Document:

Exhibit 10.1

 

ASSET
PURCHASE AGREEMENT

 

BY
AND BETWEEN

 

GLOBAL
OIL PRODUCTION, LLC,

 

AND

 

WILMINGTON
MANAGEMENT, LLC, 

 

AS
SELLERS

 

AND

 

WARREN
RESOURCES OF CALIFORNIA, INC.,

 

AND

 

WARREN
E&P, INC., 

 

AND
WARREN RESOURCES, INC.,

 

AS
BUYERS

 

 

Dated
December 9, 2005

 

 

TABLE
OF CONTENTS

 

 

	
  Section 1
  PURCHASE AND SALE OF ASSETS

  	
  1

  
	
  1.1.

  	
  Purchase
  and Sale of Assets.

  	
  1

  
	
  1.2.

  	
  Assumption
  of Liabilities.

  	
  2

  
	
  1.3.

  	
  Purchase
  Price and Escrow

  	
  4

  
	
  1.4.

  	
  Allocation
  of Purchase Price.

  	
  5

  
	
  1.5.

  	
  Allocation
  of Expenses

  	
  6

  
	
  1.6.

  	
  Allocation
  of Revenues and Gross Receipts.

  	
  7

  
	
  1.7.

  	
  Settlement
  Statements.

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 2
  . CLOSING

  	
  10

  
	
  2.1.

  	
  Closing
  Date

  	
  10

  
	
  2.2.

  	
  Buyers’
  Closing Date Deliveries

  	
  10

  
	
  2.3.

  	
  Sellers’
  Closing Date Deliveries

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 3
  . REPRESENTATIONS AND WARRANTIES OF SELLERS

  	
  12

  
	
  3.1.

  	
  Organization
  and Power and Authority of Seller

  	
  12

  
	
  3.2.

  	
  Authority
  of Seller; Conflicts.

  	
  12

  
	
  3.3.

  	
  Condition
  of Title

  	
  13

  
	
  3.4.

  	
  Litigation

  	
  13

  
	
  3.5.

  	
  No
  Brokers

  	
  13

  
	
  3.6.

  	
  Inducement

  	
  13

  
	
  3.7.

  	
  No
  Knowledge of Breach

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 4
  . REPRESENTATIONS AND WARRANTIES OF BUYERS

  	
  13

  
	
  4.1.

  	
  Organization
  of Buyers

  	
  13

  
	
  4.2.

  	
  Authority
  of Buyers

  	
  14

  
	
  4.3.

  	
  No
  Litigation

  	
  14

  
	
  4.4.

  	
  Securities
  Laws.

  	
  14

  
	
  4.5.

  	
  No
  Brokers

  	
  15

  
	
  4.6.

  	
  Financial
  Ability

  	
  15

  
	
  4.7.

  	
  No
  Knowledge of Breach

  	
  15

  
	
  4.8.

  	
  Independent
  Analysis

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5
  . ACTION PRIOR TO THE ADJUSTMENT TIME

  	
  16

  
	
  5.1.

  	
  Operations
  Prior to the Adjustment Time.

  	
  16

  
	
  5.2.

  	
  Risk of
  Loss; Insurance

  	
  16

  
	
  5.3.

  	
  Reasonable
  Efforts

  	
  16

  
	
  5.4.

  	
  Confidentiality

  	
  16

  
	
  5.5.

  	
  Notification
  of Certain Other Matters

  	
  16

  
	
  5.6.

  	
  Employment

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 6
  . ADDITIONAL AGREEMENTS

  	
  17

  
	
  6.1.

  	
  General
  Matters

  	
  17

  

 

i

 

	
  6.2.

  	
  Data

  	
  18

  
	
  6.3.

  	
  Hazardous
  Substances

  	
  18

  
	
  6.4.

  	
  Seismic
  Hazards

  	
  18

  
	
  6.5.

  	
  Earthquake
  Zone

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 7
  . CONDITIONS PRECEDENT TO OBLIGATIONS TO CLOSING

  	
  19

  
	
  7.1.

  	
  No Delay

  	
  19

  
	
  7.2.

  	
  Related
  Agreements

  	
  19

  
	
  7.3.

  	
  Conditions
  Precedent To Obligations Of Buyers

  	
  19

  
	
  7.4.

  	
  Conditions
  Precedent To Obligations Of Seller

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 8
  . INDEMNIFICATION

  	
  21

  
	
  8.1.

  	
  Indemnification
  by Seller

  	
  21

  
	
  8.2.

  	
  Indemnification
  by Buyers

  	
  21

  
	
  8.3.

  	
  Notice of
  Claims.

  	
  21

  
	
  8.4.

  	
  Third
  Person Claims.

  	
  22

  
	
  8.5.

  	
  Limitations.

  	
  23

  
	
  8.6.

  	
  Mitigation

  	
  24

  
	
  8.7.

  	
  Subrogation

  	
  24

  
	
  8.8.

  	
  No Offset

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 9
  . TERMINATION

  	
  25

  
	
  9.1.

  	
  Termination.

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 10
  . GENERAL PROVISIONS

  	
  26

  
	
  10.1.

  	
  Survival
  of Covenants, Representations and Warranties

  	
  26

  
	
  10.2.

  	
  No Public
  Announcement

  	
  26

  
	
  10.3.

  	
  Notices

  	
  26

  
	
  10.4.

  	
  Successors
  and Assigns

  	
  27

  
	
  10.5.

  	
  Seller’s
  Access to Records after Closing

  	
  28

  
	
  10.6.

  	
  Entire
  Agreement; Amendments

  	
  28

  
	
  10.7.

  	
  Interpretation.

  	
  28

  
	
  10.8.

  	
  Amendments
  and Waivers

  	
  29

  
	
  10.9.

  	
  Bulk
  Sales Laws

  	
  29

  
	
  10.10.

  	
  Expenses

  	
  30

  
	
  10.11.

  	
  Partial
  Invalidity

  	
  30

  
	
  10.12.

  	
  Execution
  in Counterparts; Facsimile

  	
  30

  
	
  10.13.

  	
  Governing
  Law

  	
  30

  
	
  10.14.

  	
  Jurisdiction;
  Waiver of Jury Trial

  	
  30

  
	
  10.15.

  	
  Attorneys’
  Fees

  	
  30

  
	
  10.16.

  	
  Time of
  Essence

  	
  30

  
	
  10.17.

  	
  Disclaimer
  of Warranties

  	
  31

  
	
  10.18.

  	
  References
  to U.S. Dollars

  	
  31

  
	
  10.19.

  	
  Further
  Assurances.

  	
  31

  
	
  10.20.

  	
  No
  Rescission

  	
  32

  
	
  10.21.

  	
  Specific
  Performance

  	
  32

  

 

ii

 

	
  Section 11
  . DEFINITIONS

  	
  32

  
	
  11.1.

  	
  Definitions

  	
  32

  
			

 

iii

 

LIST
OF EXHIBITS

 

	
  Exhibit A-1

  	
   

  	
  Assignment, Assumption and
  Bill of Sale

  
	
   

  	
   

  	
   

  
	
  Exhibit A-2

  	
   

  	
  Assignment and Assumption
  of Contracts and Liabilities

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Quitclaim Deed – Surface
  Properties

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Quitclaim Deed – Mineral
  Properties

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Change of Operator Form

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  Holdback Escrow Agreement

  

 

LIST
OF SCHEDULES

 

	
  Schedule 1.1(c)(xii)

  	
   

  	
  Excluded Agreements

  
	
   

  	
   

  	
   

  
	
  Schedule 1.1(c)(xiii)

  	
   

  	
  Miscellaneous Excluded
  Assets

  
	
   

  	
   

  	
   

  
	
  Schedule 1.1(c)(xiv)

  	
   

  	
  Excluded Surface Estate

  
	
   

  	
   

  	
   

  
	
  Schedule 1.2

  	
   

  	
  Contracts

  
	
   

  	
   

  	
   

  
	
  Schedule 1.4

  	
   

  	
  Allocation of Purchase
  Price

  
	
   

  	
   

  	
   

  
	
  Schedule 3.2

  	
   

  	
  No Violation

  
	
   

  	
   

  	
   

  
	
  Schedule 3.4

  	
   

  	
  Litigation; Claims

  
	
   

  	
   

  	
   

  
	
  Schedule 7.4

  	
   

  	
  Replacement of Guarantees
  and Letters of Credit

  
	
   

  	
   

  	
   

  
	
  Schedule 11.1

  	
   

  	
  Properties Relating to the NWU

  

 

iv

 

ASSET
PURCHASE AGREEMENT

 

ASSET PURCHASE AGREEMENT,
dated December 9, 2005, by and between Global Oil Production, LLC, a
California limited liability company (“Global”), Wilmington Management,
LLC, a California limited liability company (“Wilmington”) (Global and
Wilmington are sometimes referenced herein individually as “Seller” and
collectively as the “Sellers”), and Warren Resources of California, Inc.,
a California corporation (“WRC”), and Warren E&P, Inc., a New
Mexico corporation (“WEP”), and Warren Resources, Inc., a Maryland
corporation (“WRI”) (collectively, WRC, WEP and WRI are called the “Buyers”).

 

WHEREAS, Sellers desire to
sell to Buyers, and Buyers desire to purchase from Seller, all of Sellers’
interest in the Assets (as hereinafter defined), and Buyers are willing to
assume the Assumed Liabilities (as hereinafter defined), all on the terms and
subject to the conditions set forth herein; 

 

NOW, THEREFORE, in
consideration of the mutual covenants and agreements hereinafter set forth and
other good and valuable consideration, the receipt and sufficiency of which is
acknowledged, it is hereby agreed between Sellers and Buyers as follows
(certain initially capitalized terms used herein are defined in Section 11):

 

SECTION 1 
PURCHASE AND SALE OF ASSETS

 

1.1.                              Purchase
and Sale of Assets.

 

(a)                                  Upon the terms
and subject to the conditions of this Agreement, on the Closing Date, Global
shall irrevocably sell, convey, transfer, assign and deliver to Buyers and
Buyers shall purchase from Global all of Global’s right, title and interest in
and to all of the Assets.

 

(b)                                 Upon the terms
and subject to the conditions of this Agreement, on the Closing Date,
Wilmington shall irrevocably sell, convey, transfer, assign and deliver to
Buyers and Buyers shall purchase from Wilmington all of Wilmington’s right,
title and interest in and to all of the Assets.

 

(c)                                  Notwithstanding
anything to the contrary herein, Seller shall not contribute, convey, assign,
or transfer to Buyers, and Buyers shall not acquire or have any rights to
acquire, any assets (the “Excluded Assets”) other than those
specifically set forth in Sections 1.1(a) or (b).  Without limiting the generality of the
foregoing, the following shall constitute Excluded Assets:

 

(i)                  All cash, cash equivalents and
securities of either Seller;

 

(ii)               All intercompany notes,
drafts and accounts receivable or other obligations for the payment of money;

 

(iii)            All bank and other
depository accounts and safe deposit boxes of either Seller;

 

1

 

(iv)           All refunds of Taxes and Tax
loss carryforwards of either Seller relating to the Assets for any period or
portion thereof ending on or prior to the Closing Date (and any such refunds
received by Buyers shall be promptly paid over by Buyers to such Seller);

 

(v)              All of Seller’s right, title
and interest in and to all of the assets, properties and rights of Seller, of
every kind, nature, character and description (accrued, contingent or
otherwise), tangible and intangible, real, personal or mixed, including without
limitation, Intellectual Property, which are owned, used or held for use by
Seller exclusively to conduct any business operation or activity other than
operation of the NWU, or which do not exclusively relate to the Assets or the
Assumed Liabilities;

 

(vi)           Nontransferable Permits;

 

(vii)        All insurance policies of
Seller relating to the Assets, any refunds paid or payable in connection with
the cancellation or discontinuance of any insurance policies, and any claims
made on/or any such insurance policies;

 

(viii)     All Actions, credits, rights
of setoff of any kind and all rights under and pursuant to all indemnities,
warranties, representations, guarantees and other Contracts (including, without
limitation, the Unit Agreement and the Unit Operating Agreement) arising for
any period or portion thereof ending on or prior to the Adjustment Time;

 

(ix)             All Actions, demands, rights
and privileges against third parties that relate to any of the Excluded Assets
or Excluded Liabilities, including Actions and rights under insurance policies
relating thereto;

 

(x)                All other assets used
exclusively in connection with either Seller’s limited liability company
functions (including, but not limited to, the entity name, taxpayer and other
identification numbers, seals, minute books and records);

 

(xi)             All rights of Sellers under
this Agreement, the Purchase Price hereunder, any agreement, certificate,
instrument or other document executed and delivered by Seller or Buyers in
connection with the transactions contemplated hereby;

 

(xii)          The agreements set forth on Schedule 1.1(c)(xii);

 

(xiii)       The assets set forth on Schedule 1.1(c)(xiii);
and.

