Document:

Exhibit 10.A.51

APPLE COMPUTER, INC. 1998

EXECUTIVE OFFICER STOCK PLAN

(as amended through 4/24/02)

1.             Purposes of the Plan.  The
purposes of this Stock Plan are:

•           to attract and
retain the best available personnel for positions of substantial responsibility;

•              to provide additional incentive to
the Chairman and/or Executive Officers and other key employees; and

•              to promote the
success of the Company’s business.

Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant. Stock appreciation rights
(“SARs”) may be granted under the Plan in connection with Options or
independently of Options. Stock Purchase Rights may also be granted under the
Plan.

2.             Definitions.  As
used herein, the following definitions shall apply:

(a)           “Administrator” means the Board or any of
its Committees as shall be administering the Plan, in accordance with
Section 4 of the Plan.

(b)           “Agreement” means an agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option, SAR or Stock Purchase Right grant. The Agreement is subject to the
terms and conditions of the Plan.

(c)           “Applicable Laws” means the requirements relating
to the administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Options, SARs or
Stock Purchase Rights are, or will be, granted under the Plan.

(d)           “Board” means the Board of Directors of
the Company.

(e)           “Chairman” means the Chairman of the
Board.

(f)            “Code” means the Internal Revenue Code of
1986, as amended.

(g)           “Committee” means a committee of Directors
appointed by the Board in accordance with Section 4 of the Plan.

(h)           “Common Stock” means the common stock of
the Company.

(i)            “Company” means Apple Computer, Inc.,
a California corporation.

(j)            “Continuous Status as Chairman” unless
determined otherwise by the Administrator, means the absence of any
interruption or termination as Chairman of the Board with the Company.
Continuous Status as Chairman shall not be considered interrupted in the case
of medical leave, military leave, family leave, or any other leave of absence
approved by the Administrator, provided, in each case, that such leave does not
result in termination as Chairman with the Company. Neither service as a
Director nor payment of a director’s fee by the Company shall be sufficient to
constitute status as “Chairman” by the Company.

(k)           “Continuous Status as an Employee” means
the absence of any interruption or termination of the employment relationship
with the Company or any Subsidiary. Continuous Status as an Employee shall not
be considered interrupted in the case of (i) medical leave, military
leave, family leave, or any other leave of absence approved by the
Administrator, provided, in each case, that such leave does not result in
termination of the employment relationship with the Company or any Subsidiary,
as the case may be, under the terms of the respective Company policy for such
leave; however, vesting may be tolled while an employee is on an approved leave
of absence under the

 

 

terms of the
respective Company policy for such leave; or (ii) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries, or
its successor. For purposes of Incentive Stock Options, no such leave may
exceed ninety days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 91st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Chairman nor as a Director nor
payment of a director’s fee by the Company shall be sufficient to constitute
“employment” by the Company.

(l)            “Director” means a member of the Board.

(m)          “Employee” means any person employed by
the Company or any Parent or Subsidiary of the Company subject to
(k) above.

(n)           “Exchange Act” means the Securities
Exchange Act of 1934, as amended.

(o)           “Executive Officer” means any person who
is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.

(p)           “Fair Market Value” means, as of any date,
the value of Common Stock determined as follows:

(i)            If the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market or The Nasdaq SmallCap
Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system, on the date of determination or, if the date
of determination is not a trading day, the immediately preceding trading day,
as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;

(ii)           If the Common Stock
is regularly quoted by a recognized securities dealer but selling prices are
not reported, the Fair Market Value of a Share of Common Stock shall be the
mean between the high bid and low asked prices for the Common Stock on the date
of determination or, if there are no quoted prices on the date of
determination, on the last day on which there are quoted prices prior to the
date of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems
reliable; or

(iii)          In the absence of
an established market for the Common Stock, the Fair Market Value shall be determined
in good faith by the Administrator.

(q)           “Incentive Stock Option” means an Option
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated thereunder and is
expressly designated by the Administrator at the time of grant as an incentive
stock option.

(r)            “Nonstatutory Stock Option” means an
Option not intended to qualify as an Incentive Stock Option.

(s)           “Option” means a stock option granted
pursuant to the Plan.

(t)            “Optioned Stock” means the Common Stock
subject to an Option, SAR or Stock Purchase Right.

(u)           “Optionee” means the holder of an
outstanding Option, SAR or Stock Purchase Right.

(v)           “Parent” means a “parent corporation,”
whether now or hereafter existing, as defined in Section 424(e) of the
Code.

(w)          “Plan” means this 1998 Executive Officer
Stock Plan.

(x)            “Restricted Stock” means shares of Common
Stock acquired pursuant to a grant of Stock Purchase Rights under
Section 12 of the Plan.

 

 

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(y)           “Rule 16b-3” means Rule 16b-3 of
the Exchange Act or any successor to Rule 16b-3, as in effect when
discretion is being exercised with respect to the Plan.

(z)            “SAR” means a stock appreciation right
granted pursuant to Section 10 below.

(aa)         “Section 16(b)” means
Section 16(b) of the Exchange Act.

(bb)         “Share” means a share of the Common Stock,
as adjusted in accordance with Section 15 of the Plan.

(cc)         “Stock
Purchase Right” means the right to purchase Common Stock pursuant to
Section 12 of the Plan, as evidenced by an Agreement.

(dd)         “Subsidiary”
means a “subsidiary corporation”, whether now or hereafter existing, as defined
in Section 424(f) of the Code.

3.             Stock Subject To The Plan. 
Subject to the provisions of Section 15 of the Plan, the maximum aggregate
number of Shares which may be optioned and sold under the Plan or for which
SARs or Stock Purchase Rights may be granted and exercised is 48,000,000
Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.

In the discretion of the Administrator, any or all of the Shares
authorized under the Plan may be subject to SARs issued pursuant to the Plan.

If an Option, SAR or Stock Purchase Right issued under the Plan should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares which were subject thereto shall become available
for other Options, SARs or Stock Purchase Rights under this Plan (unless the
Plan has terminated); however, should the Company reacquire Shares which were
issued pursuant to the exercise of an Option or SAR, such Shares shall not
become available for future grant under the Plan. If Shares of Restricted Stock
are repurchased by the Company at their original purchase price, such shares
shall become available for future grant under the Plan.

4.             Administration of the Plan.

(a)           Procedure.

(i)            Multiple Administrative Bodies. If
permitted by Rule 16b-3 promulgated under the Exchange Act or any
successor rule thereto, as in effect at the time that discretion is being
exercised with respect to the Plan, and by the legal requirements of the
Applicable Laws relating to the administration of stock plans such as the Plan,
if any, the Plan may (but need not) be administered by different administrative
bodies with respect to (A) Directors who are not Employees,
(B) Directors who are Employees, (C) Officers who are not Directors
and (D) Employees who are neither Directors nor Officers.

(ii)           Section 162(m). To the extent that
the Administrator determines it to be desirable to qualify Options or SARs
granted hereunder as “performance-based compensation” within the meaning of
Section 162(m) of the Code, the Plan shall be administered by a Committee
of two or more “outside directors” within the meaning of Section 162(m) of
the Code.

(iii)          Rule 16b-3. To the extent desirable
to qualify transactions hereunder as exempt under Rule 16b-3, the
transactions contemplated hereunder shall be structured to satisfy the
requirements for exemption under Rule 16b-3.

(iv)          Other Administration. Other than as
provided above, the Plan shall be administered by (A) the Board or
(B) a Committee, which committee shall be constituted to satisfy
Applicable Laws.

(b)           Powers of the Administrator. Subject to
the provisions of the Plan, and in the case of a Committee, subject to the
specific duties delegated by the Board to such Committee, the Administrator
shall have the authority, in its discretion:

(i)            to determine the
Fair Market Value;

 

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(ii)           to select the
person(s) to whom Options, SARs and Stock Purchase Rights may be granted
hereunder;

(iii)          to determine the
number of shares of Common Stock to be covered by each Option, SAR or Stock
Purchase Right granted hereunder;

(iv)          to approve forms of
agreement for use under the Plan;

(v)           to determine the
terms and conditions, not inconsistent with the terms of the Plan, of any
Option, SAR or Stock Purchase Right granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the date of
grant, the time or times when Options, SARs or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option, SAR or Stock Purchase Right or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

(vi)          to reduce the
exercise price of any Option, SAR or Stock Purchase Right to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option, SAR or Stock Purchase Right shall have declined since the date the
Option, SAR or Stock Purchase Right was granted;

(vii)         to construe and interpret
the terms of the Plan and awards granted pursuant to the Plan;

(viii)        to prescribe, amend
and rescind rules and regulations relating to the Plan, including rules and
regulations relating to sub-plans established for the purpose of qualifying for
preferred tax treatment under foreign tax laws;

(ix)           to modify or amend
each Option, SAR or Stock Purchase Right (subject to Section 17(c) of the
Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;

(x)            to allow Optionees
to satisfy withholding tax obligations by electing to have the Company withhold
from the Shares to be issued upon exercise of an Option, SAR or Stock Purchase
Right that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined. All elections by an Optionee to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;

(xi)           to authorize any
person to execute on behalf of the Company any instrument required to effect
the grant of an Option, SAR or Stock Purchase Right previously granted by the
Administrator; and

(xii)          to make all other
determinations deemed necessary or advisable for administering the Plan.

(c)           Effect of Administrator’s Decision. The
Administrator’s decisions, determinations and interpretations shall be final
and binding on all Optionees and any other holders of Options, SARs or Stock
Purchase Rights.

5.             Eligibility. 
Nonstatutory Stock Options, SARs and Stock Purchase Rights may be granted to
the Chairman, Executive Officers and other key employees or to such other
individuals as determined by the Administrator whom the Company has offered a
position of Chairman or Executive Officer. Incentive Stock Options may be
granted only to Executive Officers and other key employees.

6.             Limitations.

(a)           Each Option shall be
designated in the Agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such designation, to the
extent that the

 

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aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the
order in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

(b)           Neither the Plan nor
any Option, SAR or Stock Purchase Right shall confer upon an Optionee any right
with respect to continuing the Optionee’s relationship as an Employee with or
Chairman of the Company, nor shall they interfere in any way with the
Optionee’s right or the Company’s right to terminate such relationship at any
time, with or without cause.

(c)           The following
limitations shall apply to grants of Options and SARs:

(i)            No participant
shall be granted, in any fiscal year of the Company, Options or SARs to
purchase more than 34,000,000 Shares;

(ii)           The foregoing
limitations shall be adjusted proportionately in connection with any change in
the Company’s capitalization as described in Section 15;

(iii)          If an Option or SAR
is canceled in the same fiscal year of the Company in which it was granted
(other than in connection with a transaction described in Section 15), the
canceled Option will be counted against the limits set forth in subsections (i) above.
For this purpose, if the exercise price of an Option or SAR is reduced, the
transaction will be treated as a cancellation of the Option or SAR and the
grant of a new Option or SAR.

7.             Term of Plan. 
Subject to Section 21 of the Plan, the Plan shall become effective upon
its adoption by the Board. It shall continue in effect for a term of ten
(10) years unless terminated earlier under Section 16 of the Plan.

8.             Term of Option. 
The term of each Option shall be stated in the Agreement. In the case of an Incentive
Stock Option, the term shall be ten (10) years from the date of grant or
such shorter term as may be provided in the Agreement. Moreover, in the case of
an Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five
(5) years from the date of grant or such shorter term as may be provided
in the Agreement.

9.             Option Exercise Price and
Consideration.

(a)           Exercise Price. The per share exercise
price for the Shares to be issued pursuant to exercise of an Option shall be
determined by the Administrator, subject to the following:

(i)            In the case of an
Incentive Stock Option;

(A)          granted to an
Employee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of
grant; or

(B)           granted to any
Employee other than an Employee described in paragraph (A) immediately
above, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant;

(ii)           In the case of a
Nonstatutory Stock Option, the per Share exercise price shall be determined by
the Administrator. In the case of a Nonstatutory Stock Option intended to
qualify as “performance-based compensation” within the meaning of
Section 162(m) of the Code, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant;

 

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(iii)          Notwithstanding the
foregoing, Options may be granted with a per Share exercise price of less than
100% of the Fair Market Value per Share on the date of grant as determined by
the Administrator or pursuant to a merger or other corporate transaction.

(b)           Waiting Period and Exercise Dates. At the
time an Option is granted, the Administrator shall fix the period within which
the Option may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised.

(c)           Form of Consideration. The Administrator
shall determine the acceptable form of consideration for exercising an Option,
including the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant. Such consideration may consist entirely of:

(i)            cash;

(ii)           check;

(iii)          promissory note;

(iv)          other Shares which
(A) in the case of Shares acquired upon exercise of an option, have been
owned by the Optionee for more than six months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised;

(v)           consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan;

(vi)          a reduction in the
amount of any Company liability to the Optionee, including any liability
attributable to the Optionee’s participation in any Company-sponsored deferred
compensation program or arrangement;

(vii)         any combination of
the foregoing methods of payment; or

(viii)        such other
consideration and method of payment for the issuance of Shares to the extent
permitted by Applicable Laws.

10.           Stock Appreciation Rights.

(a)           Granted in Connection with Options. At the
sole discretion of the Administrator, SARs may be granted in connection with
all or any part of an Option, either concurrently with the grant of the Option
or at any time thereafter during the term of the Option. The following
provisions apply to SARs that are granted in connection with Options:

(i)            The SAR shall
entitle the Optionee to exercise the SAR by surrendering to the Company
unexercised a portion of the related Option. The Optionee shall receive in
exchange from the Company an amount equal to the excess of (x) the Fair
Market Value on the date of exercise of the SAR of the Common Stock covered by
the surrendered portion of the related Option over (y) the exercise price
of the Common Stock covered by the surrendered portion of the related Option.
Notwithstanding the foregoing, the Administrator may place limits on the amount
that may be paid upon exercise of a SAR; provided, however, that such limit
shall not restrict the exercisability of the related Option;

(ii)           When a SAR is
exercised, the related Option, to the extent surrendered, shall no longer be
exercisable;

(iii)          A SAR shall be
exercisable only when and to the extent that the related Option is exercisable
and shall expire no later than the date on which the related Option expires;
and

(iv)          A SAR may only be
exercised at a time when the Fair Market Value of the Common Stock covered by
the related Option exceeds the exercise price of the Common Stock covered by
the related Option.

