging or disclosing confidential information shall be limited to a period of
two years after such information is first designated as confidential by the
disclosing party or for such longer period as may be required by the disclosing
party, not to exceed a period of two years after termination of this Agreement
unless agreed to in writing by the parties or unless a longer period is required
by third party agreements governing the information.
ARTICLE VI
LIMITATION OF LIABILITY
6.1 LIMITATION OF LIABILITY. In carrying out its obligations
hereunder, Forest shall be required to exercise only that standard of care it
exercises in the conduct of its own affairs. Liability in connection with the
rendering of Services hereunder shall be limited to direct actual damages.
Forest shall not be liable to the Company (or any assignee) for consequential,
5
incidental or punitive damages, including, but not limited to, loss of use or
loss of profit, regardless of the circumstance.
6.2 SUBCONTRACTOR'S LIABILITY. This Article VI shall not limit
any subcontractor's liability to either party and no subcontractor shall be
deemed a third party beneficiary of this Agreement.
ARTICLE VII
NOTICES
All notices given under this Agreement shall be in writing, signed by
the party giving the notice and shall be delivered by hand, fax, courier, or
first class mail. Notices shall be deemed delivered on the day sent and shall be
addressed as follows:
Forest Alaska Operating LLC
Attention: President
000 X Xxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxx 00000
Telephone No.: (000) 000-0000
Fax: (000) 000-0000
Forest Oil Corporation
Attention: Vice-President, General Counsel and Secretary
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Telephone No.: (000) 000-0000-0000
Fax: (000) 000-0000
ARTICLE VIII
TAXES
Forest is the common parent of an affiliated group of companies within
the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended,
and Forest will treat the Company as a disregarded entity for federal and state
income tax purposes where a state law accepts the federal designation. Forest
and the Company will enter into tax allocation agreements, both federal and
state, concerning federal and state tax liabilities and other matters relating
to taxes associated with the ownership and operation of the Alaska Operations
and Properties.
ARTICLE IX
MISCELLANEOUS
9.1 RECORDS AND DOCUMENT RETENTION. The parties acknowledge
that any records produced by Forest pertaining to the Alaska Operations and the
operation of the Properties pursuant to the terms of this Agreement shall remain
the property of the Company and the maintenance and retention of such records
shall be in accordance with Forest's records retention policy as may be in
effect from time to time.
6
9.2 INTELLECTUAL PROPERTY. The parties acknowledge that any
intellectual property right and all books, records, technical, reports, or any
other work product, whether completed or not, prepared or developed by Forest in
the course of or resulting from the performance of any Services for the Company
hereunder, shall vest in and be the property of the Company, which Forest agrees
to turn over to the Company promptly at its request or upon the termination of
this Agreement, whichever is earlier. Forest also agrees to confirm or execute
such transfers and assignments that the Company may request regarding any
intellectual property or work product covered by the terms of this Agreement.
9.3 AUDITS. Upon five days prior written notice, Forest will
permit the Company and its agents to inspect and audit the accounts and records
pertaining to the Services performed pursuant to this Agreement and activities
undertaken by Forest as the Company's agent. Forest shall permit the Company and
its agents to verify the accuracy of any information furnished to the Company
hereunder and in connection with the operation of the Properties and agrees to
allow the Company reasonable access to Forest personnel and, as warranted,
Forest's independent auditors and reservoir engineers.
9.4 AMENDMENT AND WAIVER. Any waiver, alteration or
modification of the provisions of this Agreement shall not be valid unless in
writing and signed by an officer of each of the Parties hereto and unless such
writing specifically refers to this Agreement and expressly states that the
terms hereof are being waived, altered or otherwise modified. All requests and
instructions from the Party requesting the work shall be subject to and be
deemed to incorporate the terms and provisions of this Agreement and the terms
of this Agreement shall control in the event of any conflict.
9.5 ASSIGNMENT: THIRD PARTY BENEFICIARY. This Agreement shall
be binding upon and inure to the benefit of the Company and Forest and their
respective successors and assigns. No party shall assign this Agreement or its
rights or obligations hereunder without the prior written consent of the other
party; provided, however that nothing shall prevent the grant by the Company of
a security interest in its rights under this Agreement or the enforcement or
exercise of remedies in connection with such security interest. This Agreement
is not intended to confer any rights or benefits upon any person other than the
parties hereto and their permitted successors and assigns.
9.6 GOVERNING LAW. The rights and obligations of the parties
hereunder shall be governed by, and be construed in accordance with, the laws of
the State of Colorado, excluding such laws, rules or decisions of the courts of
Colorado which would apply the laws of another forum or jurisdiction. Each party
agrees, to the extent permitted by law, that all actions or proceedings in any
way arising out of this Agreement shall be litigated in the courts in Denver
County, Colorado. Each party hereby waives any right it may have to transfer or
object to the venue of any litigation arising out of this Agreement brought
against it in Denver County, Colorado.
7
9.7 COMPLIANCE WITH LAWS. Forest and any of its
representatives, agents or subcontractors shall obtain and maintain all
qualifications, registrations, permits, insurance, bonds, licenses and other
consents or approvals, necessary or prudent to perform the Services in any
jurisdiction in which it performs Services and agrees to comply with all
applicable laws and regulations. The Company agrees to comply with all
applicable laws and regulation in any jurisdiction in which it conducts
activities.
9.8 SEVERABILITY. If any provision of this Agreement is ever
determined to be invalid, illegal or unenforceable, the remainder of this
Agreement shall nevertheless remain in full force and effect.
9.9 ARM'S LENGTH TRANSACTIONS: SEPARATE BOOKS AND RECORDS:
FINANCIAL RECORDS. The parties acknowledge and agree that this Agreement and the
terms hereof are being entered into on an arm's-length basis, are fair to each
of Forest and the Company and are on terms comparable to similar transactions
between unrelated third persons or unaffiliated parties. Each of the parties
hereto intend that the management, business and affairs of Forest and its other
subsidiaries be conducted in such a manner so that, except with respect to tax
allocation agreements and the filing of state and federal tax returns, Holdings
and the Company will be treated as a separate and distinct entity from Forest
and its other subsidiaries and agree to keep and maintain separate books of
account, separate financial statements and not otherwise commingling their
respective properties.
9.10 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the Company and Forest relating to the
subject matter hereof and supersedes all prior agreements and understandings,
written or oral, relating to such subject matter.
IN WITNESS WHEREOF, Forest and the Company have caused this Agreement
to be executed in multiple originals by their respective duly authorized
officers.
FOREST OIL CORPROATION FOREST ALASKA OPERATING LLC
By: /S/ XXXXX X. XXXXX By: /S/ CYRUS X. XXXXXX XX
-------------------------------- ----------------------------------
Xxxxx X. Xxxxx Cyrus X. Xxxxxx XX
Executive Vice-President and Vice-President and Secretary
Chief Financial Officer
8