 

(xiv)      The surface estate only
of nine (9) fee simple lots more particularly described in Schedule 1.1(c)(xiv)
attached.

 

1.2.                              Assumption
of Liabilities.

 

(a)                                  Upon the terms
and subject to the conditions set forth herein, at the Closing, Buyers shall
assume from Sellers (and thereafter pay, perform, discharge or otherwise
satisfy in accordance with their respective terms), and Sellers shall
irrevocably convey, transfer and assign to Buyers, all of the Assumed
Liabilities.

 

2

 

(b)                                 For all
purposes of and under this Agreement, “Assumed Liabilities” shall mean, refer
to and include only the following Liabilities of each Seller, arising out of or
relating to the operation of the NWU and/or the Assets, known or unknown,
contingent or mature, and specifically excluding the Excluded Liabilities (as
defined below):

 

(i)                                     All Liabilities
of either or both Sellers accruing after the Adjustment Time under any working
interests, royalty agreements, leases, contracts, licenses and other rights
included within the NWU Assets (collectively “Contracts”) as shown on Schedule 1.2
attached hereto; 

 

(ii)                                  All Liabilities
attributable to either or both Sellers under the Unit Agreement or otherwise,
whether arising before or after the Closing Date, to properly plug and abandon
all wells within the NWU; abandon all flowlines and other pipelines; remove all
equipment and facilities; close all pits and sumps; remediate all soil and ground
water that may have been impacted by oil and gas production operations; and
restore the surface and/or subsurface associated with the NWU, including all
surface properties (collectively, the “Plugging Obligations”) in
accordance with the rules, regulations, and requirements of any governmental
authority having jurisdiction thereof and in accordance with all obligations,
express or implied, in the Unit Agreement and any other Related Agreement,
regardless of when these obligations arose or arise;

 

(iii)                               All Liabilities
of either or both Sellers associated, in any way, with the NWU, arising for any
period from and after the Adjustment Time, but not before, whether such
Liabilities arise out of Unit Operations, ownership of the Assets or otherwise;

 

(iv)                              All Liabilities
and obligations of Operator under the Unit Operating Agreement from and after
the Adjustment Time;

 

(v)                                 All Liabilities
of either or both Sellers arising out of or related to Environmental Laws or
Hazardous Substances associated, in any way, with the NWU or the Assets,
whether arising before or after the Closing Date, including, without
limitation, all CERCLA and CERCLA-like Liabilities, whether such Liabilities
arise out of Unit Operations, Ownership of the Assets, Sellers’ negligence or
otherwise (collectively, “Environmental Obligations”); and

 

(vi)                              Any Liability
for which there is an associated downward adjustment to the Purchase Price
under Sections 1.5, 1.6 or 1.7.

 

(c)                                  Buyers shall
not assume any Liabilities other than the “Assumed Liabilities.” All
Liabilities of Seller other than the Assumed Liabilities (the “Excluded
Liabilities”) shall remain the sole responsibility of and shall be
retained, paid, performed and discharged solely by Sellers. “Excluded
Liabilities” shall include: 

 

(i)                                     Liabilities of
either Seller that arise out of or relate to the Assets prior to the Adjustment
Time, except for Plugging Obligations, Environmental Obligations and
Liabilities for which there is an associated downward adjustment to the
Purchase Price under Sections 1.5, 1.6 or 1.7;

 

3

 

(ii)                                  Liabilities for
Income Taxes of either Seller;

 

(iii)                               Liabilities of
either Seller in respect of transaction costs payable by it pursuant to Section 10.10;

 

(iv)                              Liabilities of
either Seller related to any employee of Sellers or any employee benefit plan; 

 

(v)                                 Liabilities for
amounts of Taxes collected or withheld by Sellers and payable to any
Governmental Authority;

 

(vi)                              Liabilities of
either Seller under this Agreement or any Seller Transaction Agreement; 

 

(vii)                           Liabilities of
either Seller, to the extent such Liabilities do not arise out of or relate to
the Assets or the Operation of the Unit (including Liabilities relating
exclusively to the Excluded Assets);

 

(viii)                        Except for
Plugging Obligations, Environmental Obligations and Liabilities for which there
is an associated downward adjustment to the Purchase Price under Sections 1.5,
1.6 or 1.7, Liabilities under the Contracts assumed by Buyers
pursuant to Section 1.2 to the extent arising prior to the
Adjustment Time;

 

(ix)                                Liabilities
arising out of or relating to Sellers’ loan indebtedness and/or credit
facilities or any security interest related thereto;

 

(x)                                   Liabilities to
Sellers or to any Affiliate of Sellers (other than obligations arising under
the Unit Operating Agreement from and after the Adjustment Time); and 

 

(xi)                                Liabilities to
indemnify, reimburse or advance amounts to any officer, director, member,
manager, employee or agent of Sellers. 

 

1.3.                              Purchase
Price and Escrow.

 

(a)                                  For purposes of
this Agreement, the Escrow shall be deemed opened on the date Escrow Agent
shall have received an executed counterpart of this Agreement from both Buyers
and Sellers.  Escrow Agent shall notify
Buyer and Sellers, in writing, of the date the Escrow is opened and
established.  In addition, Buyer and
Sellers agree to execute, deliver and be bound by any reasonable or customary
supplemental escrow instructions of Escrow Agent or other instruments as may
reasonably be required by Escrow Agent in order to consummate the transaction
contemplated by this Agreement.  Any such
supplemental instructions shall not conflict with, amend or supersede any
portions of this Agreement.  If there is
any inconsistency between such supplemental instructions and this Agreement,
this Agreement shall control.

 

(b)                                 On the Closing
Date, Buyers shall pay, or cause the Escrow Agent to pay to Sellers, and the
Sellers shall accept, together with the assumption of the Assumed

 

4

 

Liabilities, in full payment
for the Assets, an aggregate cash amount equal to Twenty-Three Million Dollars
($23,000,000.00) (the “Purchase Price”) plus or minus any adjustments reflected
on the Preliminary Settlement Statement. 
The Purchase Price shall be apportioned between Sellers in accordance
with Schedule 1.4 attached. 

 

(c)                                  If any
adjustment under Section 1.7 results in a reduction in the Purchase
Price in excess of the Holdback Amount (as hereinafter defined), Sellers shall pay
to Buyer the amount of such reduction, and if any adjustment results in an
increase in the Purchase Price, Buyer shall pay to Sellers the amount of such
increase, in each case by wire transfer of immediately available funds to an
account designated by the party receiving payment within five (5) Business
Days after the final determination of the amount of such reduction or increase
in Purchase Price, plus interest on the amount of such reduction or increase
from the Closing Date to the date of such payment thereof at the per annum rate
equal to the rate announced by Citibank, N.A. in the City of New York as its
base rate in effect on the Closing Date.

 

(d)                                 Deposit of
Purchase Price With Escrow Agent.  The Purchase Price shall be deposited into
Escrow by the Buyers as follows:

 

(i)                                     On or before
five (5) days prior to Closing, Buyers shall deliver to the Escrow Agent,
a cashier’s check or other immediately available funds in the sum of
Twenty-Three Million Dollars ($23,000,000.00), plus or minus any adjustments
reflected on the Preliminary Settlement Statement.

 

(ii)                                  At the Closing,
the Escrow Agent shall pay to each Seller an amount equal to such Seller’s
share of the Purchase Price, subject to adjustments, by means of a wire
transfer of immediately available U.S. funds to one or more accounts designated
by such Seller to Buyers, less an amount equal to 5% of the Purchase Price (the
“Holdback Amount”), which shall be retained by the Escrow Agent in a
separate escrow account (the “Holdback Escrow Account”) for a period of
six (6) months following the Closing solely to secure the Sellers’
indemnification obligations under Section 8.  The Holdback Amount will be distributed in
accordance with the Holdback Escrow Agreement in the form attached as Exhibit ”E”
hereto.

 

1.4.                              Allocation
of Purchase Price.  

 

(a)                                  On the Closing
Date, the consideration for the Assets provided herein shall be allocated among
the various categories of Assets in accordance with Schedule 1.4.  Buyer and each Seller shall execute and file
all Tax Returns in a manner consistent with the allocation determined pursuant
to this Section 1.4 and shall not take any position before any
Governmental Authority or in any judicial proceeding that is inconsistent with
such allocation.  Buyer and each Seller
shall each timely file a Form 8594 with the IRS in accordance with the
requirements of Section 1060 of the Internal Revenue Code.

 

(b)                                 Any
disagreements regarding the allocation required by Section 1.4(a) shall
be submitted for final and binding resolution to a tax partner at a Neutral
Accounting Firm to resolve such disagreements (the “Tax Arbitrator”).  The Tax Arbitrator shall be a tax partner at
a Neutral Accounting Firm selected by mutual agreement of Buyer and Sellers; provided
that if the parties are unable to agree on a tax partner at a Neutral
Accounting

 

5

 

Firm to act as the Tax
Arbitrator, each party shall select a Neutral Accounting Firm and such firms
together shall select a tax partner at another Neutral Accounting Firm to act
as the Tax Arbitrator.  The Tax
Arbitrator will only consider those items as to which Buyer and Sellers have
disagreed and must resolve the matter in accordance with the terms and provisions
of Schedule 1.4.  The Tax
Arbitrator shall deliver to Buyer and Sellers, as promptly as practicable and
in any event within ninety (90) calendar days after its appointment, a written
report setting forth the resolution of any such disagreement determined in
accordance with Schedule 1.4. 
The Tax Arbitrator shall select as a resolution the position of either
Buyer or Sellers for each item of disagreement and may not impose an
alternative resolution.  The determination
of the Tax Arbitrator shall be final and binding upon Buyer and Seller.  The fees, expenses and costs of the Tax
Arbitrator shall be borne by the party whose position the Tax Arbitrator does
not select.  Other than such fees and
expenses of the Tax Arbitrator, Buyer and Sellers shall each be responsible for
their own costs and expenses incurred in connection with any actions taken
pursuant to Section 1.4(a) and this Section 1.4(b).

 

1.5.                              Allocation
of Expenses.   On the Closing Date,
the following expenses attributable to the Assets and/or the operation of the
NWU, regardless of whether such expenses would be otherwise payable by the
Operator under the Unit Operating Agreement, shall be allocated between and are
hereby assumed by Buyers and Sellers as follows:

 

(a)                                  Taxes,
Utilities, and Prepaid Expenses.  All Production Taxes and Property Taxes shall
be apportioned between Buyers and the respective Seller as of 5:00 P.M. on
December 31, 2005 (the “Adjustment Time”).  The
basis of the apportionment will be the current assessment for the fiscal year in
which the Closing Date occurs or, if that assessment is not known, then the
basis of the apportionment will be the assessment for the previous fiscal year.
If Property Taxes have not been paid before Closing, the same shall be
reflected on the Preliminary Settlement Statement.  Buyers will be credited for Sellers’ portion
of the Property Taxes. If they have been paid before Closing, Sellers will be
credited for Buyers’ portion of the taxes. Buyers will be responsible for all
Property Taxes that are applied to the Assets after the Adjustment Time.  If the Production Taxes are based on prior
year’s production, the assessment will be apportioned between Sellers (on the
one hand) and Buyers (on the other hand) as of the Adjustment Time on the
Preliminary Closing Statement; provided, however, Buyers will be responsible
for paying or withholding all taxes that are assessed after the Adjustment
Time.  All utility charges, gas
charges, electric charges, water charges, water rents and sewer rents, if any,
shall be apportioned between Buyers and such Seller as of the Adjustment Time,
computed on the basis of the most recent meter charges or, in the case of
annual charges, on the basis of the established fiscal year.  All prepaid expenses (including any rent)
paid by either Sellers prior to the Closing Date in respect of the Assets
and/or the operation of the NWU shall be apportioned between Buyers and such
Seller as of the Adjustment Time computed on the basis of the benefit received
by such Seller on or before December 31, 2005, and the benefit to be
received by Buyers subsequent to December 31, 2005, with respect to any
Contract or other matter to which the prepaid expense relates.  All prorations shall be made and the Purchase
Price shall be adjusted insofar as feasible on December 31, 2005.  During the six (6) month period
subsequent to December 31, 2005, Sellers shall advise Buyers and Buyers
shall advise Sellers of any actual changes to such prorations, and the Purchase
Price shall be increased or decreased, as applicable, at the end of such six (6) month
period.  In the event Buyers or either
Seller shall receive bills after the Closing Date for expenses incurred prior
to December 31, 2005 that were not prorated

 

6

 

in accordance with this Section 1.5(a),
then Buyers or such Seller, as the case may be, shall promptly notify the other
party as to the amount of the expense subject to proration and the responsible
party shall pay its portion of such expense (or, in the event such expense has
been paid on behalf of the responsible party, reimburse the other party for its
portion of such expenses). 