 

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(b)           Independent SARs. At the sole discretion
of the Administrator, SARs may be granted without related Options. The
following provisions apply to SARs that are not granted in connection with
Options:

(i)            The SAR shall
entitle the Optionee, by exercising the SAR, to receive from the Company an
amount equal to the excess of (x) the Fair Market Value of the Common
Stock covered by exercised portion of the SAR, as of the date of such exercise,
over (y) the Fair Market Value of the Common Stock covered by the
exercised portion of the SAR, as of the date on which the SAR was granted;
provided, however, that the Administrator may place limits on the amount that
may be paid upon exercise of a SAR; and

(ii)           SARs shall be
exercisable, in whole or in part, at such times as the Administrator shall
specify in the Optionee’s Agreement.

(c)           Form of Payment. The Company’s obligation
arising upon the exercise of a SAR may be paid in Common Stock or in cash, or
in any combination of Common Stock and cash, as the Administrator, in its sole
discretion, may determine. Shares issued upon the exercise of a SAR shall be
valued at their Fair Market Value as of the date of exercise.

(d)           Rule 16b-3. SARs granted hereunder
shall contain such additional restrictions as may be required to be contained
in the Plan or Agreement in order for the SAR to qualify for the maximum
exemption provided by Rule 16b-3.

11.           Exercise of Option or SAR.

(a)           Procedure for Exercise; Rights as a Shareholder.  Any
Option or SAR granted hereunder shall be exercisable according to the terms of
the Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Agreement. An Option may not be exercised
for a fraction of a Share.

An Option or SAR shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the terms
of the Option or SAR) from the person entitled to exercise the Option or SAR,
and (ii) full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of payment
authorized by the Administrator and permitted by the Agreement and the Plan.
Shares issued upon exercise of an Option shall be issued in the name of the
Optionee or, if requested by the Optionee, in the name of the Optionee and his
or her spouse. Until the Shares are issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 15 of the Plan.

Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised. Exercise
of a SAR in any manner shall, to the extent the SAR is exercised, result in a
decrease in the number of Shares which thereafter shall be available for
purposes of the Plan, and the SAR shall cease to be exercisable to the extent
it has been exercised.

(b)           Termination of Continuous Status as Chairman.  Upon
termination of an Optionee’s Continuous Status as Chairman (other than
termination by reason of the Optionee’s death), the Optionee may, but only
within ninety (90) days after the date of such termination, exercise his
or her Option or SAR to the extent that it was exercisable at the date of such
termination. Notwithstanding the foregoing, however, an Option or SAR may not
be exercised after the date the Option or SAR would otherwise expire by its
terms due to the passage of time from the date of grant.

 

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(c)           Termination of Continuous Employment.  Upon
termination of an Optionee’s Continuous Status as Employee (other than
termination by reason of the Optionee’s death), the Optionee may, but only
within ninety (90) days after the date of such termination, exercise his
or her Option or SAR to the extent that it was exercisable at the date of such
termination. Notwithstanding the foregoing, however, an Option or SAR may not
be exercised after the date the Option or SAR would otherwise expire by its
terms due to the passage of time from the date of grant.

(d)           Death of Optionee.  If an
Optionee dies (i) while an Employee or Chairman, the Option or SAR may be
exercised at any time within six (6) months (or such other period of time
not exceeding twelve (12) months as determined by the Administrator)
following the date of death by the Optionee’s estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that would have accrued had the Optionee
continued living and terminated his or her employment six (6) months (or
such other period of time not exceeding twelve (12) months as determined
by the Administrator) after the date of death; or (ii) within ninety
(90) days after the termination of Continuous Status as an Employee or
Chairman, the Option or SAR may be exercised, at any time within six
(6) months (or such other period of time not exceeding twelve
(12) months as determined by the Administrator) following the date of
death by the Optionee’s estate or by a person who acquired the right to
exercise the Option or SAR by bequest or inheritance, but only to the extent of
the right to exercise that had accrued at the date of termination. If the
Option or SAR is not so exercised within the time specified herein, the Option
or SAR shall terminate, and the Shares covered by such Option or SAR shall
revert to the Plan.

Notwithstanding the foregoing, however, an Option or SAR may not be
exercised after the date the Option or SAR would otherwise expire by its terms
due to the passage of time from the date of grant.

(e)           Buyout Provisions.  The
Administrator may at any time offer to buy out for a payment in cash or Shares
an Option or SAR previously granted based on such terms and conditions as the
Administrator shall establish and communicate to the Optionee at the time that
such offer is made.

12.           Stock Purchase Rights.

(a)           Rights to Purchase.  Stock
Purchase Rights may be issued either alone, in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the
Plan. After the Administrator determines that it will offer Stock Purchase
Rights under the Plan, it shall advise the Optionee in writing or
electronically, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the Optionee shall be entitled to purchase,
the price to be paid, and the time within which the Optionee must accept such
offer. The offer shall be accepted by execution of an Agreement in the form
determined by the Administrator.

(b)           Repurchase Option.  Unless the
Administrator determines otherwise, the Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser’s service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at a rate determined by the Administrator.

(c)           Other Provisions.  The Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.

(d)           Rights as a Shareholder.  Once
the Stock Purchase Right is exercised, the purchaser shall have the rights
equivalent to those of a shareholder, and shall be a shareholder when his or
her purchase is entered upon the records of the duly authorized transfer agent
of the Company. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Stock Purchase Right is
exercised, except as provided in Section 15 of the Plan.

 

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13.           Transferability of Options, SARs and
Stock Purchase Rights.  Unless determined otherwise by the
Administrator, an Option, SAR or Stock Purchase Right may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title 1 of the Employee
Retirement Income Security Act, and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option, SAR or
Stock Purchase Right transferable, such Option, SAR or Stock Purchase Right
shall contain such additional terms and conditions as the Administrator deems
appropriate.

14.           Stock Withholding to Satisfy
Withholding Tax Obligations.  When an Optionee incurs tax
liability in connection with the exercise of an Option, SAR or Stock Purchase
Right, which tax liability is subject to tax withholding under applicable tax
laws, and the Optionee is obligated to pay the Company an amount required to be
withheld under applicable tax laws, the Optionee may satisfy the withholding
tax obligation by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, or the Shares to be issued upon exercise of
the SAR or Stock Purchase Right, if any, that number of Shares having a Fair
Market Value equal to the amount required to be withheld. The Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined (the “Tax Date”).

All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:

(c)           the election must be
made on or prior to the applicable Tax Date; and

(d)           all elections shall
be subject to the consent or disapproval of the Administrator.

In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because
no election is filed under Section 83(b) of the Code, the Optionee shall
receive the full number of Shares with respect to which the Option, SAR or
Stock Purchase Right is exercised but such Optionee shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the Tax
Date.

15.           Adjustments Upon Changes in
Capitalization, Dissolution, Merger or Asset Sale.

(a)           Changes in Capitalization.  Subject
to any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option, SAR or Stock Purchase
Right, and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options, SARs or Stock Purchase
Rights have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, SAR or Stock Purchase Right, as well
as the price per share of Common Stock covered by each such outstanding Option,
SAR or Stock Purchase Right, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
“effected without receipt of consideration.” Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option,
SAR or Stock Purchase Right.

(b)           Dissolution or Liquidation.  In
the event of the proposed dissolution or liquidation of the Company, all
outstanding Options, SARs and Stock Purchase Rights will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Administrator. The Administrator may, in the exercise of its sole
discretion in such instances, declare that any Option, SAR or Stock Purchase
Right shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option, SAR or Stock

 

9

 

Purchase Right as
to all or any part of the Optioned Stock, including Shares as to which the
Option, SAR or Stock Purchase Right would not otherwise be exercisable.

(c)           Merger or Asset Sale.  Unless
otherwise determined by the Administrator, in the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option, SAR and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option, SAR or Stock Purchase Right, the Optionee shall fully vest in and have
the right to exercise the Option, SAR or Stock Purchase Right as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested
or exercisable. If an Option, SAR or Stock Purchase Right becomes fully vested
and exercisable in lieu of assumption or substitution in the event of a merger
or sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option, SAR or Stock Purchase Right shall be fully
vested and exercisable for a period of thirty (30) days from the date of
such notice, and the Option, SAR or Stock Purchase Right shall terminate upon
the expiration of such period. For the purposes of this paragraph, the Option,
SAR or Stock Purchase Right shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option, SAR or Stock
Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon
the exercise of the Option, SAR or Stock Purchase Right, for each Share of
Optioned Stock subject to the Option, SAR or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

(d)           Change in Control.  In the event of a
“Change in Control” of the Company, as defined in paragraph (e) below,
unless otherwise determined by the Administrator prior to the occurrence of
such Change in Control, the following acceleration and valuation provisions
shall apply:

(i)            Any Options, SARs
and Stock Purchase Rights outstanding as of the date such Change in Control is
determined to have occurred that are not yet exercisable and vested on such
date shall become fully exercisable and vested; and

(ii)           The value of all
outstanding Options, SARs and Stock Purchase Rights shall, unless otherwise
determined by the Administrator at or after grant, be cashed-out. The amount at
which such Options, SARs and Stock Purchase Rights shall be cashed out shall be
equal to the excess of (x) the Change in Control Price (as defined below)
over (y) the exercise price of the Common Stock covered by the Option, SAR
or Stock Purchase Right. The cash-out proceeds shall be paid to the Optionee
or, in the event of death of an Optionee prior to payment, to the estate of the
Optionee or to a person who acquired the right to exercise the Option, SAR or
Stock Purchase Right by bequest or inheritance.

(e)           Definition of “Change in Control”. 
For purposes of this Section 15, a “Change in Control” means the happening
of any of the following:

(i)            When any “person”,
as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other
than the Company, a Subsidiary or a Company employee benefit plan, including
any trustee of such plan acting as trustee) is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company’s then outstanding securities;
or

 

10

 

(ii)           The occurrence of a
transaction requiring shareholder approval, and involving the sale of all or
substantially all of the assets of the Company or the merger of the Company
with or into another corporation.

(f)            Change in Control Price.  For
purposes of this Section 15, “Change in Control Price” shall be, as
determined by the Administrator, (i) the highest Fair Market Value at any
time within the 60-day period immediately preceding the date of determination
of the Change in Control Price by the Administrator (the “60-Day Period”), or
(ii) the highest price paid or offered, as determined by the
Administrator, in any bona fide transaction or bona fide offer related to the
Change in Control of the Company, at any time within the 60-Day Period.

16.           Date of Grant. 
The date of grant of an Option, SAR or Stock Purchase Right shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, SAR or Stock Purchase Right, or such other later date as is
determined by the Administrator. Notice of the determination shall be provided
to each Optionee within a reasonable time after the date of such grant.

17.           Amendment and Termination of the
Plan.

(a)           Amendment and Termination.  The Board
may at any time amend, alter, suspend or terminate the Plan.

(b)           Shareholder Approval.  The Company
shall obtain shareholder approval of any Plan amendment to the extent necessary
and desirable to comply with Applicable Laws.

(c)           Effect of Amendment or Termination. 
No amendment, alteration, suspension or termination of the Plan shall impair
the rights of any Optionee, unless mutually agreed otherwise between the
Optionee and the Administrator, which agreement must be in writing and signed
by the Optionee and the Company. Termination of the Plan shall not affect the
Administrator’s ability to exercise the powers granted to it hereunder with
respect to Options, SARs or Stock Purchase Rights granted under the Plan prior
to the date of such termination.

18.           Conditions Upon Issuance of Shares.

(a)           Legal Compliance.  Shares shall not
be issued pursuant to the exercise of an Option, SAR or Stock Purchase Right
unless the exercise of such Option, SAR or Stock Purchase Right and the
issuance and delivery of such Shares shall comply with Applicable Laws and
shall be further subject to the approval of counsel for the Company with
respect to such compliance.

(b)           Investment Representations.  As a
condition to the exercise of an Option, SAR or Stock Purchase Right, the
Company may require the person exercising such Option, SAR or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.

19.           Inability to Obtain Authority. 
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

20.           Reservation of Shares. 
The Company, during the term of this Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

21.           Shareholder Approval. 
The Plan shall be subject to approval by the shareholders of the Company within
twelve (12) months after the date the Plan is adopted. Such shareholder
approval shall be obtained in the manner and to the degree required under
Applicable Laws.

22.           Non-U.S. Employees. 
Notwithstanding anything in the Plan to the contrary, with respect to any
employee who is resident outside of the United States, the Committee may, in
its sole discretion, amend the terms of the Plan in order to conform such terms
with the requirements of local law or to meet the objectives of the Plan. The
Committee may, where appropriate, establish one or more sub-plans for this
purpose.

 

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Exhibit 10.1  

 
 

EXCHANGE AGREEMENT    
  

        THIS EXCHANGE AGREEMENT (this "Agreement") is dated as of the 11th day of December, 2002, between ANADARKO E&P COMPANY LP, a Delaware limited partnership, whose
address is 1201 Lake Robbins Drive, The Woodlands, Texas 77380, (hereinafter referred to as "AEPC"), and WARREN RESOURCES, INC., a Delaware Corporation, whose address is 489 Fifth Avenue, 32nd
Floor, New York, New York 10017 (hereinafter referred to as "Warren"). 

        WHEREAS,
AEPC owns interests in various oil and gas properties located in Carbon County, Wyoming, either of record or beneficially, in which it desires to exchange a partial interest for
a partial interest in various oil and gas properties located in Carbon County, Wyoming, owned by Warren, either of record or beneficially, pursuant to the terms and conditions of this Agreement. 

        WHEREAS,
with respect to AEPC's interest in the Assets (as defined in Section 1.2) (the "AEPC Assets"), AEPC is the Assignor and Warren is the designated Assignee; and with
respect to Warren's interest in the Assets (the "Warren Assets"), Warren is the Assignor and AEPC is the designated Assignee. As used in this Agreement, the singular terms "Assignor" and "Assignee"
shall apply to both AEPC and Warren in their aforementioned respective capacities as such, unless otherwise specified. 

        WHEREAS,
the parties may desire to effect a like-kind exchange of property under Section 1031 of the Internal Revenue Code, in connection with the transaction to be
undertaken between AEPC and Warren. 

        WHEREAS,
immediately following the consummation of the transactions contemplated by this Agreement, the parties hereto have agreed to enter into a Joint Exploration Agreement (so called
herein) dated effective as of the Effective Date and attached hereto as Exhibit G providing for the joint exploration and development of, among other lands, the Assets. 

        WHEREAS,
any capitalized terms used hereunder shall have the meanings as set forth in Article 13 of this Agreement. 

        NOW,
THEREFORE, in consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows: 

ARTICLE I

Exchange  

        1.1    Exchange    

        At
Closing, and upon the terms and subject to the conditions of this Agreement, Assignor agrees to convey and assign to Assignee and Assignee agrees to accept the Assets, and AEPC shall
(i) tender to Warren Twelve Million Dollars ($12,000,000) ("Cash Consideration"); (ii) pay to Warren as and when due a deferred payment of Six Million Dollars ($6,000,000) ("Deferred
Payment") pursuant to the terms and conditions more particularly described in Section 1.5; (iii) reimburse Warren for certain development costs in the amount of $3,439,613.66; this being
100% of the costs paid by Warren for the period from August 1, 2002 through November 26, 2002 ("Reimbursed Development Costs"); and (iv) reimburse Warren for certain costs
incurred in compliance with the National Environmental Policy Act ("NEPA") in the amount of $723,446.54; this being 100% of the costs paid by Warren prior to November 26, 2002, in connection
with the EIS and all environmental assessments (EA), except the EA prepared for the Sun Dog unit ("Reimbursed NEPA Costs"). 

 

        1.2    Assets    

        As
used herein, the term "Assets" means, subject to the terms and conditions of this Agreement, an undivided fifty percent (50%) of Assignor's right, title and interest in and to the
following: 

        (a)  All
right, title and interest of Assignor in and to all of the oil and gas leases, oil, gas and mineral leases, subleases and other leaseholds, carried interests,
farmout rights, options, and other properties and interests described on Exhibit A with respect to AEPC as Assignor and Exhibit B with respect to Warren as Assignor, subject to such
depth limitations and other restrictions as may be set forth on Exhibits A and B (collectively, the "Leases"), together with each and every kind and character of right, title, claim, and interest that
Assignor has in and to the Leases or pooled, unitized, communitized or consolidated therewith (the "Lands"); 

        (b)  All
right, title and interest of Assignor in and to active oil, gas, water or injection wells located on the Lands, whether producing, shut-in, or
temporarily abandoned, including the interests in the wells shown on Exhibit A-1 attached hereto with respect to AEPC as Assignor and Exhibit B-1 attached hereto
with respect to Warren as Assignor, but excluding the Sun Dog Wells (as hereinafter defined) (the "Wells"); 

        (c)  All
leasehold interest of Assignor in or to any areas that have been formally pooled, unitized, communitized or consolidated and approved by the applicable Governmental
Body with any Lands or all or a part of any Leases or any Wells, including those pools or units shown on Exhibit A-2 attached hereto with respect to AEPC as Assignor and
Exhibit B-2 attached hereto with respect to Warren as Assignor (the "Units") (the Units, together with the Leases, Lands and Wells, being hereinafter referred to as the
"Properties"), and including all leasehold interest of Assignor in production from any such Unit, whether such Unit production comes from Wells located on or off of a Lease, and all tenements,
hereditaments and appurtenances belonging to the Leases and Units; 

        (d)  All
of Assignor's interest in, to and under or derived from all contracts, agreements and instruments by which the Properties are bound, or that relate to or are
otherwise applicable to the Properties, to the extent applicable to the Properties rather than Assignor's other properties, including but not limited to, operating agreements, unitization, pooling and
communitization agreements, declarations and orders, joint venture agreements, farmin and farmout agreements, water rights agreements, exploration agreements, participation agreements, exchange
agreements, compressor rental agreements, transportation or gathering agreements, agreements for the sale and purchase of oil, gas, casinghead gas or processing agreements to the extent applicable to
the Properties or the production of oil and gas and other minerals and products produced in association therewith from the Properties (as identified on Exhibit C under the heading "Contracts"
and hereinafter collectively referred to as "Contracts"), but excluding that certain Gas Gathering, Processing, Dehydrating and Treating Agreement dated March 1, 2002, between Petroleum
Development Corporation (a wholly owned subsidiary of Warren), and Williams Field Services Company covering lands more particularly described therein, and any contracts, agreements and instruments to
the extent transfer is restricted by third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Section 5.4 and provided that "Contracts" shall
not include the instruments constituting the Leases; 

        (e)  All
right, title and interest of Assignor in or to all easements, permits, water disposal agreements and permits, agreements with surface owners, surface use agreements,
licenses, servitudes, rights-of-way, surface leases and other surface rights ("Surface Contracts") appurtenant to, and used or held for use primarily in connection with the
Properties (as identified on Exhibit C under the heading "Surface Contracts", excluding any permits and other appurtenances to the extent transfer is restricted by third-party agreement or
applicable law and the necessary consents to transfer are not obtained pursuant to Section 5.4; 

Page 2 of 32

 

        (f)    All
right, title and interest of Assignor in all equipment, machinery, fixtures and other tangible personal property and improvements located on the Properties or used
or held for use primarily in connection with the operation of the Properties including any wells, tanks, boilers, buildings, fixtures, injection facilities, saltwater disposal facilities, compression
facilities, field compressors, compressor PODs, pumping units and engines, flow lines, pipelines, gathering systems, gas and oil treating facilities, machinery, power lines, telephone and telegraph
lines, roads, and other appurtenances, improvements and facilities as identified on Exhibit D attached hereto (the "Equipment"); 

        (g)  All
right, title, and interest of Assignor in and to all oil, gas, condensate, and other minerals produced from or attributable to the Leases, Lands, and Wells from and
after the Effective Date and all oil, gas, condensate and imbalances with co-owners and/or pipelines and all make-up rights with respect to take-or-pay
payments; 

        (h)  All
right, title, and interest of Assignor in and to all lease files, land files, well files, gas and oil sales contract files, gas processing files, division order
files, abstracts, title opinions, land surveys, a non-exclusive limited license, as described in Exhibit E, in favor of Assignee, at
Assignee's request, to use proprietary geologic and geophysical data which Assignor has a right to license (excluding interpretations thereof), and if Assignor does not have the right to license such
data, then Assignor will grant Assignee access to such data in order to review the same subject to any applicable third-party restrictions, non-confidential logs, maps, engineering data
and reports, reserve studies and evaluations, and files and all other books, records, data, files, maps and accounting records related primarily to the Assets, or used or held for use primarily in
connection with the maintenance or operation thereof, but excluding (i) any books, records, data, files, maps and accounting records to the extent disclosure or transfer is restricted by
third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Section 5.4 (ii) computer software (iii) work product of Assignor's
legal counsel (other than title opinions) and (iv) records relating to the negotiation and consummation of the sale of the Assets (subject to such exclusions, the "Records"); provided, however,
that Assignor may retain the originals of such files and other records as Assignor has determined may be required for litigation, Tax, accounting, and auditing purposes and provide Assignee with
copies thereof, excluding, however, the Excluded Assets (as defined in Section 1.3). 

        1.3    Excluded Assets Reserved by Assignor    

        Notwithstanding
the foregoing, the Assets shall not include, and there is excepted, reserved and excluded from the exchange contemplated hereby (collectively, the "Excluded Assets"): 

        (a)  All
rights to any refunds of taxes or other costs or expenses borne by Assignor or Assignor's predecessors in interest and title attributable to periods prior to the
Effective Date. 

        (b)  All
rights and obligations relating to claims and causes of action arising or existing prior to the Effective Date as to revenues and all other issues. 

        (c)  Assignor's
area-wide bonds, permits and licenses or other permits, licenses or authorizations used in the conduct of Assignor's business generally. 

        (d)  All
trade credits, accounts receivables, notes receivables, and other receivables attributable to the Assets with respect to any period of time prior to the Effective
Date. 

        (e)  All
seismic data and interpretive maps. 

        (f)    The
wells and lands described in Exhibit B-3 (the "Sun Dog Wells"). 

        (g)  Fee
mineral interest, royalties, overriding royalties and net profits interest. 

Page 3 of 32

 

        (h)  That
certain Gas Gathering, Processing, Dehydrating and Treating Agreement dated March 1, 2002, between Petroleum Development Corporation (a wholly owned
subsidiary of Warren), and Williams Field Services Company covering lands more particularly described therein. 

        1.4    Tax-Free Like-Kind Exchange    

        Assignee
agrees to cooperate (at no cost or liability to Assignee) with Assignor so that Assignor's transfer of the Assets to Assignee shall, at Assignor's election, be accomplished in a
manner enabling
the transfer to qualify as a part of a like-kind exchange of property by Assignor within the meaning of Section 1031 of the Code. If Assignor so elects, Assignee shall reasonably
cooperate with Assignor to effect such like-kind exchange, which cooperation shall include, without limitation, taking such actions as Assignor reasonably requests in order to accomplish
the exchange and pay the Cash Consideration and Deferred Payment in a manner which enables such transfer to qualify as part of a like-kind exchange of property within the meaning of
Section 1031 of the Code, and Assignee agrees that Assignor may assign its rights (but not its obligations) under this Agreement to an escrow agent acting as a qualified intermediary under
United States Treasury Regulations, to qualify the exchange and transfer of the Cash Consideration and Deferred Payment as a part of a like-kind exchange of property within the meaning of
Section 1031 of the Code. 

        1.5    Deferred Payment    

        (a)  The
Deferred Payment shall be paid in three annual installments, each of which will be in an amount equal to the difference, if any, between $ 2,000,000 and the sum of
(i) the Development Costs (as defined in Section 1.5(b)) paid by AEPC in the preceding twelve-month (12) period, plus (ii) the NEPA Costs (as defined in
Section 1.5(c)) paid by AEPC in the preceding twelve-month (12) period, plus (iii) Title Defect Amounts which are determined after Closing. The first installment will be due and
payable on July 31st of 2003, the second installment will be due and payable on July 31st of 2004, and the third and final installment will be due and payable on July 31st of
2005. AEPC at its sole option may elect to continue to pay the Development Costs and/or NEPA Costs in excess of $2,000,000.00 during any above-described twelve-month period and any payments in excess
of the installment of the Deferred Payment then due shall be credited against the next installment of the Deferred Payment due hereunder; however, the aggregate Deferred Payment shall not exceed
$6,000,000.00. Warren shall promptly refund to AEPC any amounts paid hereunder in excess of $6,000,000.00. 

        (b)  For
purposes of this Section 1.5, Development Costs shall include (i) fifty percent (50%) of the Reimbursed Development Costs and (ii) Warren's
share of the costs, other than NEPA Costs, incurred pursuant to the terms of the Joint Exploration Agreement, including costs for lease acquisition and lease maintenance, geological and geophysical
activities, facility construction and operation, and all Costs (as defined therein) incurred under an applicable unit or joint operating agreements entered into pursuant to the terms of the Joint
Exploration Agreement. 

        (c)  For
purposes of this Section 1.5, NEPA Costs shall include (i) fifty percent (50%) of: (A) that portion of the Reimbursed NEPA Costs attributable to
NEPA compliance with respect to the Atlantic Rim Coalbed Methane Project Environmental Impact Statement ("Atlantic Rim EIS") proportionately reduced by any of such amounts reimbursed to AEPC by third
parties on or before the first anniversary of the Effective Date pursuant to the terms of any cost sharing agreement entered into with such third party, and (B) that portion of the Reimbursed
NEPA Costs attributable to NEPA compliance with respect to Environmental Assessments ("EA") prepared for operations within the area subject to the Joint Exploration Agreement, except for the
Environmental Assessment prepared for the Sun Dog Unit; (ii) Warren's share of costs for NEPA compliance with respect to the Atlantic Rim EIS, including defense of NEPA documents applicable to
the Atlantic Rim EIS before administrative appeal boards and district courts, incurred pursuant to the terms of the Joint Defense/Cost Sharing Agreement ("Cost Sharing Agreement") in the form attached
hereto as Exhibit H dated as of the Closing Date and 

Page 4 of 32

 

entered into between AEPC and Warren paid by AEPC on behalf of Warren; and (iii) fifty percent (50%) of the costs attributable to NEPA compliance with respect to any and all EAs, excluding the
EA prepared for the Sun Dog Unit, triggered by operations conducted under the Joint Exploration Agreement or applicable unit or joint operating agreement entered into pursuant to the terms thereof,
including defense of NEPA documents before administrative appeal boards and district courts, incurred pursuant to the terms of the Cost Sharing Agreement and paid by AEPC on behalf of Warren. 

ARTICLE II

Effective Date; Proration of Costs and Revenues  

        2.1    Effective Date    

        The
effective date of the exchange of Assets provided for in this Agreement shall be August 1, 2002, at 7:00 a.m. Mountain Standard Time for all purposes, including
apportionment of revenues, expenses and production (hereinafter referred to as the "Effective Date"). 