 

(b)                                 Transfer
Taxes.  Buyers and
each Seller shall cooperate in preparing, executing and filing use, sales, real
estate, transfer and similar Tax Returns relating to the purchase and sale of
the Assets.  Sellers and Buyers shall
equally share and pay on a 50% each basis all such transfer Taxes, including
any penalties, interest and additives to Tax, incurred in connection with the
purchase and sale of the Assets.  Such
Tax Returns shall be prepared in a manner that is consistent with the
determination of the aggregate fair market values of the Assets by the
categories contemplated by Section 1.4.

 

(c)                                  Tax
Prosecution Rights. 
Sellers shall have the right (at their own expense) to prosecute and
continue to prosecute subsequent to the Closing any pending Tax certiorari proceedings for the Assets for
the Tax year in which the Closing occurs and all prior Tax years.  Any refunds obtained for such claims for any
Tax years prior to the Tax year in which the Closing occurs and the pro rata
portion of any refunds obtained for such claims for the Tax year in which the
Closing occurs, net of the expenses incurred in obtaining such pro rated
refunds, shall be paid to the Seller to whom such refund relates.

 

1.6.                              Allocation
of Revenues and Gross Receipts.

 

(a)                                  Oil
in Storage.  All “Oil
in Storage” at the Adjustment Time, including working inventory, belongs to
Global.  Oil in Storage includes all Oil
in the system downstream of the wellhead at the Adjustment Time, including Oil
in stock tanks, wash tanks, heater treaters, flowlines, and pipelines.  Oil in Storage will be determined by the sum
of the following:  (i) Oil in stock
tanks, as gauged by Global at the Adjustment Time; plus (ii) five (5) barrels
(representing the agreed upon amount of Oil downstream of the wellhead other
than oil in stock tanks).  Buyers and
Global may be present when the stock tanks are gauged.  At the Closing, title to Global’s Oil in
Storage will transfer to Buyers.  At the
Closing, the Purchase Price paid to Global shall be increased by an amount
determined by multiplying the estimated Oil in Storage by the price that would
have been received for such Oil had such Oil been sold on December 31,
2005.  This amount shall be set forth on
the Preliminary Settlement Statement.  

 

(b)                                 Proceeds,
Costs and Expenses. 
Except as otherwise provided in this Agreement, Sellers reserve all
rights to their proportionate share of proceeds (including, without limitation,
all rents, royalties and other revenues of any nature), including proceeds held
in suspense or escrowed, receipts, reimbursements, credits, accounts and income
attributable to the Assets and accruing before the Adjustment Time.  Except as otherwise provided in this
Agreement, all proceeds, receipts, credits, income and charges attributable to
the Assets and accruing from and after the Adjustment Time will be Buyers’
property and responsibility.  Except as
otherwise provided in this Agreement, Sellers will be responsible for (i) payment
of charges and invoices for costs and expenses accruing before the Adjustment
Time and attributable to the Assets, and (ii) payments necessary as the
result of sales of production from the Assets occurring before the Adjustment
Time (including payments out of proceeds held in suspense or escrow).

 

7

 

Buyers will be responsible
for (i) payment of all charges and invoices for costs and expenses
accruing after the Adjustment Time, (ii) payments necessary as the result
of sales of production from the Assets occurring after the Adjustment Time
(including payments to fund suspense obligations with respect to unknown
working interest, royalty interest and overriding royalty interest owners), and
(iii) disbursements after the Adjustment Time, but if either Seller makes
any payments or disbursements as contemplated in this Agreement, Buyers will
reimburse such Seller for the amounts paid. 
All amounts due from one party to the other under this section may
be made by debits and credits in the Preliminary Settlement Statement and the
Final Settlement Statement.  

 

(c)                                  Suspended
Funds. Global will retain all funds that are held in
suspense (or will be received into the suspense account with respect to oil
sales and other activities occurring while Global served as Unit Operator) with
respect to working interest, royalty interest and overriding royalty interest
owners as of the date that Global ceases to serve as Unit Operator and will be
solely responsible for the disbursement of such funds to the Persons entitled
thereto.

 

1.7.                              Settlement
Statements.

 

(a)                                  Preliminary
Settlement Statement.  No
later than ten (10) days prior to the Closing Date, Sellers shall prepare
and deliver to Buyers, based upon the best information available to Sellers, a
Preliminary Settlement Statement (the “Preliminary Settlement Statement”)
that reports estimates as of the Adjustment Time of the amounts due to and from
Buyers and Sellers (or either of them) hereunder on the Closing Date.

 

(b)                                 Final
Settlement Statement.  On
or before the last day of the sixth full month after the Closing Date, Sellers
shall prepare and deliver to Buyers a statement setting forth the Final
Settlement Statement as of the close of business on the business day
immediately preceding the Closing Date (the “Final Settlement Statement”).  Buyers shall cooperate with Sellers in
connection with, and shall furnish to Sellers all such information as Sellers
may reasonably require, in the preparation of the Final Settlement Statement.
The Final Settlement Statement shall set forth, in detail, all credits and
debits regarding operations of the NWU as of the Adjustment Time, including any
amounts paid or received thereafter, any other debits and credits, either cash
or accrued, but excluding income and franchise taxes, determined in accordance
with Sellers’ historic accounting practices, and shall state any adjustments
required to reflect differences between the estimates made in the Preliminary
Settlement Statement and the actual amounts due and owing the Parties as
provided in this Agreement as of the close of business on December 31,
2005. 

 

(c)                                  Accounting
Methods.  The Final
Settlement Statement will be prepared using the same accounting methods, policies,
practices and procedures, with consistent classifications and estimation
methodologies as were used in the preparation of the Preliminary Settlement
Statement.  Buyers shall cause the Buyers’
employees to assist Sellers in the preparation of the Final Settlement
Statement.

 

(d)                                 Access.  Each party shall provide the
other party and its representatives with reasonable access to books and records
and relevant personnel during the

 

8

 

preparation of the Final
Settlement Statement and the resolution of any disputes that may arise under
this Section 1.7.

 

(e)                                  Disagreement.  If Buyers disagrees with the determination of
the actual amounts due and owing as shown on the Final Settlement Statement,
Buyers shall notify Sellers in writing of such disagreement within thirty (30)
calendar days after delivery of the Final Settlement Statement, which notice
shall describe the nature of any such disagreement in reasonable detail,
identify the specific items involved and the dollar amount of each such
disagreement and provide reasonable supporting documentation for each such
disagreement. After the end of such thirty (30) calendar day period, neither
Buyers nor Sellers may introduce additional disagreements with respect to any
item in the Final Settlement Statement or increase the amount of any
disagreement, and any item not so identified shall be deemed to be agreed to by
Buyers and Seller and will be final and binding upon the parties.  During the thirty (30) calendar day period of
its review, Buyers shall have reasonable access to any documents, schedules or
workpapers used in the preparation of the Final Settlement Statement.

 

(f)                                    Dispute
Resolution. 
Buyers and Sellers agree to negotiate in good faith to resolve any such
disagreement.  If Buyers and Seller are
unable to resolve all disagreements properly identified by Buyers pursuant to Section 1.7(e) within
thirty (30) calendar days after delivery to Sellers of written notice of such
disagreement, then such disagreements shall be submitted for final and binding
resolution to a Neutral Accounting Firm to resolve such disagreements (the “Accounting
Arbitrator”).  The Accounting
Arbitrator shall be a Neutral Accounting Firm selected by mutual agreement of
Buyers and Sellers; provided that (i) if, within fifty (50) calendar days
after Buyers has delivered its notice of disagreement to Sellers pursuant to Section 1.7(e),
the parties are unable to agree on a Neutral Accounting Firm to act as
Accounting Arbitrator, each party shall select a Neutral Accounting Firm and
such firms together shall select the Neutral Accounting Firm to act as the
Accounting Arbitrator, and (ii) if any party does not select a Neutral
Accounting Firm within ten (10) calendar days of written demand therefor
by the other party, the Neutral Accounting Firm selected by the other party
shall act as the Accounting Arbitrator. 
The Accounting Arbitrator will only consider those items and amounts set
forth in the Final Settlement Statement as to which Buyers and Sellers have
disagreed within the time periods and on the terms specified above and must
resolve the matter in accordance with the terms and provisions of this
Agreement.  The Accounting Arbitrator
shall deliver to Buyers and Sellers, as promptly as practicable and in any
event within ninety (90) calendar days after its appointment, a written report
setting forth the resolution of any such disagreement determined in accordance
with the terms of this Agreement.  The
Accounting Arbitrator shall select as a resolution the position of either
Buyers or Sellers for each item of disagreement and may not impose an
alternative resolution.  The Accounting
Arbitrator shall make its determination based exclusively on presentations and
supporting material provided by the parties and not pursuant to any independent
review.  The determination of the
Accounting Arbitrator shall be final and binding upon Buyers and Sellers.  The fees, expenses and costs of the
Accounting Arbitrator shall be borne by the party whose position the Accounting
Arbitrator does not select.  Other than
such fees and expenses of the Accounting Arbitrator, Buyers and Sellers shall
each be responsible for their own costs and expenses incurred in connection
with any actions taken pursuant to Section 1.7(e) and this Section 1.7(f).

 

9

 

(g)                                 Procedure.  The parties hereto agree
that the procedure set forth herein with respect to the Final Settlement
Statement, and the purchase price adjustment provided herein, are not intended
to permit the introduction of different accounting methods, policies,
practices, procedures, classifications or estimation methodologies for purposes
of determining the asset and liability balances from those used in the
preparation of the Preliminary Settlement Statement.

 

SECTION 2. 
CLOSING

 

2.1.                              Closing
Date.  The Closing shall be
consummated on a date and at a time agreed upon by Buyers and Seller, but in no
event later than 11:00 a.m. on December 30, 2005, at the offices of
Sheppard Mullin Richter & Hampton, LLP, 501 West Broadway, 19th
Floor, San Diego, California 92101, or at such other place as shall be
agreed upon by Buyers and Seller.  The
time and date on which the Closing is actually held is referred to herein as
the “Closing Date.”

 

2.2.                              Buyers’
Closing Date Deliveries.  At the
Closing, Buyers shall deliver to Seller all of the following:

 

(a)                                  The delivery of
the Purchase Price to Sellers as provided in Section 1.3 above.

 

(b)                                 The
following-described executed and acknowledged instruments:

 

(i)                                     The Assignment,
Assumption and Bill of Sale and the Assignment and Assumption of Contracts and
Liabilities, providing for among others the assignment of the Assumed
Liabilities by Seller to Buyers and the assumption of the same by Buyers and the
sale of the Equipment to Buyers, substantially in the forms of Exhibit ”A-1”
and Exhibit ”A-2” executed by a duly authorized officer of Buyers; 

 

(ii)                                  All other
instruments and certificates reasonably required hereby;

 

(iii)                               Preliminary
Change of Ownership Report in the form required to record the conveyancing
instruments; and

 

(iv)                              The Holdback
Escrow Agreement.

 

(c)                                  A Preliminary
Settlement Statement that reports estimates as of the Effective Date of the
amounts due to and from Buyers and Sellers.

 

(d)                                 All other
instruments and certificates of assumption and release as Seller may reasonably
request in order to effectively make Buyers responsible for all Assumed
Liabilities and release Seller therefrom to the fullest extent permitted under
applicable Law.

 

(e)                                  A copy of each
of Buyer’s charters certified as of a recent date by the Secretary of State of
the state of its formation.