        2.2    Proration of Costs And Revenues    

        Assignee
shall be entitled to fifty percent (50%) of all production from or attributable to the Leases, Units and Wells at and after the Effective Date (and all products and proceeds
attributable thereto), and fifty percent (50%) of all other income, proceeds, receipts and credits earned with respect to the Assets at or after the Effective Date, and shall be responsible for (and
entitled to any refunds with respect to) all Property Costs (as hereinafter defined) incurred at and after the Effective Date. Assignor shall be entitled to all production from or attributable to
Leases, Units and Wells prior to the Effective Date (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits earned with respect to the Assets
prior to the Effective Date, and shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred prior to the Effective Date. "Earned" and "incurred", as used in
this Agreement, shall be interpreted in accordance with generally accepted accounting principles and the Council of Petroleum Accountants Society (COPAS) standards. "Property Costs" means all
operating expenses (including without limitation costs of insurance and ad valorem, property, severance, production and similar Taxes based upon or measured by the ownership or operation of the Assets
or the production of Hydrocarbons therefrom, but excluding any other Taxes) and capital expenditures incurred in the ownership and operation of the Assets in the ordinary course of business and, where
applicable, in accordance with the relevant operating or unit agreement, if any, and overhead costs charged to the Assets under the relevant operating agreement or unit agreement, if any, except as
otherwise specifically provided herein with respect to liabilities, losses, costs, and expenses attributable to (i) claims, investigations, administrative proceedings or litigation directly or
indirectly arising out of or resulting from actual or claimed
personal injury or death, property damage or violation of any Law, (ii) obligations to plug wells, dismantle facilities, close pits and restore the surface around such wells, facilities and
pits, (iii) obligations to remediate any contamination of groundwater, surface water, soil or Equipment under applicable Environmental Laws, (iv) obligations to furnish
make-up gas according to the terms of applicable gas sales, gathering or transportation contracts, (v) gas balancing obligations and (vi) obligations to pay working
interests, royalties, overriding royalties or other interests held in suspense. For purposes of allocating production (and accounts receivable with respect thereto), under this Section 2.2,
(i) liquid hydrocarbons shall be deemed to be "from or attributable to" the Leases, Units and Wells when they pass through the pipeline connecting into the storage facilities into which they
are run and (ii) gaseous hydrocarbons shall be deemed to be "from or attributable to" the Leases, Units and Wells when they pass through the delivery point sales meters on the pipelines through
which they are transported. Taxes, right-of-way fees, insurance premiums and other Property Costs that are paid periodically shall be prorated based on the number of days in
the applicable period falling before and the number of days in the applicable period falling at or after the Effective Date, except that production, severance and similar Taxes shall be prorated based
on the number of units actually 

Page 5 of 32

 

produced, purchased or sold or proceeds of sale, as applicable, before, and at or after, the Effective Date. In each case, Assignee shall be responsible for the portion allocated to the period at and
after the Effective Date, limited to its proportionate share thereof, and Assignor shall be responsible for the portion allocated to the period before the Effective Date. 

ARTICLE III

Adjustments to Cash Consideration  

        The Cash Consideration for the Warren Assets shall be adjusted as follows with all such amounts being determined in accordance with generally accepted accounting
principles and COPAS standards: 

        (a)  Reduced
by the aggregate amount of the following proceeds received by Warren between the Effective Date and the Closing Date (with the period between the Effective Date
and the Closing Date referred to as the "Adjustment Period"): (i) fifty percent (50%) of the proceeds from the sale of Hydrocarbons (net of any royalties, overriding royalties or other burdens
on or payable out of production, gathering, processing and transportation costs and any production, severance, sales or excise Taxes not reimbursed to Warren by the purchaser of production) produced
from or attributable to the Properties during the Adjustment Period, and (ii) fifty percent (50%) of any other proceeds earned with respect to the Warren Assets during the Adjustment Period; 

        (b)  Reduced
in accordance with Section 5.4 (i) with respect to which preferential purchase rights have been exercised prior to Closing or (ii) that
cannot be transferred at Closing due to unwaived requirements for consent to the assignments contemplated hereby; 

        (c)  Reduced
as a result of Title Defects for which the Title Defect Amount has been determined prior to Closing by the Title Defect Amount; 

        (d)  Increased
by the amount of fifty percent (50%) of all Property Costs and other costs attributable to the ownership and operation of the Warren Assets which are paid by
Warren and incurred at or after the Effective Date; 

        (e)  Increased
by the amount of the purchase price paid by Warren (at actual cost) for additional oil and gas leases covering the Project Area since the Effective Date, as
reflected in the Preliminary Settlement Statement described in Section 9.2(g) hereof, provided that Warren shall promptly pay AEPC fifty percent (50%) of any such amounts subsequently refunded
to Warren, and 

        (f)    Increased
or decreased, as appropriate, pursuant to the provisions of Section 7.7. 

ARTICLE IV

Representations and Warranties  

        Assignor and Assignee as applicable, represent and warrant, such representations and warranties being material to this Agreement, that as of the Effective Date
and the Closing Date as those terms are hereinafter defined in this Agreement: 

        4.1    Existence and Qualification.    

        AEPC
is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware acting through its general partner Anadarko General Resources
LLC, a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified to do business as a foreign partnership where the
Assets are located. 

Page 6 of 32

 

        Warren
is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified to do business as a foreign corporation where
the Assets are located. 

        4.2    Power    

        Assignor
has the partnership and corporate power to enter into and perform this Agreement and consummate the transactions contemplated by this Agreement. 

        4.3    Authorization and Enforceability    

        The
execution, delivery and performance of this Agreement, and the performance of the transactions contemplated hereby, have been duly and validly authorized by all necessary partnership
and corporate action on the part of Assignor. This Agreement has been duly executed and delivered by Assignor (and all documents required hereunder to be executed and delivered by Assignor at Closing
will be duly executed and delivered by Assignor) and this Agreement constitutes, and at the Closing such documents will constitute, the valid and binding obligations of Assignor, enforceable in
accordance with their terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as to general
principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 

        4.4    No Conflicts    

        The
execution, delivery and performance of this Agreement by Assignor, and the transactions contemplated by this Agreement will not (i) violate any provision of the certificate of
incorporation, limited liability company documents, limited partnership documents or bylaws of Assignor, (ii) result in default (with due notice or lapse of time or both) or the creation of any
lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license or agreement
to which Assignor is a party or which affect the Assets, (iii) violate any judgment, order, ruling, or decree applicable to Assignor as a party in interest, (iv) violate any Laws
applicable to Assignor or any of the Assets, except for (a) rights to consent by, required notices to, and filings with or other actions by Governmental Bodies where the same are not required
prior to the assignment of oil and gas interests, require any filing with, notification of or consent, approval or authorization of any Governmental Body except any matters described in clauses (ii),
(iii) or (iv) or above which would not have a Material Adverse Effect. 

        4.5    Liability for Brokers' Fees    

        Assignee
shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Assignor, for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby. 

        4.6    Litigation    

        Except
as set forth in Schedule 4.6, (a) no investigation, proceeding, action, suit, or other legal proceeding of any kind or nature before any Governmental Body or
arbitrator (including any take-or-pay claims) is pending or, to Assignor's knowledge, threatened with respect to the Assets, or Assignor (with respect to any of the Assets), or
either of them, or with respect to the ownership, operation, development, maintenance, or use of any thereof, and (b) no notice in writing from any Governmental Body or any other Person has
been received by Assignor claiming any violation of or noncompliance with any Law with respect to the Assets (including any such Law concerning the conservation of natural resources). 

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        4.7    Taxes and Assessments    

        With
respect to all Taxes related to the Assets, Assignor warrants and represents (a) all reports, returns, statements (including estimated reports, returns or statements), and
other similar filings (the "Tax Returns") relating to the Assets required to be filed on or before the Closing Date by Assignor with respect to any Taxes have been or will be timely filed with the
appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed; and (b) such Tax Returns are true and correct in all material respects, and all Taxes
reported on such Tax Returns have been paid. 

        With
respect to all Taxes related to the Assets, Assignor further warrants and represents (a) there is not currently in effect any extension or waiver of any statute of
limitations of any jurisdiction regarding the assessment or collection of any Tax; (b) there are no administrative proceedings or lawsuits pending against the Assets or Assignor by any taxing
authority; and (c) there are no Tax liens on any of the Assets except for liens for Taxes not yet due. 

        4.8    Outstanding Capital Commitments    

        There
are no outstanding AFEs or other commitments to make capital expenditures which are binding on the Assets and which Assignor reasonably anticipates will individually require
expenditures by the owner of the Assets after the Effective Date other than those shown on Schedule 4.8 attached hereto. 

        4.9    Compliance with Laws    

        Except
as disclosed on Schedule 4.9, the Assets and the Sun Dog Wells are, and Assignor's operation of the Assets and the Sun Dog Wells has been and currently is, in substantial
compliance with the provisions and requirements of all Laws of all Governmental Bodies having jurisdiction with respect to the Assets and the Sun Dog Wells, or the ownership, operation, development,
maintenance, or use of any thereof. 

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        4.10    Contracts    

        Assignor
has paid its share of all costs (including without limitation Property Costs) payable by it under the Leases and Contracts, except those being contested in good faith. Assignor
is not in default under any Contract except such defaults as would not, individually or in the aggregate, have a Material Adverse Effect. Schedule 4.10 sets forth all of the following
contracts, agreements, and commitments (excluding Leases and Surface Contracts and other Contracts that are of record) to which any of the Assets will be bound as of the Closing: (i) any
agreement with any Affiliate; (ii) any agreement or contract for the sale, exchange, or other disposition of Hydrocarbons produced from or attributable to Assignor's interest in the Assets that
is not cancelable without penalty or other material payment on not more than 30 days prior written notice; (iii) any agreement of or binding upon Assignor to sell, lease, farmout, or
otherwise dispose of any interest in any of the Assets after the date hereof, other than conventional rights of reassignment arising in connection with Assignor's surrender or release of any of the
Assets; and (iv) any tax partnership agreement of or binding upon Assignor affecting any of the Assets. 

        4.11    Payments for Production    

        All
rentals, royalties, excess royalty, overriding royalty interests, production payments, and other payments due and/or payable by Assignor to mineral and royalty holders and other
interest owners on or prior to the Closing Date with respect to the Assets and the Hydrocarbons produced therefrom or attributable thereto, have been or will be properly and timely paid in the
ordinary course of business, and Assignor is not obligated under any contract or agreement for the sale of gas from the Assets containing a take-or-pay, advance payment,
prepayment, or similar provision, or under any gathering, transmission, or any other contract or agreement with respect to any of the Assets to gather, deliver, process, or transport any gas without
then or thereafter receiving full payment therefor. 

        4.12    Gas Imbalances    

        No
Person is entitled to receive any portion of the Assignor's Hydrocarbons produced from the Assets or to receive cash or other payments to "balance" any disproportionate allocation of
Hydrocarbons produced from the Assets under any operating agreement, gas balancing or storage agreement, gas processing or dehydration agreement, gas transportation agreement, gas purchase agreement,
or other agreements, whether similar or dissimilar. Assignor is not obligated to deliver any quantities of gas or
to pay any penalties or other amounts, in connection with the violation of any of the terms of any gas contract or other agreement with shippers with respect to the Assets. Assignor is not obligated
to pay any penalties or other payments under any gas transportation or other agreement as a result of the delivery of quantities of gas from the Wells in excess of the contract requirements. 

        4.13    Governmental Authorizations    

        Assignor
has obtained and is maintaining all federal, state and local governmental licenses, permits, franchises, orders, exemptions, variances, waivers, authorizations, certificates,
consents, rights, privileges and applications therefor (the "Governmental Authorizations") that are presently necessary or required for the ownership and operation of the Assets (including the Sun Dog
Wells) as currently owned and operated (including, but not limited to, those required under Environmental Laws), the loss of which would, individually or in the aggregate, have a Material Adverse
Effect. Except as would not, individually or in the aggregate, have a Material Adverse Effect, (i) Assignor has operated the Assets in accordance with the conditions and provisions of such
Governmental Authorizations, and (ii) no notices of violation have been received by Assignor, and no proceedings are pending or, to Assignor's knowledge, threatened in writing that might result
in any modification, revocation, termination or suspension of any such Governmental Authorizations or which would require any corrective or remediation action by Assignor. 

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        4.14    Consents and Preferential Purchase Rights    

        None
of the Assets, or any portion thereof, is subject to any preferential rights to purchase or restrictions on assignment or required third-party consents to assignment, which may be
applicable to the transactions contemplated by this Agreement, except for (i) governmental consents and approvals of assignments that are customarily obtained after Closing,
(ii) preferential rights, consents and restrictions contained in easements, rights-of-way or equipment leases and (iii) preferential rights, consents and
restrictions as are set forth on Schedule 4.14. 

        4.15    Equipment    

        To
the best of Assignor's knowledge, the Equipment currently in use or necessary for the current production or operation of the Assets is in good working order, ordinary wear and tear
excepted, and has been constructed and maintained in accordance with standard oilfield operating practices. All Equipment is located on the Assets and, except as otherwise indicated under the heading
"Leased Equipment" on Exhibit D attached hereto, Assignor owns such Equipment. Subject to the foregoing, Assignee's acquisition of Assignor's interest in and to the Equipment is on a
"WHERE IS, AS IS BASIS" and Assignor MAKES NO WARRANTY, EXPRESS OR IMPLIED, CONCERNING THE
PHYSICAL CONDITION OF THE ASSETS OR EQUIPMENT LOCATED THEREON, QUALITY, VALUE, FITNESS FOR PURPOSE, MERCHANTABILITY OR OTHERWISE. 

        4.16    Payout Balances    

        On
or before ninety (90) days after the Closing, the Parties shall mutually determine and agree upon the status of any "payout" balance, as of the Effective Date, for the Wells
and Units subject to a reversion or other adjustment at some level of cost recovery or payout (or passage of time or other event other than termination of a Lease by its terms). 

        4.17    Condemnation    

        To
Assignor's knowledge, there is no actual or threatened taking (whether permanent, temporary, whole or partial) of any part of the Properties by reason of condemnation or the threat of
condemnation. 

        4.18    Bankruptcy    

        There
are no bankruptcy, reorganization, or similar proceedings pending, being contemplated by or, to Assignor's knowledge, threatened against Assignor or any Affiliate. 

        4.19    PUHCA/NGA    

        Assignor
is not (a) a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company," or an "affiliate" of a "subsidiary" of a
"holding company," or a "public-utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (b) subject in any respect to the provisions of said act.
No consent is required in connection with the transaction contemplated hereby under the Natural Gas Policy Act of 1978, as amended. Assignor is not an interstate pipeline company within the meaning of
the Natural Gas Act of 1938. 

        4.20    Investment Company    

        Assignor
is not (a) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended or
(b) subject in any respect to the provisions of said act. 

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        4.21    Plugging Status    

        Except
as set forth on Schedule 4.21, all Wells have been plugged and abandoned in accordance with all Laws. 

ARTICLE V

Title Matters  

        5.1    Assignor's Title    

        (a)  Assignor
represents and warrants to Assignee that Assignor's title to the interests shown on Exhibits A, B and B-1 as of the Effective Time is Defensible
Title as defined in Section 5.2. 

        (b)  The
conveyance to be delivered by AEPC as Assignor shall be substantially in the form of Exhibit F-1 hereto and the conveyance to be delivered by
Warren as Assignor shall be substantially in the form of Exhibit F-2 hereto (the "Conveyances") and contain the lesser of (i) a special warranty of title by, through and
under Assignor to the Leases, subject to the Permitted Encumbrances, or (ii) the applicable warranty, if any, given or made by Assignor's predecessors, subject to the Permitted Encumbrances,
but shall otherwise be without warranty of title, express, implied or statutory except that such Conveyances shall transfer to Assignee all rights or actions on title warranties given or made by
Assignor's predecessors to the extent Assignor may legally transfer such rights. 

        5.2    Definitions    

        For
this Article V the following definitions shall apply: 

        (a)  "Defensible
Title" shall mean, as to the title of the Assets, that, except for and subject to the Permitted Encumbrances (as defined herein), is deducible from the
records in the county clerk and recorder's office where the records are located and deducible from the records of the applicable Bureau of Land Management Office ("BLM"), state land office ("State")
or Tribal Agency Office ("Tribe"), as appropriate, and: (i) entitles Assignor to receive not less than the "Net Revenue Interest" set forth in Exhibits A, B and B-1 for each
interest at all times for the life of the particular interest; (ii) obligates Assignor to bear costs and expenses relating to the maintenance, development, operation and production of
Hydrocarbons from the interest in an amount not greater than the "Working Interest" set forth in Exhibits A, B and B-1 for the life of the particular interest; and (iii) is free and
clear of liens, encumbrances, obligations, security interests, irregularities, pledges and other reasonable defects; subject to certain changes in the Working Interest and Net Revenue Interest that
may occur depending on the status of payout. The Before Payout interest and After Payout interest are set forth on Exhibits A-1 and B-1. 

        (b)  The
term "Permitted Encumbrances," as used herein, shall mean any or all of the following: 

        (i)    Lessors'
royalties and any overriding royalties, reversionary interests and other burdens to the extent that they do not, individually or in the aggregate, impair
Assignor's rights to receive proceeds of production from the affected Assets, reduce Assignor's Net Revenue Interests below that shown in Exhibits A, B and B-1 or increase Assignor's
Working Interest above that shown in Exhibits A, B and B-1 without a corresponding increase in the Net Revenue Interest; 

        (ii)    All
leases, unit agreements, pooling agreements, operating agreements, and division orders applicable to the Assets, to the extent that they do not, individually or in
the aggregate, reduce Assignor's Net Revenue Interests below that shown in Exhibits A, B and B-1 or increase Assignor's Working Interest above that shown in Exhibits A, B and
B-1 without a corresponding increase in the Net Revenue Interest; 

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        (iii)    Preferential
rights to purchase the Assets with respect to which waivers are obtained by Assignor from the appropriate parties prior to the Closing Date or the
appropriate time period for asserting the right has expired; 

        (iv)    Third-party
consent requirements and similar restrictions with respect to which waivers or consents are obtained by Assignor from the appropriate parties prior to the
Closing Date or the appropriate time period for asserting the right has expired or which need not be satisfied prior to a transfer; 

        (v)    Liens
for current taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions; 

        (vi)    Materialman's,
mechanic's, repairman's, employee's, contractor's, operator's and other similar liens or charges arising in the ordinary course of business for amounts
not yet delinquent (including any amounts being withheld as provided by law), or if delinquent, being contested in good faith by appropriate actions; 

        (vii)    All
rights to consents by, required notices to, filings with, or other actions by any Governmental Body in connection with the sale or conveyance of oil and gas leases
or interests therein if they are not required prior to the sale or conveyance; 

        (viii)    Easements,
rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations to the extent that they do
not, individually or in the aggregate, impair Assignor's right to receive proceeds of production from the affected Assets, reduce Assignor's Net Revenue Interests below that shown in Exhibits A, B and
B-1 or increase Assignor's Working Interest above that shown in Exhibits A, B and B-1 without a corresponding increase in the Net Revenue Interest; and 

        (ix)    Validity
of federal leases or beneficial interests in federal leases or non-issuance of federal leases covering lands on which a party has been successful
bidder at a federal lease sale due to BLM's failure to comply with NEPA requirements prior to offering same for sale. 

        (c)  The
term "Title Defect" as used herein shall mean any lien, charge, encumbrance, obligation (including contract obligation), encroachment, irregularity, defect in, other
matter (including without limitation a discrepancy in Net Revenue Interest or Working Interest) or objection to Assignor's title to the Assets (expressly excluding Permitted Encumbrances), that alone
or in combination with other Title Defects renders Assignor's title to the Assets less than Defensible Title. 

        5.3    Title Notice and Defect Remedies    

        (a)  To
assert a claim arising out of a breach of Section 5.1, Assignee must deliver claim notices to Assignor (each a "Title Defect Notice") on or before three
(3) Business Days prior to the Closing Date (the "Title Claim Date"), except as otherwise provided under Sections 5.4 or 5.5. Each Title Defect Notice shall be in writing and shall include
(i) a description of the alleged Title Defect(s), (ii) the interest affected by the Title Defect (each a "Title Defect Property"), and (iii) supporting documents reasonably
necessary for Assignor (as well as any title attorney or examiner hired by Assignor) to verify
the existence of the alleged Title Defect(s). Warren acknowledges receipt of the Title Defect Notice from AEPC on or before three (3) days prior to the Closing Date in accordance with this
Section 5.3(a). 

        (b)  Assignor
shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove at any time within seventy-five (75) days after
the Closing (the "Cure Period"), unless the parties otherwise extend such period by mutual agreement, any Title Defects of which it has been advised by Assignee. 

Page 12 of 32

 

        (c)  Remedies
for Title Defects.

        (i)    In
the event that any Title Defect with respect to the Warren Assets is not waived by AEPC or cured on or before expiration of the Cure Period, Warren shall, at its sole
election, elect to: 

        (A)  retain
the Property that is subject to such Title Defect and substitute therefor other properties of like value located within the boundaries of the Sun Dog Unit but
outside the area covered by the Joint Exploration Agreement and agreed upon by Warren and AEPC; provided, however, if Warren owns no other acreage within the Sun Dog Unit, the properties of a like
value located adjacent to the area covered by the Joint Exploration Agreement may be substituted therefor; or 

        (B)  reduce
the Cash Consideration by an amount agreed upon ("Title Defect Amount") pursuant to Section 5.3(d) or 5.3(e) by Warren and AEPC as being the value of such
Title Defect, taking into consideration the value of the Property subject to the Title Defect, the portion of the Property subject to such Title Defect and the legal effect of such Title Defect on the
Property affected thereby. 

In
the event that Warren elects to proceed under Section 5.3(c)(i)(A) and Warren and AEPC have failed to agree before the expiration of the Cure Period on the property to be substituted for the
affected Property (which agreement Warren and AEPC shall use good faith efforts to reach), Warren shall then proceed with respect to such Title Defect under Section 5.3(c)(i)(B). 

        (ii)  In
the event that any Title Defect with respect to the AEPC Assets is not waived by Warren or cured on or before the expiration of the Cure Period, AEPC shall retain
the Property that is subject to
such Title Defect and substitute therefor other properties of like value agreed upon by AEPC and Warren (which agreement Warren and AEPC shall use good faith efforts to reach). 

        (d)  The
Title Defect Amount resulting from a Title Defect shall be determined as follows: 

        (i)    if
Warren and AEPC mutually agree on the Title Defect Amount (which they both shall be obligated to attempt to do in good faith), then that amount shall be the Title
Defect Amount; 

        (ii)  if
the Title Defect is a lien, encumbrance or other charge which is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to
be paid to remove the Title Defect from the Title Defect Property; 

        (iii)  if
the Title Defect represents a discrepancy between (A) the Net Revenue Interest for any Title Defect Property and (B) the Net Revenue Interest or
percentage stated on Exhibits B or B-1 then the Title Defect Amount shall be the product of the value of such Title Defect Property multiplied by a fraction, the numerator of which is the
Net Revenue Interest or percentage ownership decrease and the denominator of which is the Net Revenue Interest or percentage ownership stated on Exhibit B or B-1; and 

        (iv)  if
the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in
subsections (i), (ii) or (iii) above, the Title Defect Amount shall be determined by taking into account the value of the Title Defect Property, the portion of the Title Defect Property
affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the values placed upon the Title
Defect by Warren and AEPC and such other factors as are necessary to make a proper evaluation. 

        (e)  Warren
and AEPC shall attempt to agree on all Title Defect Amounts prior to the expiration of the Cure Period. If Warren and AEPC are unable to agree by the expiration
of the Cure Period, the 

Page 13 of 32

 

Title Defect Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 5.3(e). There shall be a single arbitrator, who shall be a title attorney with
at least 10 years' experience in oil and gas titles in the State of Wyoming as selected by mutual agreement of Warren and AEPC within 15 days after the end of the Cure Period and absent
such agreement, by the Houston
office of the American Arbitration Association (the "Title Arbitrator"). The arbitration proceeding shall be held in Houston, Texas and shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association; to the extent such rules do not conflict with the terms of this Section. The Title Arbitrator's determination shall be made within 20 days after
submission of the matters in dispute and shall be final and binding upon both parties, without right of appeal. In making his determination, the Title Arbitrator shall be bound by the rules set forth
in Section 5.3(d) and may consider such other matters as in the opinion of the Title Arbitrator are necessary or helpful to make a proper determination. Additionally, the Title Arbitrator may
consult with and engage disinterested third parties to advise the arbitrator, including without limitation petroleum engineers. The Title Arbitrator shall act as an expert for the limited purpose of
determining the specific disputed Title Defect Amounts submitted by either party and may not award damages, interest or penalties to either party with respect to any matter. Warren and AEPC shall each
bear its own legal fees and other costs of presenting its case. Each party shall bear one-half of the costs and expenses of the Title Arbitrator. 

        5.4    Consents to Assignment and Preferential Rights to Purchase    

        Assignor
shall promptly prepare and send (i) notices to the holders of any required consents to assignment of any Assets requesting such consents and (ii) notices to the
holders of any applicable preferential rights to purchase any Asset requesting waivers of such preferential rights to purchase. The consideration payable under this Agreement for any particular Assets
for purposes of preferential purchase right notices for such Assets shall be agreed to by Assignor and Assignee prior to sending such notices. Assignor shall use commercially reasonable efforts to
cause such consents and waivers of preferential rights to purchase (or the exercise thereof) to be obtained and delivered prior to Closing. 

        (a)  Assignor
shall notify Assignee at least three (3) Business Days prior to Closing of all required third-party consents to the assignment of the Assets to Assignee
which have not been obtained and the Assets to which they pertain. In no event shall there be included in the conveyances at Closing any Asset subject to a consent requirement that provides that
transfer of the Asset without consent will result in a termination or other material impairment of any rights in relation to such Asset. In cases where the Asset subject to such a requirement is a
Contract and Assignee is assigned the Properties to which the Contract relates, but the Contract is not transferred to Assignee due to the unwaived consent requirement, Assignor shall continue after
Closing to use commercially reasonable efforts to obtain such consent so that such Contract can be transferred to Assignee upon receipt of such consent. In cases where the Asset subject to such a
requirement is a Property and the third-party consent to the sale and transfer of the Property is not obtained prior to the expiration of the Cure Period, Assignee may elect to treat the unsatisfied
consent requirement as a Title Defect by giving Assignor notice thereof in accordance with Section 5.3(a), except that such notice must be given at least one (1) Business Day prior to
the expiration of the Cure Period. If an unsatisfied consent requirement with respect to which a Cash Consideration adjustment is made under Section 5.3 is subsequently satisfied prior to the
date of the final adjustment to the Cash Consideration under Article X, Assignor shall be paid the amount of the previous reduction in the Cash Consideration and the provisions of this
Section 5.4 shall no longer apply. 

        (b)  If
any preferential rights to purchase any Properties are exercised prior to the expiration of the Cure Period, those Properties transferred to a third party as a result
of the exercise of such preferential rights shall be treated as if subject to a Title Defect resulting in the complete loss of 

Page 14 of 32

 

title and the Cash Consideration shall be reduced under Article III by the value for such Property. Assignor shall retain the consideration paid by the third party. 

        5.5    Casualty or Condemnation Loss    

        If,
after the date of this Agreement but prior to the Closing Date, any portion of the Assets is destroyed by fire or other casualty or is taken in condemnation or under right of eminent
domain, Assignor shall immediately notify Assignee. Assignee shall have the option to either proceed with closing or treat the loss as a Title Defect and proceed in accordance with
Section 5.3(c). Should Assignee elect to proceed with Closing, Assignor shall, at Closing, pay to Assignee all sums paid to Assignor by third parties by reason of such casualty or taking and
shall assign, transfer and set over to Assignee or subrogate Assignee to all of Assignor's right, title and interest (if any) in insurance claims, unpaid awards, and other rights against third parties
(other than Affiliates of Assignor and its and their directors, officers, employees and agents) arising out of the casualty or taking. 

ARTICLE VI

Assumptions and Indemnities  

        6.1    Disposal, Well Plugging, Lease Abandonment and Indemnity    

        (a)  Assignor will remain liable for the assessment, remediation, removal, transportation, and disposal of wastes, asbestos, hazardous substances and
naturally occurring radioactive material ("NORM") from the Assets in existence on or as of the Closing Date. As of the Closing Date, Assignor and Assignee will be liable commensurate with the
interests owned by Assignor and Assignee in the AEPC Assets and Warren Assets for the assessment, remediation, removal, transportation, and disposal of wastes, asbestos, hazardous substances and NORM
from the Assets and associated activities occurring after the Closing Date.

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        (b)  Subject to Section 6.3 below, as of the Closing Date, Assignee shall assume liability for and agrees to comply with all laws and governmental regulations with
respect to abandonment of wells and/or abandonment of the Assets limited to the interests conveyed at Closing including, where applicable, the plugging of wells, the compliance with laws or rules
regarding inactive or unplugged wells, including bonding requirements, and restoration as specified in the Leases. 