 

10

 

(f)                                    A certificate
of good standing for each of Buyers issued as of a recent date by the Secretary
of State of the states of their formation and California.

 

(g)                                 A certificate
of the secretary or an assistant secretary of Buyers, dated the Closing Date,
in form and substance reasonably satisfactory to Seller, as to (i) the
lack of amendments to the certificate of incorporation of Buyers since the date
of the certificate referred to in Section 2.2(c) above; (ii) the
bylaws of Buyers; (iii) the resolutions of the Board of Directors of
Buyers authorizing the execution and performance of this Agreement, any Buyers
Transaction Agreement and the transactions contemplated hereby and thereby; and
(iv) the incumbency and signatures of the officers of Buyers executing
this Agreement and any Buyers Transaction Agreement.

 

(h)                                 Counterparts of
real estate transfer tax or documentary stamp Tax Returns, if required.

 

(i)                                     A certified or
official bank check made payable to the appropriate taxing authority for the
amount of transfer tax imposed in connection with the conveyance of the Assets.

 

2.3.                              Sellers’
Closing Date Deliveries.  At the
Closing, Sellers shall deliver to Buyers all of the following:

 

(a)                                  The
following-described executed and acknowledged instruments:

 

(i)                                     The Assignment,
Assumption and Bill of Sale and the Assignment and Assumption of Contracts and
Liabilities, substantially in the forms of Exhibit ”A-1” and Exhibit ”A-2”
executed by a duly authorized officer of Buyers; 

 

(ii)                                  The Quitclaim Deed
– Surface Properties substantially in the form of Exhibit ”B”,
executed by a duly authorized officer or manager of Sellers; 

 

(iii)                               The Quitclaim Deed
– Mineral Properties substantially in the form of Exhibit ”C”,
executed by a duly authorized officer or manager of Sellers; 

 

(iv)                              All other
instruments and certificates reasonably required hereby;

 

(v)                                 Preliminary
Change of Ownership Report in the form required to record the conveyancing
instruments; and

 

(vi)                              The Holdback
Escrow Agreement.

 

(b)                                 A Preliminary
Settlement Statement that reports estimates as of the Effective Date of the
amounts due to and from Buyers and Sellers.

 

(c)                                  A duly executed
resignation as Operator of the NWU and Change of Operator Form to be filed
with the Department of Oil, Gas and Geothermal Resources in the form attached
as Exhibit ”D”.

 

11

 

(d)                                 Copies of all
instruments, certificates, documents and other filings (if applicable)
necessary to release the Assets from all Encumbrances other than Permitted
Encumbrances.

 

(e)                                  A copy of the
Articles of Organization of each Seller certified by the Secretary of State of
the State of California as of a recent date.

 

(f)                                    A certificate
of good standing of each Seller issued as of a recent date by the Secretary of
State of the State of California.

 

(g)                                 A certificate
of the Manager of each Seller, dated the Closing Date, in form and substance
reasonably satisfactory to Buyers, as to (i) the lack of amendments to the
articles of organization of each Seller since the date of the certificate
referred to in Section 2.3(e) above; (ii) the operating
agreement of each Seller; (iii) any resolutions of the Manager of each
Seller relating to the transactions contemplated by this Agreement and any
Seller Transaction Agreement; and (iv) the incumbency and signature of the
Manager of each Seller executing this Agreement and any Seller Transaction
Agreement.

 

(h)                                 A properly
executed certificate of nonforeign status, described under Treasury Regulation Section 1.1445-2(b)(2) (if
applicable).

 

SECTION 3. 
REPRESENTATIONS AND WARRANTIES OF SELLERS

 

As an inducement to Buyers
to enter into this Agreement and to consummate the transactions contemplated
hereby, each Seller hereby represents and warrants to Buyers as to itself and
the Assets owned by it as set forth below to such Seller’s Knowledge:

 

3.1.                              Organization
and Power and Authority of Seller. 
Seller is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of California.  Seller has the limited liability company
power and authority to own or lease and operate the Assets.

 

3.2.                              Authority
of Seller; Conflicts.

 

(a)                                  Seller has the
limited liability company power and authority to execute, deliver and perform
this Agreement and the Seller Transaction Agreements and its obligations
hereunder and thereunder.  The execution,
delivery and performance of this Agreement and the Seller Transaction
Agreements by Seller and its obligations hereunder and thereunder have been
duly authorized and approved by all necessary corporate action.  This Agreement has been duly authorized,
executed and delivered by Seller and (assuming the valid authorization,
execution and delivery of this Agreement by Buyers) is the legal, valid and
binding obligation of Seller, enforceable in accordance with its terms, and
each of the Seller Transaction Agreements has been duly authorized by Seller
and upon execution and delivery by Seller will be (assuming the valid
authorization, execution and delivery by each other party thereto) the legal,
valid and binding obligation of Seller enforceable in accordance with its
terms, in each case subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application relating to or affecting
creditors’ rights and to general equity principles.

 

12

 

(b)                                 Except as set
forth on Schedule 3.2, the execution, delivery and performance of
the transactions contemplated by this Agreement by Seller does not and will not
violate, conflict with, or result in the breach of, any term, condition or
provision of or require the consent of any person (excluding any Governmental
Authority) under: (i) any law, ordinance or governmental rule or
regulation of which the Seller has Knowledge and to which the Seller or the
Assets is subject; (ii) the governing documents of or any securities
issued by the Seller; or (iii) any of the Contracts listed on Schedule 1.2
which is not reflected in the public records (it being expressly understood
that Seller has not undertaken a review of any documents for purposes of making
this representation or any other representation or warranty set forth in this
Agreement and is under no obligation to do so). 

 

3.3.                              Condition
of Title.  Subject to the Permitted
Encumbrances, Sellers will convey Defensible Title to the Assets to
Buyers.  Sellers make no other
representation or warranty as to the condition of title to the Assets.

 

3.4.                              Litigation.  There is no litigation, proceeding or
governmental investigation pending or threatened in any court, arbitration
board, administrative agency or tribunal against or relating to Sellers that
would prevent or impede the consummation of this Agreement by Sellers.  Except as set forth on Schedule 3.4,
Sellers do not know of and have no reasonable ground to know of any basis for
any such litigation, proceeding or investigation, and the execution and
performance of this Agreement by them will not result in a default with respect
to any judgment, order, writ, injunction, decree, rule or regulation of
any applicable court or administrative agency. 
Except as disclosed on Schedule 3.4, there are no actions,
suits or proceedings pending, or to Sellers’ Knowledge threatened or noticed in
writing against Sellers or the Assets, which could have a Material Adverse
Effect on any of the Assets, including without limitation any written notice or
claim from any governmental authority or person claiming any violation of any
law, judgment, order, writ, injunction, decree, rule or regulation.

 

3.5.                              No
Brokers.  Neither Seller nor any
Person acting on their behalf has become obligated to pay any fee or commission
to any broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement.

 

3.6.                              Inducement.
Sellers acknowledge that their representations under this Section 3 are a
material inducement to Buyer to enter into this Agreement with, and close the
sale of the Assets from, Sellers.

 

3.7.                              No
Knowledge of Breach.  To the
Knowledge of Seller, none of the representations or warranties of Sellers
herein is inaccurate or false.

 

SECTION 4. 
REPRESENTATIONS AND WARRANTIES OF BUYERS

 

As an inducement to Seller
to enter into this Agreement and to consummate the transactions contemplated
hereby, each Buyer hereby represents and warrants to Seller as to itself as set
forth below to such Buyer’s Knowledge:

 

4.1.                              Organization
of Buyers.  Each Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its formation. 
Buyer has the corporate power and corporate authority to own or lease
and operate its assets.

 

13

 

4.2.                              Authority
of Buyers.

 

(a)                                  Buyer has the
corporate power and corporate authority to execute, deliver and perform this
Agreement and the Buyers Transaction Agreements and its obligations hereunder
and thereunder.  The execution, delivery
and performance of this Agreement and the Buyers Transaction Agreements by
Buyer and its obligations hereunder and thereunder have been duly authorized
and approved by all necessary corporation action.  This Agreement has been duly authorized,
executed and delivered by Buyers and (assuming the valid authorization,
execution and delivery of this Agreement by Seller) is the legal, valid and
binding obligation of Buyers, enforceable in accordance with its terms, and
each of the Buyer’s Transaction Agreements has been duly authorized by Buyer
and upon execution and delivery by Buyer will be (assuming the valid
authorization, execution and delivery by each other party thereto) the legal,
valid and binding obligation of Buyers enforceable in accordance with its
terms, in each case subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application relating to or affecting
creditors’ rights and to general equity principles.

 

(b)                                 The execution
and delivery by Buyer of this Agreement and the Buyers Transaction Agreements,
and the performance by Buyer of its obligations hereunder and thereunder, does
not and will not:

 

(i)                                     Violate any
provision of the certificates of incorporation or bylaws of Buyer;

 

(ii)                                  Violate any
provision of any applicable Law relating to Buyer; or

 

(iii)                               Require a
registration, filing, application, notice, consent, approval, order,
qualification, authorization, designation, declaration or waiver with, to or
from any Governmental Authority.

 

4.3.                              No
Litigation.  There is no litigation,
proceeding or governmental investigation pending or threatened in any court,
arbitration board, administrative agency or tribunal against or tribunal
against or relating to Buyer that would prevent or impede the consummation of
this Agreement by Buyer.  Buyer does not
know of and have no reasonable ground to know of any basis for any such
litigation, proceeding or investigation, and the execution and performance of
this Agreement by it will not result in a default with respect to any judgment,
order, writ, injunction, decree, rule or regulation of any applicable
court or administrative agency.

 

4.4.                              Securities
Laws.

 

(a)                                  Buyer
acknowledges that the solicitation of an offer for and the sale of the Assets
has not been registered under any securities laws.

 

(b)                                 Buyer intends
to acquire the Assets for its own benefit and account and is not acquiring the
Assets with the intent of distributing fractional undivided interests in them
or otherwise selling them in a manner that would be subject to regulation by
federal or state securities laws.  If
Buyer sells, transfers, or otherwise disposes of the Assets or fractional

 

14

 

undivided interests in them
in the future, it will do so in compliance with applicable federal and state
laws.

 

(c)                                  Buyer
represents that at no time has it been presented with or solicited by or
through any public promotion or other form of advertising in connection with this
transaction.

 

4.5.                              No
Brokers.  Neither Buyer nor any
Person acting on its behalf has become obligated to pay any fee or commission
to any broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement .

 

4.6.                              Financial
Ability.  Buyers collectively have,
and will have on the Closing Date, sufficient cash on hand from Buyers’
immediately available internal funds or available under a currently established
committed credit facility or unutilized lines of credit with financial
institutions to consummate the transactions contemplated by this Agreement and
perform its obligations hereunder (including, without limitation, its
obligation to pay the Purchase Price pursuant to Section 1.3).

 

4.7.                              No
Knowledge of Breach.  To the Knowledge
of Buyer, none of the representations or warranties of Seller herein is
inaccurate or false.

 

4.8.                              Independent
Analysis.  Buyer is an experienced
oil and gas company and operator.  It has
entered into this Agreement on the basis of its own independent judgment and
analysis.  Buyer is the current owner of
interests in the vicinity of the NWU and as such has express knowledge
concerning the Assets and the NWU.  Buyer
is in the business of purchasing and owning oil and gas properties.  Buyer recognizes that Sellers have not made
any representation or warranty upon which Buyer is relying in respect to the
prospects or operation of the assets subsequent to the Closing Date.  Buyer acknowledges that it has conducted an
independent investigation of the financial condition, results of operations,
Assets, Liabilities, properties and projected operations of the NWU and, in
making its determination to proceed with the transactions contemplated by this
Agreement, Buyer has relied solely on the results of such investigation and the
representations, warranties, covenants and agreements of Sellers set forth
herein, including the Schedules hereto. 
Such representations and warranties by Sellers constitute the sole and
exclusive representations and warranties of Sellers to Buyer in connection with
the transactions contemplated hereby, and Buyers acknowledges and agrees that
Sellers are not making any representation or warranty whatsoever, express or
implied, beyond those expressly given in this Agreement, including any warranty
disclaimed by Sellers in Section 6. 
Buyers further acknowledges and agrees that any cost estimates,
forecasts, projections or other predictions or forward-looking information that
may have been provided to Buyer or any of its employees, agents or
representatives were prepared for internal planning purposes only and are not
representations or warranties of Sellers, and no assurances can be given that
any estimated, forecasted, projected or predicted results will be achieved;
provided that the foregoing is not intended to, and shall not, limit the scope
of the representations and warranties contained herein.