        (c)  EXCEPT AS OTHERWISE PROVIDED IN SECTION 6.2, ASSIGNEE AGREES TO RELEASE, PROTECT, DEFEND, INDEMNIFY AND HOLD ASSIGNOR, ITS PARENT CORPORATION,
SUBSIDIARIES AND AFFILIATES AND ALL OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, SUCCESSORS AND ASSIGNS FREE AND HARMLESS FROM AND AGAINST ANY AND ALL COSTS, EXPENSES, CLAIMS, DEMANDS,
AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER ARISING OUT OF, INCIDENT TO, OR IN CONNECTION WITH THE ABANDONMENT OF WELLS AND/OR ABANDONMENT OF AND PROPER DISPOSITION OF ANY ASSETS ON OR AFTER THE
CLOSING DATE, LIMITED TO THE INTERESTS CONVEYED AT CLOSING, INCLUDING, WITHOUT LIMITATION, THE LEASES, PLATFORMS, STRUCTURES, PIPELINES, MATERIALS, LAND, WELLS, CASING, EQUIPMENT, AND OTHER PERSONAL
PROPERTY, PLUGGING REQUIREMENTS OR EXCEPTIONS THERETO, INCLUDING BONDING REQUIREMENTS, REGARDLESS OF WHETHER THE LIABILITY THEREFOR IS BASED IN WHOLE OR IN PART UPON SOME ALLEGED ACT, NEGLIGENCE OR
OMISSION OF ASSIGNOR, OR OF THE ASSIGNEE, OR OF SOME OTHER PARTY.

        6.2    Environmental Indemnification.    

        Notwithstanding
Section 6.3, ASSIGNOR HEREBY AGREES TO RELEASE, PROTECT, INDEMNIFY AND DEFEND ASSIGNEE, ITS PARENT CORPORATION, SUBSIDIARIES AND AFFILIATES
AND ALL OF THEIR DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS HARMLESS FROM AND AGAINST ALL CLAIMS, DAMAGES, COSTS, DEMANDS, CAUSES OF ACTION, FINES, PENALTIES, AND LOSSES ("CLAIMS") (INCLUDING
REASONABLE ATTORNEY'S FEES), LIMITED TO THE INTERESTS CONVEYED AT CLOSING, BROUGHT BY ANY PERSONS, INCLUDING, WITHOUT LIMITATION, ASSIGNEE'S AND ASSIGNOR'S, AND EITHER'S AFFILIATES', EMPLOYEES,
AGENTS, OR REPRESENTATIVES AND ANY PRIVATE CITIZENS, PERSONS, ORGANIZATIONS, AND ANY AGENCY, BRANCH OR REPRESENTATIVE OF FEDERAL, STATE OR LOCAL GOVERNMENT, ON ACCOUNT OF ANY PERSONAL INJURY OR DEATH
OR DAMAGE, DESTRUCTION, OR LOSS OF PROPERTY, CONTAMINATION OF NATURAL RESOURCES (INCLUDING WITHOUT LIMITATION, SOIL, AIR, SURFACE WATER OR GROUND WATER) RESULTING FROM OR ARISING OUT OF ANY LIABILITY
OR OBLIGATION, ON OR BEFORE THE CLOSING DATE, CAUSED BY OR CONNECTED WITH ENVIRONMENTAL
CONDITIONS, WHETHER OR NOT ATTRIBUTABLE TO ASSIGNOR'S ACTIVITIES OR THE ACTIVITIES OF ASSIGNOR'S OFFICERS, EMPLOYEES, OR AGENTS OR TO THE ACTIVITIES OF THIRD PARTIES, AND REGARDLESS OF WHETHER OR NOT
ASSIGNOR WAS OR IS AWARE OF SUCH ACTIVITIES AND REGARDLESS OF WHETHER THE MATERIAL OR SUBSTANCE NOW EXISTS OR IS PRESENT ON THE ASSETS AND THE SUN DOG WELLS, OR HAS BEEN RELEASED, DISCHARGED, OR
DISPOSED FROM THE ASSETS AND THE SUN DOG WELLS PRIOR TO ASSIGNMENT TO ASSIGNEE. THIS INDEMNIFICATION SHALL APPLY TO LIABILITY FOR VOLUNTARY ENVIRONMENTAL RESPONSE ACTIONS UNDERTAKEN PURSUANT EITHER TO
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT ("CERCLA"), AS SUCH MAY BE AMENDED FROM TIME TO TIME, OR TO ANY OTHER FEDERAL, STATE OR LOCAL LAW OR
REGULATION.

Page 16 of 32

 

        6.3    General Indemnification (Non-Environmental).    

        (a)    AEPC Indemnity.    

        EXCEPT AS PROVIDED IN SECTION 6.2 HEREIN, AEPC SHALL RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND, WARREN, ITS PARENT CORPORATION, SUBSIDIARIES AND AFFILIATES AND
ALL OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, SUCCESSORS AND ASSIGNS FROM AND AGAINST ALL CLAIMS (INCLUDING REASONABLE ATTORNEY'S FEES), WHICH ARE ASSERTED AT ANY TIME AGAINST WARREN,
AND WHICH ARISE OUT OF, ARE RELATED TO, OR ARE IN ANY MANNER CONNECTED WITH: (i) THE OPERATION OR OWNERSHIP OF THE AEPC ASSETS, OR ANY PORTION THEREOF, PRIOR TO THE CLOSING DATE;
(ii) THE OPERATION OR OWNERSHIP OF THE INTERESTS IN THE WARREN ASSETS CONVEYED TO AEPC AT CLOSING, OR ANY PORTION THEREOF, ON OR AFTER THE CLOSING DATE; OR (iii) THE BREACH BY AEPC OF
ANY OF ITS OBLIGATIONS, COVENANTS, REPRESENTATIONS OR WARRANTIES HEREUNDER, SUBJECT TO SECTION 12.2, WHETHER OR NOT CAUSED BY THE SOLE, JOINT AND/OR CONCURRENT NEGLIGENCE OF WARREN AND/OR CLAIM OF
STRICT LIABILITY OR ANY CAUSE WHATSOEVER. NOTWITHSTANDING THE FOREGOING, THE INDEMNIFICATION CONTAINED WITHIN THIS SECTION 6.3(a) DOES NOT SUPERCEDE ANY ALLOCATION OF LIABILITIES CONTAINED IN ANY
OPERATING AGREEMENT IN EFFECT BETWEEN THE PARTIES PURSUANT TO THE TERMS OF THE JOINT EXPLORATION AGREEMENT. IN NO EVENT SHALL AEPC BE LIABLE FOR OR BE OBLIGATED TO INDEMNIFY WARREN AGAINST EXEMPLARY,
PUNITIVE, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES.

        (b)    Warren Indemnity.    

        EXCEPT AS PROVIDED IN SECTION 6.2 HEREIN, WARREN SHALL RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND AEPC, ITS PARENT CORPORATION, SUBSIDIARIES AND
AFFILIATES AND ALL OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, SUCCESSORS AND ASSIGNS FROM AND AGAINST ALL CLAIMS (INCLUDING REASONABLE ATTORNEY'S FEES), WHICH ARE ASSERTED AT ANY TIME
AGAINST AEPC, AND WHICH ARISE OUT OF, ARE RELATED TO, OR ARE IN ANY MANNER CONNECTED WITH: (i) THE OPERATION OR OWNERSHIP OF THE WARREN ASSETS AND THE SUN DOG WELLS, OR ANY PORTION THEREOF,
PRIOR TO THE CLOSING DATE; (ii) THE OPERATION OR OWNERSHIP OF THE INTERESTS IN THE AEPC ASSETS CONVEYED TO WARREN AT CLOSING, OR ANY PORTION THEREOF, ON OR AFTER THE EFFECTIVE DATE; OR
(iii) THE BREACH BY WARREN OF ANY OF ITS OBLIGATIONS, COVENANTS, REPRESENTATIONS OR WARRANTIES HEREUNDER, SUBJECT TO SECTION 12.2, WHETHER OR NOT CAUSED BY THE SOLE, JOINT AND/OR
CONCURRENT NEGLIGENCE OF AEPC AND/OR CLAIM OF STRICT LIABILITY OR ANY CAUSE WHATSOEVER. NOTWITHSTANDING THE FOREGOING, THE INDEMNIFICATION CONTAINED WITHIN THIS SECTION 6.3(a) DOES NOT SUPERCEDE ANY
ALLOCATION OF LIABILITIES CONTAINED IN ANY OPERATING AGREEMENT IN EFFECT BETWEEN THE PARTIES PURSUANT TO THE TERMS OF THE JOINT EXPLORATION AGREEMENT. IN NO EVENT SHALL WARREN BE LIABLE FOR OR BE
OBLIGATED TO INDEMNIFY AEPC AGAINST EXEMPLARY, PUNITIVE, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES.

Page 17 of 32

 

ARTICLE VII

Covenants of the Parties  

        7.1    Access    

        (a)  Between
the date of execution of this Agreement and continuing until the Closing Date, Assignor will give Assignee and its representatives access to the Assets and
access to and the right to copy, at Assignee's expense, the Records in Assignor's possession, for the purpose of conducting an investigation of the Assets, but only to the extent that Assignor may do
so without violating any obligations to any third party. Such access by Assignee shall be limited to Assignor's normal business hours, and any weekends and after hours requested by Assignee that can
be reasonably accommodated by Assignor, and Assignee's investigation shall be conducted in a manner that minimizes interference with the operation of the Assets. All information obtained by the
parties and their representatives under this Agreement or the Letter of Intent dated October 30, 2002, between the Parties shall be deemed to be subject to the confidentiality provisions set
forth in Paragraph 12.9 of the Joint Exploration Agreement. 

        (b)  ASSIGNEE
ACKNOWLEDGES THAT EXCEPT TO THE EXTENT CONTAINED IN AN EXPRESS REPRESENTATION IN THIS AGREEMENT, THE CERTIFICATE OF ASSIGNOR TO BE DELIVERED PURSUANT TO SECTION
9.2(e) OR THE CONVEYANCES, ASSIGNOR HAS MADE NO REPRESENTATIONS OR WARRANTIES, WHETHER ORAL OR WRITTEN, AND
ASSIGNOR DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF INFORMATION OBTAINED BY ASSIGNEE UNDER THIS SECTION, OR AS TO ASSIGNOR'S TITLE TO THE ASSETS, AND IN
ENTERING INTO AND PERFORMING THIS AGREEMENT, ASSIGNEE HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS, THEIR VALUE AND ASSIGNOR'S TITLE
THERETO AND UPON THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, THE CERTIFICATE OF ASSIGNOR TO BE DELIVERED PURSUANT TO SECTION 9.2(e) OR THE CONVEYANCES. 

        7.2    Letters-in-Lieu; Assignments; Operatorship    

        (a)  Assignor
will execute on the Closing Date letters in lieu of division and transfer orders relating to the Assets on forms prepared by Assignee and reasonably
satisfactory to Assignor to reflect the transaction contemplated hereby. 

        (b)  Assignor
will prepare and Assignor and Assignee will execute on the Closing Date all assignments necessary to convey to Assignee all federal or state leases in the form
as prescribed by the applicable Governmental Body and otherwise acceptable to Assignee and Assignor. 

        (c)  Assignor
will assist Assignee in its efforts to succeed Assignor as operator of any Wells included in the Assets and the Sun Dog Wells. Assignee shall promptly,
following Closing, file all appropriate forms, pit permit transfers and declarations or bonds with federal and state agencies relative to its assumption of operatorship. Assignor shall execute and
deliver to Assignee and Assignee shall promptly file all regulatory and administrative forms transferring operatorship of such Assets and the Sun Dog Wells to Assignee. 

        7.3    Public Announcements    

        Until
the Closing, neither party shall make any press release or other public announcement regarding the existence of this Agreement, the contents hereof or the transactions contemplated
hereby without the prior written consent of the other; provided, however, the foregoing shall not restrict disclosures by Assignor or Assignee which are required by applicable securities or other laws
or 

Page 18 of 32

 

regulations or the applicable rules of any stock exchange having jurisdiction over the disclosing party or its Affiliates. 

        7.4    Operation of Business    

        Until
the Closing, Assignor (i) will operate its business in the ordinary course, (ii) will not, without the prior written consent of Assignee, which consent shall not be
unreasonably withheld, commit to any operation, or series of related operations, reasonably anticipated by Assignor to require future capital expenditures by the owner of the Assets in excess of
$10,000.00, or make any capital expenditures in excess of $10,000.00, or terminate, materially amend, execute or extend any material agreements affecting the Assets, (iii) will maintain
insurance coverage on the Assets presently furnished by nonaffiliated third parties in the amounts and of the types presently in force, (iv) will use commercially reasonable efforts to maintain
in full force and effect all Leases, (v) will maintain all material governmental permits and approvals affecting the Assets, (vi) will not transfer, farmout, sell, hypothecate, encumber
or otherwise dispose of any material Assets except for sales and dispositions of oil and gas production made in the ordinary course of business consistent with past practices and (vii) will not
commit to do any of the foregoing. In the event of an emergency, Assignor may take such action as a prudent operator would take and shall notify Assignee of such action promptly thereafter. 

        7.5    Indemnity Regarding Access    

        Assignee
agrees to indemnify, defend and hold harmless Assignor and all such Persons' directors, officers, employees, agents and representatives from and against any and all claims,
liabilities, losses, costs and expenses (including court costs and reasonable attorneys' fees), including claims, liabilities, losses, costs and expenses attributable to personal injuries, death, or
property damage, arising out of or relating to access to the Assets by the Assignee, the Records and other related activities or information prior to the Closing by Assignee, its Affiliates, or its or
their directors, officers, employees, agents or representatives. 

        7.6    Consents and Preferential Rights    

        Should
a third party fail to exercise its preferential right to purchase as to any portion of the Assets prior to Closing and the time for exercise or waiver has not yet expired, subject
to the remaining provisions of this Section 7.6, such Assets shall be included in the transaction at Closing and the following procedures shall be applicable: 

        (a)  The
Conveyance from Assignor to Assignee of the Assets affected by such preferential rights shall be delivered into a mutually agreeable escrow together with the value
of the affected Assets. Assignee shall take beneficial possession of the affected Assets and be entitled to all production, income, proceeds, receipts and credits to which Assignee would be entitled
hereunder, and shall indemnify Assignor against any matters for which Assignee would be liable hereunder with respect to the affected Assets. Title to the affected Assets shall not transfer, and the
Conveyance shall not be released from escrow, until such preferential right to purchase has been waived or has expired. 