 

15

 

SECTION 5. 
ACTION PRIOR TO THE ADJUSTMENT TIME

 

Buyers and Sellers covenant
and agree to take the following actions between the date hereof and the Adjustment
Time:

 

5.1.                              Operations
Prior to the Adjustment Time. 
Between the date hereof and the Adjustment Time, Sellers shall use
reasonable efforts to operate and carry on the operation of the NWU in the
ordinary course and substantially as operated immediately prior to the date of
this Agreement. Consistent with the foregoing, Sellers shall use their
respective reasonable efforts, consistent with good business practice to
preserve the goodwill of the suppliers, contractors, licensors, employees and
others having relations with Sellers in connection with the Assets.

 

5.2.                              Risk
of Loss; Insurance. Sellers, as Unit Operators, have in effect and will
keep in full force and effect prior to the Adjustment Time of this Agreement
adequate insurance policies and bonds covering the Assets issued by financially
responsible insurers at no less than existing levels of coverage.

 

5.3.                              Reasonable
Efforts.  Subject to the terms and
conditions of this Agreement, each party will use all reasonable efforts to
cause the Closing to occur (including, without limitation, the use of
reasonable efforts to execute and deliver any documents reasonably requested by
either party hereto and to satisfy such party’s conditions to Closing set forth
herein).  Each of Sellers and Buyers will
promptly notify the other promptly after learning of the occurrence of any
event or circumstance which would reasonably be expected to cause any condition
to Closing not to be satisfied.

 

5.4.                              Confidentiality.  The terms of the Confidentiality Agreement
are hereby incorporated by reference and shall continue in full force and
effect.  Buyers agrees that, if it
discovers after the Closing Date that any of its employees possesses any
confidential or proprietary document which Buyers is not entitled to possess,
it will immediately return such document to Seller or destroy such document
(and, upon request, certify as to the destruction thereof).

 

5.5.                              Notification
of Certain Other Matters.  In the event
that the Buyers become aware on or prior to the Closing Date (whether by
notification by Sellers (or either of them), updating of Schedules or
otherwise) of any breach of any representation or warranty of Sellers that but
for this Section 5.4 would entitle Buyers to not consummate the
Closing (whether due to facts or events occurring subsequent to the execution
of this Agreement or facts or events that existed on the date hereof), Buyers
shall notify Sellers in writing of any such breach within forty-eight (48)
hours after Buyers first becomes aware of such breach, and, to the extent such
breach is not cured by Sellers on or prior to the Closing Date, Buyers may
terminate this Agreement in accordance with Section 9.1; provided,
however, that Buyers shall have no such right to terminate if Buyers fails to
deliver written notice to Sellers within the forty-eight (48) hour period
described above.   In any case,
notwithstanding anything in this Agreement to the contrary, whether Buyers
proceeds to consummate the Closing or terminates this Agreement, Buyers shall
be deemed to have waived any and all rights, remedies or other recourse against
Sellers to which Buyers might otherwise be entitled in respect of such breach.

 

16

 

5.6.                              Employment.  Sellers will terminate all of Sellers’
employees of the NWU effective as of the Adjustment Time.  On or before December 30, 2005, WEP shall
offer “at will” employment to all of the then employees of the NWU, whether or
not actively employed on the Closing Date (e.g., including employees on
vacation and leave of absence, including maternity, family, sick or short-term
disability leave, and leave under the Family Medical Leave Act), at the same
location where such employee was employed immediately prior to the Closing Date
on at least the same wage rates or cash salary levels and levels of
responsibility, and on such other terms and conditions that are, in the
aggregate, not less favorable than those in effect immediately prior to the
Closing Date.  Such offers may be
contingent upon consummation of the Closing. 
Concurrently with delivery of the offers of employment described above, WEP
will provide Sellers with written confirmation that all employees received such
offers of employment.

 

SECTION 6. 
ADDITIONAL AGREEMENTS

 

6.1.                              General
Matters.  Buyers and Sellers make the
following disclaimers and notifications:

 

(a)                                  Except as
otherwise provided herein there are no express or implied warranties that apply
to the transactions contemplated herein.

 

(b)                                 IT IS EXPRESSLY
UNDERSTOOD BY THE PARTIES THAT NEITHER BUYERS NOR EITHER SELLER MAKES ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO TITLE (EXCEPT AS
PROVIDED IN SECTION 3.3 ABOVE) OR THE CONDITION OR STATE OF REPAIR
OF THE ASSETS, THEIR VALUE, QUALITY, MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR USES OR PURPOSES, NOR AS TO THE CURRENT VOLUME, NATURE, QUALITY,
CLASSIFICATION, OR VALUE OF THE HYDROCARBON RESERVES THEREUNDER OR COVERED
THEREBY, NOR WITH RESPECT TO ANY APPURTENANCES THERETO BELONGING OR
APPERTAINING TO THE ASSETS.  EXCEPT FOR ANY RIGHT TO INDEMNIFICATION FOR BREACH OF
ANY EXPRESS REPRESENTATION OR WARRANTY TO THE EXTENT PROVIDED UNDER SECTION 8,
BUYERS ACCEPT THE ASSETS IN “AS IS, WHERE IS” CONDITION AND SUBJECT TO ANY AND
ALL OBLIGATIONS, DUTIES, LIABILITIES, RESTRICTIONS, LIMITATIONS, WAIVERS AND
OBLIGATIONS RELATING THERETO. 
WITHOUT LIMITATION OF THE FOREGOING, BUYERS HEREBY WAIVES ANY AND ALL
RIGHTS AND REMEDIES BUYERS MAY HAVE AGAINST EITHER SELLER AND/OR THEIR
RESPECTIVE ASSOCIATED PARTIES ARISING FROM SAME INCLUDING, WITHOUT LIMITATION,
ANY RIGHTS AND REMEDIES BUYERS MAY HAVE AGAINST EITHER SELLER PURSUANT TO
CALIFORNIA’S UNFAIR PRACTICES ACT (CALIFORNIA BUSINESS AND PROFESSIONS CODE
SECTIONS 17200, ET SEQ.).

 

(c)                                  BUYERS
ACKNOWLEDGES AND AGREES THAT THE ASSETS HAVE BEEN UTILIZED FOR THE PURPOSE OF
EXPLORATION, DEVELOPMENT AND PRODUCTION OF OIL AND GAS, AND THAT MATERIALS
ASSOCIATED THEREWITH MAY HAVE BEEN STORED, KEPT, DISPOSED OF, ON OR IN THE
ASSETS. BUYERS ACKNOWLEDGES THAT EQUIPMENT, PLANTS, BUILDINGS, STRUCTURES,
IMPROVEMENTS, ABANDONED AND OTHER TANKS

 

17

 

AND PIPING, STORAGE
FACILITIES, GATHERING AND DISTRIBUTION LINES, WELLS AND OTHER PETROLEUM PRODUCTION
FACILITIES AND APPURTENANCES MAY BE LOCATED THEREON.  BUYERS ACKNOWLEDGES THAT THERE HAVE BEEN
SPILLS OF CRUDE OIL, PRODUCED WATER AND OTHER MATERIALS IN THE PAST ON AND IN
THE ASSETS. IN ADDITION, SOME PRODUCTION EQUIPMENT MAY CONTAIN ASBESTOS
AND NORM. IN THIS REGARD, BUYERS EXPRESSLY ACKNOWLEDGES AND AGREES THAT NORM MAY AFFIX
OR ATTACH ITSELF TO THE INSIDE OF WELLS, MATERIALS AND EQUIPMENT AS SCALE, OR
IN OTHER FORMS, AND THAT WELLS, MATERIALS AND EQUIPMENT LOCATED ON THE ASSETS MAY CONTAIN
NORM AND THAT NORM-CONTAINING MATERIAL MAY BE BURIED AND OTHERWISE
DISPOSED OF ON THE ASSETS.  BUYERS ALSO
EXPRESSLY UNDERSTANDS THAT SPECIAL PROCEDURES MAY BE REQUIRED FOR THE
REMOVAL AND DISPOSAL OF ASBESTOS AND NORM FROM THE EQUIPMENT AND LAND WHERE IT MAY BE
FOUND AND BUYERS ASSUMES ALL LIABILITY AND EXPENSE FOR SUCH ASSESSMENT,
REMOVAL, AND DISPOSAL OF ANY SUCH MATERIALS AND ASSOCIATED ACTIVITIES.

 

6.2.                              Data.
All data, evaluations, reports, and any other information, heretofore or
hereafter furnished Buyers by Sellers concerning any or all of the Assets, and
the operation thereof, have been and shall be furnished solely for Buyers’
convenience and have not constituted and shall not constitute a representation
or warranty of any kind by Sellers, and any reliance thereon by Buyers shall be
at Buyers’ sole risk and liability. 
Neither Seller represents or warrants the accuracy or completeness of
any information, data or materials furnished to Buyers with respect to this
transaction.

 

6.3.                              Hazardous
Substances.  The California Health
and Safety Code (California Health and Safety Code Section 25359.7)
provides that any owner of nonresidential real property who knows, or has
reasonable cause to believe, that any release of Hazardous Substances has come
to be located on or beneath the real property shall, prior to the sale of that
real property, give written notice of that condition to the Buyers. The term “Hazardous
Substances” includes without limitation, hazardous waste and substances
which are commonly used or contain material commonly used in oil field
operations. This subsection shall serve as notice from Sellers to Buyers
that some concentrations of Hazardous Substances may have come to be located
hereon or under the Assets.

 

6.4.                              Seismic
Hazards.  Some or all of the Assets
may be situated in a Seismic Hazard Zone as designated under the Seismic
Hazards Mapping Act (California Public Resources Code Sections 2690-2699.6).  Buyers and Sellers agree that Buyers has been
notified by Sellers that the Assets are, or may be, within a Seismic Hazard
Zone for all purposes related to this Agreement.

 

6.5.                              Earthquake
Zone. Some or all of the Assets may be situated in an Earthquake Fault Zone
under the Alquist-Priolo Earthquake Fault Zoning Act (California Public
Resources Code Sections 2621-2630) and the construction or development on the
Assets of any structure for human occupancy may be subject to the findings of a
geologic report prepared by a geologist registered in California, unless such
report is waived by the City or County of Los Angeles under the terms of
said Act.

 

18

 

SECTION 7. 
CONDITIONS PRECEDENT TO OBLIGATIONS TO CLOSING

 

7.1.                              No
Delay. The Parties hereby covenant that they shall each maintain their
respective corporate or limited liability company status and shall assure that
as of the Closing Date they will not be under any material corporate, legal or
contractual restriction that would prohibit or delay the timely consummation of
the transaction contemplated herein.

 

7.2.                              Related
Agreements.  The sale of the Assets
will be subject to all oil, gas, and mineral leases, assignments, subleases,
farm-out agreements, unit agreements, joint operating agreements, joint venture
agreements, pooling agreements, letter agreements, easements, rights-of-way,
gathering and transportation agreements, sales agreements, and other agreements
concerning or pertaining to such interests, including, without limitation, the
Unit Agreement and the Unit Operating Agreement (“Related Agreements”),
to the extent that they are binding on the Assets or either Seller or their
respective successors or assigns.

 

7.3.                              Conditions
Precedent To Obligations Of Buyers. The obligations of Buyers under this
Agreement shall, at the option of Buyers, also be subject to the satisfaction,
on or prior to the Closing Date, of the following conditions: 

 

(a)                                  No Termination.  Buyers shall not have terminated this
Agreement pursuant to Section 9.1. 

 

(b)                                 Deliveries by
Sellers. Sellers shall have delivered to Buyers at Closing all the items
specified to be delivered by Sellers in Section 2.3. 

 

(c)                                  No Injunction. There shall
not be in effect on the Closing Date any Court Order restraining or enjoining
the carrying out of this Agreement or the consummation of the transactions
contemplated by this Agreement. 

 

Notwithstanding the failure
of any one or more of the foregoing conditions in this Section 7.3,
Buyers may waive any one or more of such conditions and proceed with the
Closing. 

 

7.4.                              Conditions
Precedent To Obligations Of Seller. The obligations of Seller under this
Agreement shall, at the option of Seller, also be subject to the satisfaction,
on or prior to the Closing Date, of the following conditions: 

 

(a)                                  No Termination.  Sellers shall not have terminated this
Agreement pursuant to Section 9.1.