        (b)  Assignor
shall, at its sole expense, continue to use commercially reasonable efforts to obtain the waiver of the preferential rights and shall continue to be responsible
for the compliance therewith. 

        (c)  Should
the holder of the preferential right exercise same, Assignee and Assignor agree to cause the affected Assets to be transferred to such holder on the terms and
provisions set out herein and in the applicable preferential right provision, and Assignor shall pay the value for such Asset (adjusted as set out in Article III) to Assignee. In such event,
Assignor shall be entitled to retain the consideration paid by the third party. 

Page 19 of 32

 

        (d)  If
the restriction is waived or removed or if the time limit otherwise set forth relating to the preferential right expires, Assignor and Assignee shall take all action
necessary to ensure that the affected Assets are promptly conveyed out of escrow to Assignee. 

        (e)  Once
the provisions of subparagraph (d) above are satisfied and all obligations in connection therewith have been fulfilled, the Closing shall be deemed to have
occurred for all purposes hereunder with respect to the affected Assets. 

        Should
any third party bring any suit, action or other proceeding seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated hereby in connection
with a claim to enforce preferential rights, the Assets affected by such suit, action or other proceeding shall be excluded from the Assets transferred at Closing and the Cash Consideration shall be
reduced by the value of such excluded Assets. Promptly after the suit, action or other proceeding is dismissed or settled or a judgment is rendered, Assignor shall sell to Assignee and Assignee shall
purchase from Assignor all such Assets not being sold to the third party for a purchase price equal to the value of such Assets, adjusted as provided in Article III. 

        7.7    Gas Imbalances    

        At
Closing, the Cash Consideration will be adjusted for any gas imbalances. Claims by third parties regarding production imbalances will be subject to the indemnification obligation set
forth in Section 6.3 of this Agreement. 

        7.8    Tax Matters    

        Subject
to the provisions of Section 7.9, Assignor shall be responsible for all Taxes (other than ad valorem, property, severance, production and similar Taxes based upon or
measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom, which are addressed in Section 2.2) attributable to any period of time at or prior to Effective
Date, including without limitation income Taxes arising as a result of the gain recognized on the transfer of the Assets, Assignee shall be responsible for all such Taxes attributable to any period of
time after the Effective Date. Regardless of which party is responsible, Assignor shall handle payment to the appropriate Governmental Body of all Taxes with respect to the Assets which are required
to be paid prior to Closing (and shall file all Tax Returns with respect to such Taxes). 

        7.9    Sales and Other Transfer Taxes    

        Assignee
shall bear the cost of all applicable sales taxes, real property transfer taxes, recording fees, and other taxes (other than income taxes) payable as a result of the transfer of
the interest in the Assets conveyed hereunder and shall defend and hold Assignor harmless with respect to the reporting and payment of all such taxes (including any interest and penalties assessed
thereon). Sales taxes shall be adjusted for in the Post-Closing Settlement and remitted by Assignor in accordance with applicable law, and such other taxes payable as a result of the
transfer shall be paid directly by the Assignor or as otherwise required. If at any time after the Post-Closing Settlement, Assignor shall become liable for taxes for which Assignee is
responsible under this section, Assignee shall promptly reimburse Assignor for such taxes and related costs, including any penalties and interest thereon assessed by any governmental authority
relating thereto. 

        7.10    Joint Billing Audits, Credits and Advances.    

        Assignor
shall be responsible for the settlement of all joint billing audits relating to accounting periods prior to the Effective Date. Assignee shall be responsible for the settlement
of all joint billing audits relating to accounting periods on or after the Effective Date. Any credits or advances received by Assignee after the Effective Date which are attributable to operations
prior to the Effective Date shall be reimbursed to Assignor by Assignee and any credits or amounts received by Assignor which are attributable to operations on or after the Effective Date shall be
reimbursed to Assignee by Assignor. 

Page 20 of 32

 

        7.11    Certain Other Tax Matters.    

        Assignor
and Assignee agree that this transaction is subject to the reporting requirements of Section 1060 of the Internal Revenue Code of 1986 as amended. Therefore, IRS
Form 8594, Asset Acquisition Statement, is required to be and will be filed for this transaction. The parties will confer
and cooperate in the preparation and filing of their respective forms to reflect a consistent reporting of the agreed upon allocation. Each party to this Agreement shall provide the other party with
reasonable access to all relevant documents, data, and other information (including but not limited to providing Assignee, upon Assignee's request, copies of such documents, data and other information
but excluding that which is subject to an attorney-client privilege) which may be required by the other party for the purpose of preparing tax reports and returns, making tax payments, filing refund
claims and responding to any audit by any taxing jurisdiction. Each party to this Agreement shall cooperate with all reasonable requests of the other party made in connection with contesting the
imposition of taxes. The Assignor and Assignee further agree that, on of before the Closing Date, they will mutually agree as to the allocation of the Asset values attributable to leasehold costs and
depreciable equipment. 

        7.12    Accounting for Interim Operation.    

        Assignor
shall have the right to hold all production prior to the Effective Date attributable to the Assets for Assignor's account, and all production thereafter attributable to the
Assets shall be for the account of Assignee. In accounting to Assignee for interim operations Assignor shall deduct from revenues accruing to the Assets from the sale of production the following: 

        (i)    All
royalties and overriding royalties; 

        (ii)  All
lease operating expenses and capital costs which shall be interpreted in accordance with generally accepted accounting principles and the COPAS standards; 

        (iii)  Any
severance, production, and other taxes (except federal and state income tax); and 

        (iv)  Other
payments out of or with respect to production with which the Assets are burdened or encumbered. 

        7.13    Continued Obligation to Disclose    

        Before
and after Closing, Assignor shall immediately provide Assignee with information, which may materially affect the Assets, or the transaction contemplated herein, upon receipt of
same. 

ARTICLE VIII

Conditions to Closing  

        Assignor's and Assignee's obligation to consummate the transactions provided for herein is subject to the satisfaction or waiver by the other party of the
following conditions: 

        (a)    Representations    

        The
representations of each party contained in Article IV hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of that date. 

        (b)    Performance    

        Each
party shall have performed and observed, in all material respects, the obligations, covenants and agreements hereunder to be performed by it at or prior to Closing. 

        (c)    Pending Matters    

        Except
as disclosed in Schedule 4.6, no suit, action or other proceeding by a third party (including any Governmental Body) shall be pending or threatened which seeks substantial
damage from Assignor or Assignee in connection with the Assets, or seeks to restrain, enjoin or otherwise 

Page 21 of 32

 

prohibit, the consummation of the transactions contemplated by this Agreement. The Closing shall not violate any order or decree of any court or Governmental Body having competent jurisdiction. 

        (d)    Consents to Purchase    

        All
necessary consents to assign contracts, rights-of-way and property rights shall have been obtained. If Assignor fails to obtain a consent so that an Asset
cannot be conveyed to Assignee, Assignor and Assignee will agree to a monetary adjustment to the Exchange. Such adjustment will be made pursuant to Sections 10.1 and 10.2 below. 

        (e)    Joint Exploration Agreement    

        AEPC
and Warren will execute and deliver the Joint Exploration Agreement providing for the joint exploration and development of oil and gas from the lands covered thereby. 

        (f)    Cost Sharing Agreement    

        AEPC
and Warren will execute and deliver the Cost Sharing Agreement. 

ARTICLE IX

Closing  

        9.1    Date and Place of Closing    

        The
consummation of the Exchange of the Assets (the "Closing") shall, unless otherwise agreed to in writing by the parties hereto, take place on or before December 13, 2002, or
such other date as the parties hereto may mutually agree upon, (the "Closing Date") at the offices of AEPC, located at 1201 Lake Robbins Drive, The Woodlands, Texas, or if all conditions in
Article VIII to be satisfied prior to Closing have not yet been satisfied or waived, as soon thereafter as such conditions have been satisfied or waived, subject to the rights of the parties
under Article X. 

        9.2    Closing Obligations    

        At
the Closing the following events shall occur, each being a condition precedent to the others and each being deemed to have occurred simultaneously with the others: 

        (a)  Assignor
and Assignee shall execute, acknowledge and deliver (i) conveyance documents substantially in the form set forth in Exhibits F-1 and
F-2 attached hereto and such other instruments of transfer and assignment necessary to convey to Assignee the Assets in the manner contemplated by this Agreement, (ii) the Joint
Exploration Agreement and (iii) the Cost Sharing Agreement. 

        (b)  AEPC
shall wire transfer the Cash Consideration (as may be adjusted pursuant to Article III or other provisions of this Agreement), the Reimbursed Development
Costs and the Reimbursed NEPA Costs including any applicable sales tax, according to Warren's instructions. 

        (c)  The
Assignor shall deliver to Assignee possession of the Assets conveyed hereunder as provided for in this Agreement and Assignee shall take possession of such Assets as
of the Closing Date. 

        (d)  Assignor
and Assignee shall execute, acknowledge, and deliver transfer orders or letters in lieu thereof directing all purchasers of production to make payments of
proceeds attributable to production from the interest in the Assets conveyed hereunder to Assignee. 

        (e)  A
certificate duly executed by an authorized corporate officer of Assignor, dated as of Closing, certifying on behalf of Assignor that the conditions set forth in
Article VIII have been fulfilled. 

        (f)    Assignor
and Assignee shall execute, acknowledge, and deliver such other instruments and take such other action as may be necessary to carry out their respective
obligations under this 

Page 22 of 32

 

Agreement, including, at the request of a party hereto, the transfer of an interest in any permit pending before any Governmental Body such that the party can assume lead responsibility for defending
any NEPA documents before any appeal boards. 

        (g)  Not
later than three (3) Business Days prior to Closing Date, Warren shall prepare and deliver to AEPC, based upon the best information available to Warren, a
preliminary settlement statement estimating the Cash Consideration after calculating and applying the adjustments set forth in Article III (including lease acquisition costs referred to in
Paragraph (e) thereof), the Reimbursed Development Costs and the Reimbursed NEPA Costs subject to final adjustments as per Article X. Assignor and Assignee shall execute such preliminary
settlement statement and the estimate delivered in accordance with this Section 9.2(g) shall constitute the dollar amount to be paid by Assignee to Assignor at Closing (the "Closing Payment"). 

        (h)  Assignor
shall execute and deliver to Assignee an affidavit of non-foreign status. 

        (i)    From
time to time after the Closing, and at such time(s) as the Parties mutually deem necessary, required or advisable in order to fully effectuate the intent of this
Agreement, Warren and AEPC agree to and shall execute one or more of the non-exclusive limited license attached hereto as Exhibit E. 

        (j)    Assignor
shall, at or as promptly as reasonably possible after Closing, provide Assignee with copies, or originals of relevant oil and gas leases, contracts, amendments,
opinions, non-compliance notices and correspondence that are found in Assignor's files, and the operational, engineering, geological, environmental and marketing files pertaining to the
Assets. Assignor shall have no obligation to furnish Assignee any data or information which is proprietary to third parties or which Assignor cannot provide Assignee because of third-party
restrictions on Assignor or which does not directly pertain to the Assets. All information and data shall be furnished as a matter of convenience only to Assignee and Assignee's reliance on same shall
be at Assignee's sole risk. 

        (k)  At
or as promptly as reasonably possible after the Closing, Assignor shall provide to Assignee a listing showing all proceeds from production attributable to the Assets
that are held in suspense and shall transfer to Assignee all such suspended proceeds. Thereafter, Assignee shall be responsible for such suspended proceeds. 

ARTICLE X

Post-Closing and Continuing Obligations  

        10.1    Post-Closing Settlement    

        Within
ninety (90) days after the Closing, a final settlement statement will be prepared by Assignor and submitted to Assignee showing income and expenses for the Assets between
the Effective Date and Closing Date and other charges and credits provided in this Agreement. Neither party to this Agreement shall be absolved from liability should such accounting and adjustment not
be completed within said 90-day period. 

        Assignor
shall be credited with: 

        (a)  The
amount of all costs and expenses paid by Assignor, including without limitation, royalties, rentals and other charges, ad valorem and other taxes based upon or
measured by the ownership of property or the production of hydrocarbons or the receipt of proceeds therefrom, expenses paid under applicable operating agreements and, in the absence of an operating
agreement, expenses of the sort customarily billed under such agreements, not including income taxes paid by Assignor, in connection with the operation of the Assets on or subsequent to the Effective
Date, excluding any such costs that were included in the Reimbursed Development Costs or the Reimbursed NEPA Costs. 

Page 23 of 32

 

        (b)  An
amount equal to all prepaid expenses attributable to the Assets that are paid by or on behalf of Assignor prior to the Closing Date and that are, in accordance with
generally accepted accounting principles, attributable to the period on or after the Effective Date, including without limitation, prepaid ad valorem, property, production, severance, and similar
taxes (but not including income taxes) based upon or measured by the ownership of property or the production of hydrocarbons or the receipt of proceeds therefrom. Any refund of ad valorem tax
attributable to the period before the Effective Date received by Assignee shall be credited to Assignor. 

        Assignee
shall be credited with: 

        (a)  Proceeds
received by Assignor that are, in accordance with generally accepted accounting principles, attributable to the Assets for the period of time on or after the
Effective Date. 

        (b)  The
amount of all costs and expenses paid by Assignee, including, without limitation, royalties, rentals, and other charges, ad valorem, property, production, excise,
severance, and other taxes based upon or measured by the ownership of property or the production of hydrocarbons or the receipt of proceeds therefrom, expenses paid under applicable operating
agreements and, in the absence of an operating agreement, expenses of the sort customarily billed under such agreements, not including income taxes paid by Assignee, in connection with the operation
of the Assets prior to the Effective Date. 

        (c)  Any
unpaid amount attributable to any reduction under Section 7.3 which occurs on or subsequent to the Effective Date and prior to the Closing Date. 

        (d)  Any
amount attributable to any Asset that could not be conveyed pursuant to Section 9.1(d). 