 

(b)                                 Delivery by
Buyers. Buyers shall have delivered to Seller at Closing all the items
specified to be delivered by Buyers in Section 2.2. 

 

(c)                                  No Injunction. There shall
not be in effect on the Closing Date any Court Order restraining or enjoining
the carrying out of this Agreement or the consummation of the transactions
contemplated by this Agreement. 

 

19

 

(d)                                 Third-Party
Notifications and Approvals.  The sale of the Assets may require the
approval or consent of lessors, joint interest owners, farm-outs, sublessors,
assignors, grantors, parties to agreements, governmental bodies having
jurisdiction, or other third parties. 
Receipt of such consents and approvals shall be a condition precedent to
Sellers’ obligations to close this transaction but shall not be a condition
precedent to Buyer’s obligations.  Buyer
shall promptly prepare and send notices to the holders of any such required
consent.  Sellers shall cooperate with
Buyers’ efforts to obtain such consents by timely providing such data
(operations experience, financial information, etc.) as may be reasonably
requested by any party from whom consent is required, as well as making people
available for any meetings that may be requested by such party from whom
consent is required.  However, failure to
obtain any consent shall not be grounds for termination of this Agreement by
Buyer or delay the Closing if such condition is waived by Sellers.

 

(e)                                  Replacement of
Guarantees and Letters of Credit.  Buyers shall have obtained replacement
arrangements (which shall include a full and complete release of Seller and its
Affiliates), of any and all guarantees, letters of credit, performance bonds or
other indebtedness of Seller and/or its Affiliates relating exclusively or
primarily to the NWU as set forth on Schedule 7.4, which
arrangements (and evidence thereof) shall be reasonably satisfactory to Seller.

 

(f)                                    Insurance
Policy.  Buyers shall have provided
Sellers with evidence that Buyers have arranged for either one or more policies
of Commercial General Liability Insurance (Claims Made Basis) to insure its
activities with respect to the NWU Unit Operations or one or more separate
endorsements for the NWU Unit Operations on its existing policy or policies,
including, but not limited to, pollution liability and coverage for sudden and
accidental leaks or spills (“Insurance”) for Buyers’ ownership and/or operation
of the NWU in an amount of at least Ten Million Dollars ($10,000,000) per
accident or occurrence, with a policy aggregate totaling at least Ten Million
Dollars ($10,000,000), from insurance carriers having a Best’s Rating of not
less than A-, with an endorsement naming Sellers as the additional insureds,
with severability of interest clause (gross liability) and waiver of
subrogation against Sellers which shall be primary as to any other existing,
valid, and collectible insurance, self-insurance, or fronting policy of
insurance. The policies evidencing the insurance must provide that (a) covered
liabilities include liabilities resulting from Buyers’ activities relating to
oil and gas operations and (b) Buyers’ activities relating to the Plugging
Obligations, and (c) ”pollution” includes, but is not limited to, sudden
and accidental oil spills and other contaminant spills, but does not cover
gradual leakage or gradual seepage of petroleum products or other
contaminants, into the air or water or onto land.  If requested by Sellers, Buyers shall permit Sellers
to examine the insurance policies, or at such Sellers’ option, Buyers shall
furnish the requesting company with copies, certified by the carriers, of
insurance policies carried in compliance with requirements hereof, and Buyers
shall deliver to Sellers, at least three (3) Business Days before Closing,
binding commitments by the insurance companies to issue the policies, and
certificates that such policies are in full force and effect within ten (10) days
after Closing, together with a copy of each such policy.  Buyers covenant that insurance meeting these
requirements will remain in effect with no material changes in coverage or
insureds until the latest of the termination of the NWU, the termination of all
oil and gas leases which are part of the Assets, or after Buyer has furnished
evidence satisfactory to Sellers that the Plugging Obligations have been
performed to completion and in accordance with applicable law.  The insurance policy will

 

20

 

provide that the insurer will
notify Sellers if the premium for the next policy period has not been paid
thirty (30) days before expiration of the current policy period.  Each Seller (or either of them) may then, if
it chooses, pay the premium on Buyers’ behalf. 
If either or both Sellers pays the premium, Buyer must reimburse such
party for amounts expended, with interest at twelve percent (12%) or the legal
rate, whichever is lower, until the reimbursement is made.  The Insurance in no way limits the
obligations of Buyer with respect to any claim for liability resulting from
Buyer’s ownership and/or operation of the Assets, oil spills, water spills,
Buyer’s performance of the Plugging Obligations, or any other obligations under
this Agreement.

 

Notwithstanding the failure
of any one or more of the foregoing conditions in this Section 7.5,
Sellers may waive any one or more of such conditions and proceed with the
Closing. 

 

SECTION 8. 
INDEMNIFICATION

 

8.1.                              Indemnification
by Seller.  After the Closing Date,
subject the limitations set forth in this Section 8, each Seller
shall indemnify and hold harmless each Buyers Group Member from and against any
and all Liabilities and Expenses incurred by such Buyers Group Member in
connection with or arising from: (a) any breach of any warranty or the
inaccuracy of any representation of such Seller contained in this Agreement,
and (b) any breach by such Seller of, or failure by such Seller to
perform, any of its covenants or obligations contained in this Agreement,
including the failure to pay any Excluded Liability; provided, however, that
the Sellers shall be required to indemnify and hold harmless under clause (a) of
this Section 8.1 with respect to Liabilities and Expenses incurred
by any Buyers Group Member only to the extent that the aggregate amount of such
Liabilities and Expenses with respect to either or both Sellers exceeds One
Hundred Twenty-Five Thousand Dollars ($125,000.00) (the “Basket Amount”),
and then only in respect of such excess; and provided, further, that the
aggregate amount required to be paid by either Seller pursuant to this Section 8.1
shall not exceed five percent (5%) of such Seller’s share of the Purchase Price
and shall be payable solely from the Holdback Escrow Account.

 

8.2.                              Indemnification
by Buyers.  After the Closing Date
and subject to the limitations set forth in this Section 8, Buyers
shall jointly and severally indemnify and hold harmless each Seller Group
Member from and against any and all Liabilities and Expenses incurred by such
Seller Group Member in connection with or arising from:  (a) any breach of any warranty or the
inaccuracy of any representation of Buyers contained in this Agreement, (b) any
breach by Buyers of, or failure by Buyers to perform, any of its covenants and
obligations contained in this Agreement, or (c) the Assumed Liabilities.

 

8.3.                              Notice
of Claims.

 

(a)                                  Any Buyers
Group Member or Seller Group Member seeking indemnification hereunder (the “Indemnified
Party”) shall give promptly to the party obligated to provide
indemnification to such Indemnified Party (the “Indemnitor”) a written
notice (a “Claim Notice”) describing in reasonable detail the facts
giving rise to the claim for indemnification hereunder and shall include in
such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith

 

21

 

upon which such claim is
based.  In addition, any Buyers Group
Member seeking indemnification hereunder shall deliver a copy of the Claim
Notice to the Escrow Agent concurrent with delivery of the Claims Notice to the
Indemnitor.  Except as otherwise provided
in Section 10.1 or the Holdback Escrow Agreement, the failure of
any Indemnified Party to give the Claim Notice promptly as required by this Section 8.3(a) shall
not affect such Indemnified Party’s rights under this Section 8
except to the extent such failure is actually prejudicial to the rights and
obligations of the Indemnitor.

 

(b)                                 After the
giving of any Claim Notice pursuant hereto, the amount of indemnification to
which an Indemnified Party shall be entitled under this Section 8
shall be determined:  (i) by the
written agreement between the Indemnified Party and the Indemnitor; (ii) by
a final judgment or decree of any court of competent jurisdiction; or (iii) by
any other means to which the Indemnified Party and the Indemnitor shall
agree.  The judgment or decree of a court
shall be deemed final when the time for appeal, if any, shall have expired and
no appeal shall have been taken or when all appeals taken shall have been
finally determined.  The Indemnified
Party shall have the burden of proof in establishing the amount of Liabilities
and Expenses suffered by it.  In the case
of any claim for indemnification made by any Buyers Group Member, the terms and
provisions of the Holdback Escrow Agreement shall apply.  All amounts due to the Indemnified Party as
so finally determined shall be paid by wire transfer within thirty (30)
calendar days after such final determination.

 

8.4.                              Third
Person Claims.

 

(a)                                  In order for a
Person to be entitled to any indemnification provided for under this Agreement
in respect of, arising out of or involving a claim or demand made by any third
Person against the Indemnified Party, such Indemnified Party must notify the
Indemnitor in writing, and in reasonable detail, of the third Person claim
promptly after receipt by such Indemnified Party of written notice of the third
Person claim; provided, however, that the failure of any
Indemnified Party to give such notice promptly as required by this Section 8.4(a) shall
not affect such Indemnified Party’s rights under this Section 8
except to the extent such failure is actually prejudicial to the rights and
obligations of the Indemnitor. 
Thereafter, the Indemnified Party shall deliver to the Indemnitor,
within five (5) calendar days after the Indemnified Party’s receipt
thereof, copies of all notices and documents (including court papers) received
by the Indemnified Party relating to the third Person claim.  Notwithstanding the foregoing, should a
Person be physically served with a complaint with regard to a third Person
claim, the Indemnified Party must notify the Indemnitor with a copy of the
complaint within five (5) calendar days after receipt thereof and shall
deliver to the Indemnitor within five (5) calendar days after the receipt
of such complaint copies of notices and documents (including court papers)
received by the Indemnified Party relating to the third Person claim (or in
each case such earlier time as may be necessary to enable the Indemnitor to
respond to the court proceedings on a timely basis).

 

(b)                                 In the event of
the initiation of any legal proceeding against the Indemnified Party by a third
Person, the Indemnitor shall have the sole and absolute right after the receipt
of notice, at its option and at its own expense, to be represented by counsel
of its choice and to control, defend against, negotiate, settle or otherwise
deal with any proceeding, claim, or demand which relates to any loss, liability
or damage indemnified against hereunder;

 

22

 

provided, however,
that the Indemnified Party may participate in any such proceeding with counsel
of its choice and at its expense.  The
parties hereto agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such legal proceeding, claim or
demand.  Such cooperation shall include
the retention and the provision of records and information which is reasonably
relevant to such third Person claim, and making employees available in a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder.  To the
extent the Indemnitor elects not to defend such proceeding, claim or demand,
and the Indemnified Party defends against or otherwise deals with any such
proceeding, claim or demand, the Indemnified Party may retain counsel, at the
expense of the Indemnitor, and control the defense of such proceeding.   Neither the Indemnitor nor the Indemnified
Party may settle or compromise any such proceeding, which settlement or compromise
obligates the other party to pay money, to perform obligations or to admit
liability without the written consent of the other party, such consent not to
be unreasonably withheld or delayed; provided that the consent of the
Indemnified Party shall not be required if the Indemnitor agrees in writing to
pay any amounts payable pursuant to such settlement or compromise and such
settlement or compromise includes a complete written release of the Indemnified
Party from further liability and does not impose any injunctive relief or other
operational restrictions on the Indemnified Party.  After any final Court Order shall have been
rendered and the time in which to appeal therefrom has expired, or a settlement
shall have been consummated, or the Indemnified Party and the Indemnitor shall
arrive at a mutually binding agreement with respect to each separate matter
alleged to be indemnifiable by the Indemnitor hereunder, the Indemnified Party
shall forward to the Indemnitor notice of any sums due and owing by it with
respect to such matter and the Indemnitor shall pay all of the sums so owing to
the Indemnified Party by wire transfer within thirty (30) calendar days after
the date of such notice.

 

8.5.                              Limitations.

 

(a)                                  Any indemnity
payment hereunder shall be treated for Tax purposes as an adjustment of the
Purchase Price to the extent such characterization is proper or permissible
under relevant Tax law, including court decisions, statutes, regulations and
administrative promulgations.

 

(b)                                 No party shall
have any liability under this Section 8 for any inaccuracy in or
breach of any representation or warranty by such party if the other party or
any of its officers, employees, attorneys or other representatives or advisors
had actual knowledge on or before the Closing Date of the facts as a result of
which such representation or warranty was inaccurate or breached.

 

(c)                                  For purposes of
determining the amount of any Liabilities and Expenses, such amount shall be
reduced by the amount of any insurance benefits and proceeds (collectively, “Insurance
Benefits”) received or otherwise payable to Buyers (or deemed paid to
thereto pursuant to the next sentence) in respect of the Liabilities and
Expenses (net of any deductible amounts).  For purposes of determining the
Insurance Benefits, if Buyers elects not to maintain insurance coverage
identical to the insurance coverage maintained by Sellers as of the Closing
Date, Buyers shall be deemed to have received Insurance Benefits equal to the
greater of

 

23

 

the Insurance Benefits it
would have received had it maintained such insurance policies in effect after
the Closing or the Insurance Benefits it actually receives.

 

(d)                                 In calculating
any Liability or Expense there shall be deducted (i) any indemnification,
contribution or other similar payment actually recovered by the Indemnified
Party from any third Person with respect thereto; and (ii) any Tax benefit
or refund actually received or enjoyed by the applicable Indemnified Party as a
result of such Liability or Expense, which Tax benefit shall be calculated
based on an assumed rate equal to the highest percent combined federal and
state Tax rates applicable to the Indemnified Party.  Any such amounts or benefits received by an
Indemnified Party with respect to any indemnity claim after it has received an
indemnity payment hereunder shall be promptly paid over to the Indemnitor; provided
that the Indemnified Party shall not be obligated to pay over any such amount
or benefit in excess of the amount paid by the Indemnitor to the Indemnified
Party with respect to such claim.

 

(e)                                  Except for
remedies that cannot be waived as a matter of Law and injunctive and
provisional relief, if the Closing occurs, this Section 8 shall (in
the absence of fraud) be the sole and exclusive remedy for breaches of this
Agreement (including any covenant, obligation, representation or warranty
contained in this Agreement or in any certificate delivered pursuant to this
Agreement) or otherwise in respect of the sale of the Assets contemplated hereby.  In furtherance of the foregoing, Buyers and
Sellers hereby waive on their own behalf and on behalf of each other applicable
Indemnified Party, to the fullest extent permitted under applicable Law, any
and all Actions it or they may have against Seller or Buyers, as the case may
be, arising under or based upon any Law (including, without limitation, (i) any
such Actions arising under or based on common law or otherwise, and (ii) any
and all claims for Liabilities and Expenses or contribution arising under any
Environmental Law).

 

(f)                                    No party hereto
shall have any liability for any special, exemplary, punitive or consequential
damages (including loss of profit or revenue) suffered or incurred by any
Buyers Group Member or Seller Group Member, as the case may be.

 

(g)                                 Seller shall
have no liability under any provisions of this Agreement for any Liabilities
and Expenses to the extent that such Liabilities and Expenses relate to actions
taken or omitted to be taken by Buyers or any of its Affiliates with the respect
to the Assets after the Closing Date.

 

8.6.                              Mitigation.  Each of the parties agrees to take all
reasonable steps to mitigate their respective Liabilities and Expenses upon and
after becoming aware of any event or condition which could reasonably be
expected to give rise to any Liabilities and Expenses that are indemnifiable
hereunder.

 

8.7.                              Subrogation.  Upon making any payment to the Indemnified
Party for any indemnification claim pursuant to this Section 8, the
Indemnitor shall be subrogated, to the extent of such payment, to any rights
which the Indemnified Party may have against any third-parties with respect to
the subject matter underlying such indemnification claim and the Indemnified
Party shall assign any such rights to the Indemnitor.

 

24

 

8.8.                              No
Offset.  The obligations hereunder of
Seller, on the one hand, and Buyers, on the other hand, are independent of the
obligations of the other hereunder and shall not be subject to any right of
offset, counterclaim or deduction.

 

SECTION 9. 
TERMINATION

 

9.1.                              Termination.

 

(a)                                  Notwithstanding
anything contained in this Agreement to the contrary, this Agreement may be
terminated only as follows:

 

(i)                                     by Sellers or
either of them, by giving joint written notice to Buyers on or after December 30,
2005, if Closing has not occurred and any of the conditions set forth in Section 7.4
is not satisfied or waived by such date, unless such satisfaction has been
frustrated or made impossible by any act or failure to act by Sellers or either
of them;

 

(ii)                                  by Buyers, by
giving joint written notice to Sellers on or after December 30, 2005, if Closing
has not occurred and any of the conditions set forth in Section 7.3
is not satisfied or waived by such date, unless such satisfaction has been
frustrated or made impossible by any act or failure to act by Buyers;

 

(iii)                               by Sellers or
either of them, by giving written notice to Buyers at any time, if Buyers has
breached any representation, warranty, covenant or agreement contained in this
Agreement and such breach has not been cured on or before the Closing Date;

 

(iv)                              by Buyers, by
giving joint written notice to Sellers at any time, if Sellers or either of
them have breached any
representation, warranty, covenant or agreement contained in this Agreement
that results in a Material Adverse Effect and such breach has not been cured on
or before the Closing Date; or

 

(v)                                 by mutual
written agreement of Sellers and Buyers.

 

(b)                                 In the event of
termination of this Agreement pursuant to Section 9.1(a) above:

 

(i)                                     Each party
shall return to the other party or destroy all documents concerning
confidential information of the other party (and, upon request, certify as to
the destruction thereof);

 

(ii)                                  No party shall
have any liability or further obligation to the other party hereunder, except
for obligations of confidentiality and non-use with respect to the other party’s
confidential information, which shall survive the termination of the Agreement,
and no party shall be entitled to any monetary damages or injunctive relief
(including specific performance) as a result of such termination, or any
indemnification under Section 8; provided, however,
that in no event shall any termination of this Agreement limit or restrict the
rights and remedies of any party hereto against any other party which has
willfully breached any of the agreements or other provisions of this Agreement
prior to the termination hereof; and

 

25

 

(iii)                               The provisions
of Sections 5.4 (Confidentiality), 10.2 (No Public Announcement),
10.3 (Notices), 10.6 (Entire Agreement), 10.7
(Interpretation), 10.10 (Expenses), 10.12 (Counterparts), 10.13
(Governing Law) and 10.14 (Jurisdiction) shall remain in full force and
effect. 

 

SECTION 10. 
GENERAL PROVISIONS

 

10.1.                        Survival of Covenants,
Representations and Warranties.  No
covenant or agreement contained herein to be performed prior to the Closing
Date shall survive the Closing Date unless otherwise expressly agreed by the
parties and any covenant and agreement to be performed after the Closing Date
shall survive the Closing indefinitely, except as otherwise provided
herein.  Except as expressly provided
otherwise herein, each representation and warranty contained herein shall
survive the Closing until, and will expire and be of no force and effect on,
the conclusion of six (6) months after the Closing Date.  Notwithstanding the foregoing, if an
indemnification claim is properly asserted prior to the expiration as provided
in this Section 10.1 of the representation or warranty that is the
basis for such claim, then such representation or warranty shall survive until,
but only for the purpose of, the resolution of such claim.  Any investigations by or on behalf of a party
hereto shall not constitute a waiver of such party’s right to enforce any
representation or warranty or covenant made by the other party contained
herein.  Thereafter, except with respect
to fraud or willful misconduct, the parties hereto shall, by virtue hereof, be
released from any liability whatsoever, including any indemnification
obligations under Section 8, with respect to any such
representation or warranty and shall, by virtue hereof, waive and release all
claims with respect thereto, whether known or unknown, contingent or fixed and
whether or not, in any such case, any party hereto (or any Affiliate of such
party) or any other Person has actual knowledge of such claims, or facts giving
rise to such claims.  In connection
therewith, each party hereby expressly waives all rights under any applicable
Law.

 

10.2.                        No Public Announcement.  From the date of this Agreement, neither
Buyers nor Seller shall, without the written approval of the other (such
approval not to be unreasonably withheld or delayed), make any press release or
other public announcement concerning the transactions contemplated by this
Agreement, except as and to the extent that any such party shall be so
obligated by applicable Law, in which case such party shall allow the other
party reasonable time to comment on such release or announcement and the
parties shall use their reasonable efforts to cause a mutually agreeable
release or announcement to be issued; provided, however, that the foregoing
shall not preclude communications or disclosures necessary to implement the
provisions of this Agreement or to comply with any accounting or Securities and
Exchange Commission disclosure obligations or the rules of any stock
exchange or national market system.

 

10.3.                        Notices.  All notices or other communications required
or permitted hereunder shall be in writing and shall be deemed given or
delivered (a) when delivered personally, against written receipt, (b) if
sent by registered or certified mail, return receipt requested, postage
prepaid, when received, (c) when received by facsimile transmission, if
confirmed by the other means described in clause (a) or (b), and (d) when
delivered by a nationally recognized overnight courier service, prepaid, and
shall be addressed as follows:

 

26

 

If to Sellers, to:

 

Global Oil Productions, LLC

2209 East I Street

Wilmington, California 90748

Attention:  Michelle Hsueh, Manager

Facsimile: (562) 435-2941

 

and to

 

Wilmington Management, LLC

2209 East I Street 

Wilmington, California 90748

Attention:  Michelle Hsueh, Manager

Facsimile:  (562) 435-2941  

 

with a copy to:

 

Sheppard Mullin Richter &
Hampton LLP

501 West Broadway, 19th
Floor

Attention: Joseph S. Wu, Esq.

Facsimile: (619) 338-6500

 

If to Buyers, to:

 

Warren Resources of
California, Inc. and

Warren Resources, Inc.

301 East Ocean Blvd., Suite 1010

Long Beach, CA 90802

Attention:  Steven Buchanan

Facsimile:  (562) 951-3546

 

and to

 

Warren E&P, Inc.

105 West 3rd
Street, Suite 302

Roswell, NM 88201

Attention: Ellis G. Vickers, Esq.,

SVP & General
Counsel

Facsimile: (505) 622-5144

 

or to such other address as
such party may indicate by a written notice delivered to the other parties
hereto.

 

10.4.                        Successors and Assigns.  The rights of a party under this Agreement
shall not be assignable by such party without the written consent of the other
party hereto.  This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. 
Nothing in this Agreement, expressed or implied, is

 

27

 

intended or shall
be construed to confer upon any Person, other than the parties and successors
and assigns permitted by this Section 10.4, and the Indemnified
Parties under Section 8, any right, remedy or claim under or by reason
of this Agreement.

 

10.5.                        Seller’s Access to Records
after Closing.  For a period of six (6) years
after the Closing Date, Seller and its representatives shall have reasonable
access to all of the books and records of the NWU (including any books and records
relating to Taxes), other than any books and records which are subject to the
attorney-client privilege, to the extent that such access may reasonably be
required by Seller in connection with matters relating to or affected by the
operations of the NWU, including Excluded Liabilities, prior to the Closing
Date.  Such access shall be afforded by
Buyers upon receipt of reasonable advance notice and during normal business
hours in a manner so as to not unreasonably interfere with the operations of
the NWU.  Seller shall be exclusively
responsible for any costs or expenses incurred by it pursuant to this Section 10.5.  If Buyers shall desire to dispose of any of
such books or records prior to the expiration of such six (6) year
period, Buyers shall, prior to such disposition, give Seller a reasonable
opportunity, at Seller’s expense, to segregate and remove such books and
records as Seller may select.

 

10.6.                        Entire Agreement; Amendments.  This Agreement, the Schedules and Exhibits
referred to herein, the documents delivered on or after the Closing Date
pursuant hereto and the Confidentiality Agreement contain the entire
understanding of the parties hereto with regard to the subject matter contained
herein or therein, and supersede all other prior agreements, understandings,
term sheets, heads of terms or letters of intent between or among any of the
parties hereto.

 

10.7.                        Interpretation.

 

(a)                                  Titles and
headings to sections and subsections herein are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.

 

(b)                                 The Schedules
referred to herein shall be construed with and as an integral part of this
Agreement to the same extent as if they were set forth verbatim herein.  Disclosure of any fact or item in any Schedule hereto
referenced by a particular Section in this Agreement shall be deemed to
have been disclosed with respect to every other Section in this
Agreement.  Neither the specification of
any dollar amount in any representation or warranty contained in this Agreement
nor the inclusion of any specific item in any Schedule hereto is intended
to vary the definition of “Material Adverse Effect” or to imply that
such amount, or higher or lower amounts, or the item so included or other
items, are or are not material, and no party shall use the fact of the setting
forth of any such amount or the inclusion of any such item in any dispute or
controversy between the parties as to whether any obligation, item or matter
not described herein or included in any Schedule is or is not material for
purposes of this Agreement.  Unless this
Agreement specifically provides otherwise, neither the specification of any
item or matter in any representation or warranty contained in this Agreement
nor the inclusion of any specific item in any Schedule hereto is intended
to imply that such item or matter, or other items or matters, are or are not in
the ordinary course of business, and no party shall use the fact of the setting
forth or the inclusion of any such item or matter in any dispute or controversy
between

 

28

 

the parties as to whether
any obligation, item or matter not described herein or included in any Schedule is
or is not in the ordinary course of business for purposes of this Agreement.