        10.2    In
addition to the matters mentioned above: 

        (a)  The
final settlement statement shall include any other debits and credits, either cash or accrued, but excluding income and franchise taxes, which under generally
accepted accounting principles would reflect transfer of ownership of the Assets on the Effective Date. 

        (b)  Assignee
shall have the right for a period of ninety (90) days from the date of the final settlement statement in which to audit the matters covered thereby,
including, without limitation, the Reimbursed Development Costs and Reimbursed NEPA Costs, and respond with objections and proposed corrections to the final settlement statement. 

        (c)  Within
thirty (30) days after Assignor's receipt of Assignee's modifications to the final settlement statement, Assignor and Assignee will agree with respect to
the adjustments or payments and the amount due from Assignee or Assignor, as the case may be, shall be submitted to the other party. The final settlement statement shall be deemed conclusive and not
subject to final audit by either party. Either party shall pay to the other, the amount due, as applicable within ten (10) days after receipt of the final settlement statement ("Post Closing
Settlement"). All payments made hereunder shall be by electronic transfer of immediately available funds to a bank and account specified by the applicable party in writing. 

        10.3    Further Assurances    

        After
Closing, Assignor and Assignee shall execute, acknowledge and deliver all such further conveyances, transfer orders, notices, assumptions and releases and such other instruments,
and shall take such further actions, as may be necessary or appropriate to assure fully to Assignee and its successors and assigns all of the Assets and to assure fully to Assignor and its successors
and assigns the assumption of liabilities and obligations of Assignor by Assignee. Assignee agrees that it will comply with any and all applicable rules and regulations of any governmental authority
having jurisdiction over the Assets including any such rules and regulations requiring Assignee to obtain supplemental bonding, letters of credit or other financial security relating to Assignee's
ownership of the Assets whether as operator or non-operator of said Assets and Assignee agrees that it shall indemnify and hold Assignor harmless from any liability resulting from
Assignee's failure to so comply with any such rule or regulation. 

Page 24 of 32

   
        10.4    Recording    

        Assignee
shall, at its own cost, immediately record the conveyance documents in the appropriate office of the state in which the lands covered by the Assignment is located as well as the
Bureau of Land Management and shall immediately file for and obtain the approval of any federal or state government agencies to the assignment of the Assets. Assignee shall supply Assignor with a true
and accurate photocopy of the recorded and filed assignment within a reasonable period of time after its recording and filing. 

        10.5    Preservation of Books and Records  

        For a period of five (5) years after the Closing Date, the party in possession of the originals will retain the original books, records and files and will
make such books, records and files available to the other party upon reasonable notice at the headquarters of the party in possession, at reasonable times and during regular office hours. 

ARTICLE XI

Termination of Agreement  

        This Agreement may be terminated at any time prior to the Closing Date (i) by a party if, at the Closing Date, a Condition to Closing has not been met or
waived pursuant to Section 9.2, however, a party may not terminate under this subsection unless the terminating party has met all Conditions to Closing contained in Section 9.2, or any
conditions which have not been met have been waived, and stands ready to Close; or (ii) by mutual agreement. In the event Closing does not occur because of an event identified in subsection
(i) then the terminating party hereunder shall be entitled to all remedies available at law or in equity, specifically including but not limited to specific performance, and shall be entitled
to recover court costs and attorney's fees in addition to any other relief to which such party may be entitled. 

ARTICLE XII

Miscellaneous  

        12.1    Notices    

        All
notices, disclosures or other communications which are required or permitted hereunder shall be in writing and shall be delivered as follows: 

Anadarko
E&P Company LP

Attn: Onshore Development, CBM Manager

P.O. Box 1330

Houston, TX 77251-1330

(832) 636-8743

Fax (832) 636-8095

Street Address:

1201 Lake Robbins Drive

The Woodlands, TX 77380

Warren Resources, Inc.

Attn: Norman F. Swanton

Chief Executive Officer

489 Fifth Avenue

32nd Floor

New York, New York 10017

Phone: (214) 697-9660

Fax: (214) 697-9466 

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        12.2    Survival    

        All
of the representations, warranties, and agreements contained herein, including without limitations those set out in Article 4, of or by the parties hereto shall survive the
delivery of the Conveyances, without limitation. 

        12.3    Assignment    

        Except
as otherwise stated herein, this Agreement and the rights and obligations hereunder shall not be assignable by either party without prior written consent of the other party, which
shall not be unreasonably withheld unless the assignment occurs by merger, reorganization or sale of all of the party's Assets. 

        12.4    Entirety of Agreement and Amendment    

        This
Agreement, together with all Exhibits and Schedules, that are attached hereto and incorporated herein, constitutes the entire understanding between the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions, representations, and prior agreements and understandings relating to such subject matter. This Agreement may be amended,
modified, and supplemented only in writing duly executed by Assignor and Assignee. 

        12.5    Descriptive Headings    

        The
headings of the Articles and subparagraphs of this Agreement are inserted for convenience only and shall not constitute a part hereof. 

        12.6    Severability    

        If
any term or other provision of this Agreement is held invalid, illegal or incapable of being enforced under any rule of law, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in a materially adverse manner with respect to
either party. 

        12.7    Successors and Assigns    

        This
Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and except as otherwise prohibited, their respective designees, successors and assigns, and
nothing contained in this Agreement, express or implied, is intended to confer upon any other person or entity any benefits, rights or remedies. 

        12.8    Governing Law    

        This
Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Texas without regard to principle of conflicts
of laws otherwise applicable to such determinations. 

        12.9    Termination of Coalbed Gas Exploration Agreement    

        Subject
to the Closing of this Agreement, the Coalbed Gas Exploration Agreement, and any rights or claims pursuant thereto, dated August 20, 1999, entered into between Union
Pacific Land Resources Corporation, the predecessor in interest to AEPC, as the farmor, and Tower Columbia Corporation, the predecessor in interest to Warren, as the farmee, shall terminate as of the
Effective Date as to any lands earned by Warren during the period in which the Coalbed Gas Exploration Agreement was in effect. 

        12.10    Event of Conflict    

        In
the event of any conflict or inconsistency between the provisions of this Agreement and those of the Exhibits, the provisions of this Agreement shall prevail. If the provisions of
this Agreement and the 

Page 26 of 32

 

Joint Exploration Agreement are not in direct conflict, then the provisions of this Agreement and the Joint Exploration Agreement shall be read together. 

ARTICLE XIII

Definitions  

        "Adjustment Period" has the meaning set forth in Article III. 

        "Adjusted
Purchase Price" shall mean the Purchase Price after calculating and applying the adjustments set forth in Article III. 

        "AFE"
means authority for expenditure. 

        "Affiliates"
with respect to any Person, means any person that directly or indirectly controls, is controlled by or is under common control with such Person. 

        "Agreement"
has the meaning set forth in the first paragraph of this Agreement. 

        "Assets"
has the meaning set forth in Section 1.2. 

        "Assignee"
has the meaning set forth in the third paragraph of this Agreement. 

        "Assignor"
has the meaning set forth in third paragraph of this Agreement. 

        "Business
Day" means each calendar day except Saturdays, Sundays, and Federal holidays. 

        "Bureau
of Land Management" has the meaning set forth in Section 5.2(a). 

        "Cash
Consideration" has the meaning set forth in Section 1.1. 

        "Closing"
has the meaning set forth in Section 9.1. 

        "Closing
Date" has the meaning set forth in Section 9.1. 

        "Contracts"
has the meaning set forth in Section 1.2(d). 

        "Conveyance"
has the meaning set forth in Section 5.1(b). 

        "Cost
Sharing Agreement" has the meaning set forth in Section 1.5(c). 

        "Cure
Period" has the meaning set forth in Section 5.3(a). 

        "Defensible
Title" has the meaning set forth in Section 5.2(a). 

        "Deferred
Payment" has the meaning set forth in Section 1.5. 

        "Development
Costs" has the meaning set forth in Sections 1.5(b). 

        "Earned"
shall have the meaning set forth in Section 2.2. 

        "Effective
Date" has the meaning set forth in Section 2.1. 

        "Environmental
Laws" means, as the same have been amended as of the Effective Date, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601  et seq.; the Resource Conservation
and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. § 1251 et seq. (the "Clean Water Act"); the Clean Air Act, 42 U.S.C. § 7401  et seq. the Hazardous
Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic
Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; and the Safe Drinking Water Act, 42
U.S.C. §§ 300f through 300j; and all similar Laws as of the Effective Date of any Governmental Body having jurisdiction over the property in question addressing pollution or
protection of the environment and all regulations implementing the foregoing, including but not limited to the BLM, Wyoming DEQ, and all other State governmental subdivisions with authority over
environmental matters. 

Page 27 of 32

 

        "Environmental
Liabilities" shall mean any and all environmental response costs (including costs of remediation), damages, natural resource damages, settlements, consulting fees,
expenses, penalties, fines, orphan share, prejudgment and post-judgment interest, court costs, attorneys' fees, and other liabilities incurred or imposed (i) pursuant to any order,
notice of responsibility, directive (including requirements embodied in Environmental Laws), injunction, judgment or similar act (including settlements) by any Governmental Body to the extent arising
out of any violation of, or remedial obligation under, any Environmental Law which is attributable to the ownership or operation of the Properties prior to the Effective Time or (ii) pursuant
to any claim or cause of action by a Governmental Body or other Person for personal injury, property damage, damage to natural resources, remediation or response costs to the extent arising out of any
violation of, or any remediation obligation under, any Environmental Law which is attributable to the ownership or operation of the Properties prior to the Effective Time. 

        "Equipment"
has the meaning set forth in Section 1.2(f). 

        "Excluded
Assets" has the meaning set forth in Section 1.3. 

        "Governmental
Authorization" has the meaning set forth in Section 4.13. 

        "Governmental
Body" means any federal, state, local, municipal, or other governments; any governmental, regulatory or administrative agency, commission, body or other authority
exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; and any court or governmental tribunal. 

        "Hazardous
Materials" shall mean any radioactive materials, asbestos material, urea formaldehyde, hydrocarbon contaminants, pollutants, contaminants, hazardous, corrosive or toxic
substances, including compounds known as chlorobiophenyls and any material or substance the storage, manufacture, disposal, treatment, generation, use, transport, migration, or release into the
environment of which is prohibited, controlled, regulated or licensed under Environmental Laws, including, but not limited to, (i) all "hazardous substances" as that term is defined in
Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act, as amended, and (ii) petroleum and petroleum products. 

        "Hydrocarbons"
means oil, gas, condensate and other gaseous and liquid hydrocarbons or any combination thereof and sulphur extracted from hydrocarbons. 

        "Incurred"
shall have the meaning set forth in Section 2.2. 

        "Joint
Exploration Agreement" has the meaning set forth in the fourth recital paragraph of this Agreement. 

        "Lands"
has the meaning set forth in Section 1.2(a). 

        "Laws"
means all statutes, rules, regulations, ordinances, orders, and codes of Governmental Bodies. 

        "Leases"
has the meaning set forth in Section 1.2(a). 

        "Material
Adverse Effect" means any adverse effect on the ownership, operation or value of the Assets, as currently operated, which (a) is material to the ownership, operation or
value of the Assets, taken as a whole, for purposes of determining whether the conditions to Closing have been satisfied or (b) exceeds $100,000 in value for all other purposes under this
Agreement, provided, however, that "Material Adverse Effect" shall not include general changes in industry or economic conditions or changes in laws or in regulatory policies. 

        "NEPA
Costs" has the meaning set forth in Section 1.5(c). 

Page 28 of 32

 

        "Net
Revenue Interest" shall mean all of the working interests less all royalties, overriding royalties, non-participating royalties, net profits interest or similar burdens
on or measured by production of oil and gas. 

        "NORM"
means naturally occurring radioactive material. 

        "Permitted
Encumbrances" has the meaning set forth in Section 5.2(b). 

        "Person"
means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, government or agency or
subdivision thereof or any other entity. 

        "Properties"
has the meaning set forth in Section 1.2(c). 

        "Property
Costs" has the meaning set forth in Section 2.2. 

        "Reimbursed
Development Costs" has the meaning set forth in Section 1.1. 

        "Reimbursed
NEPA Costs" has the meaning set forth in Section 1.1. 

        "Records"
has the meaning set forth in Section 1.2(g). 

        "State"
shall have the meaning set forth in Section 5.2(a). 

        "Sun
Dog Wells" shall have the meaning set forth in Section 1.3(f). 

        "Surface
Contracts" has the meaning set forth in Section 1.2(e). 

        "Taxes"
means all federal, state, local, and foreign income, profits, franchise, sales, use, ad valorem, property, severance, production, excise, stamp, documentary, real property
transfer or gain, gross receipts, goods and services, registration, capital, transfer, or withholding Taxes or other governmental fees or charges imposed by any taxing authority, including any
interest, penalties or additional amounts which may be imposed with respect thereto. 

        "Tax
Returns" has the meaning set forth in Section 4.7. 

        "Title
Arbitrator" has the meaning set forth in Section 5.3(e). 

        "Title
Claim Date" has the meaning set forth in Section 5.3(a). 

        "Title
Defect" has the meaning set forth in Section 5.2(c). 

        "Title
Defect Amount" has the meaning set forth in Section 5.3(c)(i)(A). 

        "Title
Defect Notice" has the meaning set forth in Section 5.3(a). 

        "Title
Defect Property" has the meaning set forth in Section 5.3(a). 

        "Tribe"
shall have the meaning set forth in Section 5.2(a). 

        "Units"
has the meaning set forth in Section 1.2(c). 

        "Wells"
has the meaning set forth in Section 1.2(b). 

Page 29 of 32

 

        EXECUTED
on the date first set forth above and effective as of the Effective Date upon final execution. 

	 ANADARKO E&P COMPANY LP

By: ANADARKO GENERAL

RESOURCES LLC, GENERAL

PARTNER	 	WARREN RESOURCES, INC.
	
By:	
 	

/s/  MARK L. PEASE      
	
 	

By:	
 	

/s/  NORMAN F. SWANTON      

	Name: Mark L. Pease

Title: Vice President

Tax ID No. 73-0739973	 	Name: Norman F. Swanton

Title: President and Chief Executive Officer

Tax ID No. 11-3024080

Page 30 of 32

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