 

(c)                                  Seller may,
from time to time prior to or at the Closing, by notice in accordance with Section 10.3
of this Agreement, supplement, amend or create any Schedule, in order to add
information or correct previously supplied information.  No such supplement, amendment or addition
shall be evidence, in and of itself, that the representations and warranties in
the corresponding Section are no longer true and correct in all material
respects.  It is specifically agreed that
such Schedules may be supplemented, amended and/or added to, to add immaterial,
as well as material, items thereto.  No
such supplemental, amended or additional Schedule shall be deemed to cure
any breach for purposes of Section 9.1(a)(iv).  If, however, the Closing occurs, any such
supplement, amendment or addition will be effective to cure and correct for all
other purposes any breach of any representation, warranty, covenant or
agreement which would have existed if Seller had not made such supplement,
amendment or addition, and all references to any Schedule hereto which is
supplemented or amended as provided in this Section 10.7 shall for
all purposes after the Closing be deemed to be a reference to such Schedule as
so supplemented or amended.  In such
case, Buyers shall be deemed to have waived any and all rights, remedies or
other recourse against Seller to which Buyers might otherwise be entitled in
respect of such breach, including any rights or remedies under Section 8,
and no reduction to the Purchase Price shall be made as a result of any such
breach.

 

(d)                                 For the
purposes of this Agreement, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms “hereof”,
“herein” and “herewith” and words of similar import shall be construed to refer
to this Agreement in its entirety and to all of the Schedules and not to any
particular provision, unless otherwise stated, and (iii) the term “including”
shall mean “including, without limitation.”

 

(e)                                  This Agreement
shall be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting or causing any
instrument to be drafted.

 

10.8.                        Amendments and Waivers.  Any term or provision of this Agreement may
be amended or waived, or the time for its performance may be extended, by the
party or parties entitled to the benefit thereof.  Any such amendment or waiver, including any
such amendment to or waiver of this Section 10.8, shall be validly
and sufficiently authorized for the purposes of this Agreement if, as to any
party, it is authorized in writing by an authorized representative of such
party.  The failure of any party hereto to
enforce at any time any provision of this Agreement shall not be construed to
be a waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every such provision.  No waiver
of any breach of this Agreement shall be held to constitute a waiver of any
other or subsequent breach.

 

10.9.                        Bulk Sales Laws.  The parties hereby waive compliance with the
bulk sales laws of any state in which the Assets are located.

 

29

 

10.10.                  Expenses.  Each party hereto will pay all costs and
expenses incident to its negotiation and preparation of this Agreement and to
its performance and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, including the fees,
expenses and disbursements of its counsel, accountants, advisors and
consultants.

 

10.11.                  Partial Invalidity.  Wherever possible, each provision hereof
shall be interpreted in such a manner as to be effective and valid under
applicable Law.  In case any one or more
of the provisions contained herein shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such provision or provisions
shall be ineffective to the extent, but only to the extent, of such invalidity,
illegality or unenforceability, without invalidating the remainder of such
invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.

 

10.12.                  Execution in Counterparts;
Facsimile.  This Agreement may be
executed in two or more counterparts and via facsimile, each of which shall be
considered an original instrument, but all of which shall be considered one and
the same agreement, and shall become binding when one or more counterparts have
been signed by each of the parties hereto and delivered to Seller and Buyers.

 

10.13.                  Governing Law.  This Agreement and any disputes hereunder
shall be governed by and construed in accordance with the internal laws of the
State of California without giving effect to any choice or conflict of law
provision or rule (whether of the State of California or any other
jurisdiction) that would cause the application of laws of any jurisdiction
other than those of the State of California.

 

10.14.                  Jurisdiction; Waiver of Jury Trial.  The parties hereby agree that any Action
arising out of or related to this Agreement shall be conducted only in Los
Angeles, California.  Each party hereby
irrevocably consents and submits to the exclusive personal jurisdiction of and
venue in the federal and state courts located in Los Angeles, California.  Each party hereto hereby waives to the
fullest extent permitted by applicable Law, any right it may have to a trial by
jury in respect of any litigation directly or indirectly arising out of, under
or in connection with this Agreement or any transaction contemplated
hereby.  Each party agrees to accept
service of any summons, complaint or other initial pleading made in the manner
provided for the giving of notices in Section 10.3.  Nothing in this Section 10.14,
however, shall affect the right of any party to serve such summons, complaint
or initial pleading in any other manner permitted by Law.

 

10.15.                  Attorneys’
Fees.  If any Action for the
enforcement of this Agreement is brought, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions
hereof, the successful or prevailing party shall be entitled to recover
reasonable attorneys’ fees and other costs incurred in that proceeding, in
addition to any other relief to which it may be entitled.

 

10.16.                  Time of Essence.  Time is of the essence for each and every
provision of this Agreement.

 

30

 

10.17.                  Disclaimer of Warranties.  Sellers makes
no representations or warranties with respect to any projections, forecasts or
forward-looking information provided to Buyers. There is no assurance that any
projected or forecasted results will be achieved.  EXCEPT AS TO THOSE MATTERS EXPRESSLY COVERED
BY THE REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT AND THE SELLER
TRANSACTION AGREEMENTS, SELLERS ARE SELLING THE ASSETS AND ASSIGNING THE
ASSUMED LIABILITIES ON AN “AS IS, WHERE IS” BASIS, AND SELLERS DISCLAIM ALL
OTHER WARRANTIES, REPRESENTATIONS AND GUARANTIES, WHETHER EXPRESS OR
IMPLIED.  SELLERS MAKE NO REPRESENTATION OR WARRANTY AS TO
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AND NO IMPLIED WARRANTIES
WHATSOEVER.  Without limiting the
generality of the foregoing, Buyers is thoroughly familiar with the physical
condition and state of repair of the Assets and agrees to take title to the
Assets “AS IS, WHERE IS” in their current condition and state of repair, subject
to reasonable use, wear and tear and natural deterioration between the date
hereof and the Closing Date, without any reduction in the Purchase Price or
claim of any kind.  Buyers acknowledges
that neither Sellers nor any of their respective representatives nor any other
Person has made any representation or warranty, express or implied, as to the
accuracy or completeness of any memoranda, charts, summaries, presentations or
schedules heretofore made available by Sellers or their respective representatives
to Buyers or any Affiliate of Buyers or any other information which is not
included in this Agreement and the Seller Transaction Agreements or the
Schedules hereto, and neither Sellers nor any of their respective
representatives nor any other Person will have or be subject to any Liability
to any other Person resulting from the distribution of any such information to,
or use of any such information by any Buyers Group Member or any other Person.

 

10.18.                  References to U.S. Dollars.  All references in this Agreement to amounts
of money expressed in dollars are references to United States dollars, unless
otherwise indicated.

 

10.19.                  Further Assurances.

 

(a)                                  At and after
the Closing Date, and without further consideration therefor, (i) Seller
shall execute and deliver to Buyers such further documents, instruments and
certificates of conveyance and transfer and shall take, or cause to be taken,
all such further actions as Buyers may reasonably request in order to more
effectively convey and transfer the Assets from Seller to Buyers and in order
to put Buyers in operational control of the NWU, or for aiding, assisting,
collecting and reducing to possession any of the Assets and exercising Buyers’
rights with respect thereto, and (ii) Buyers shall execute, or shall
arrange the execution of, and deliver to Seller such further instruments and
certificates of assumption and release as Seller may reasonably request in
order to effectively make Buyers responsible for all Assumed Liabilities and
release Seller therefrom to the fullest extent permitted under applicable Law.

 

(b)                                 Buyers and
Seller shall cooperate to insure prompt conveyance and delivery by (i) Seller
to Buyers of any Asset not conveyed to Buyers at the Closing and (ii) Buyers
to Seller of any asset conveyed to Buyers at the Closing or remaining at the
NWU that is not an Asset.  

 

31

 

10.20.                  No Rescission.  Upon Closing, neither Buyers nor Seller shall
be entitled to rescind the purchase of the Assets by Buyers by virtue of any
failure of any party’s representations and warranties herein to have been true
or any failure by any party to perform its obligations hereunder.

 

10.21.                  Specific Performance.  Each party acknowledges and agrees that the
other party may be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached.  Accordingly,
each party agrees that the other party may be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter.

 

SECTION 11. 
DEFINITIONS

 

11.1.                        Definitions.  In this Agreement, the following terms have
the meanings specified or referred to in this Section 11.1 and
shall be equally applicable to both the singular and plural forms.  Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.

 

“Accounting Arbitrator”
is defined in Section 1.7(f).

 

“Action” means any lawsuit,
claim, proceeding, litigation, arbitration, action, investigation, inquiry,
cause of action, right of recovery or chose in action.

 

“Adjustment Time” is
defined in Section 1.5(a).

 

“Affiliate” means,
with respect to any Person, any other Person, which directly or indirectly
controls, is controlled by or is under common control with such Person.

 

“Agreement” means
this Asset Purchase Agreement, together with the Schedules and Exhibits
attached hereto.

 

“Assets” shall mean
the following right, title and interest within any and all aspects of the
NWU:  Fault Block No. 2, consisting
of approximately 1,036 acres of mineral rights in the Wilmington area, bounded
by Santa Fe Avenue to the east, Hyatt Avenue to the west, E Street to the south,
and O Street to the north, including:  (a) 100%
of the working interests in the NWU (subject to royalty burdens of not greater
than 18.5%), (b) royalty interests and overriding royalty interests,
including rights to acquire the same, owned by Global and/or its affiliates, if
any; (c) all existing and future wells drilled or developed on the NWU; (d) all
surface rights, estates and properties in, on or relating to the NWU, namely
approximately 11.87 acres of properties as identified in Schedule 11.1,
as well as all lease, contract and related rights; (e) all personal
property, fixtures and field inventory, including pipe, tubing, equipment, rig
and related items; and (f) all lease files, land files, well files, gas
and oil sales contract files, gas processing files, division order files,
abstracts, land surveys,
proprietary geologic and geophysical data which Sellers have a right to sell or
license and if the Sellers do not have the right to sell or license such data,
then the Sellers will grant the Buyer access to such data in order

 

32

 

to review the same;
non-confidential logs; maps; engineering data and reports; reserve studies,
evaluations and files and all other books, records, data, files, maps and
accounting records related solely to the Assets, or used or held for use solely
in connection with the maintenance or operation thereof, but excluding (i) any
books, records, data, files, maps, accounting records and other materials 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 the terms hereof, (ii) computer software (iii) work product of
legal counsel and all other privileged materials or communications, (iv) books,
records and materials relating to the negotiation and consummation of the sale
of the Assets, and (v) books, records and other material relating to
Sellers’ internal governance, litigation, Tax Returns, Excluded Assets or
Excluded Liabilities; provided, however, that Sellers may retain the originals
of such files and other records as may be required for litigation, tax,
accounting, and auditing purposes and provide Buyer with copies thereof.

 

“Assignment and
Assumption Agreement” is defined in Section 2.2(b)(i).

 

“Assumed Liabilities”
is defined in Section 1.2(b).

 

“Basket Amount” is
defined in Section 8.1.

 

“Business Day” means
a day other than Saturday, Sunday or any day on which banks located in the
State of California are authorized or obligated to close.

 

“Buyers” is defined
in the preamble of this Agreement.

 

“Buyers Group Member”
means Buyers and its Affiliates and their respective directors, officers,
employees, stockholders, agents, attorneys, consultants, advisors and
representatives and their respective successors and assigns.

 

“Buyers Transaction
Agreements” means all agreements, instruments and documents being or to be
executed and delivered by Buyers under this Agreement or in connection
herewith.

 

“CERCLA” means the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended.

 

“Claim Notice” is
defined in Section 8.3(a).

 

“Closing” means the
consummation of the transactions contemplated by Section 2.

 

“Closing Date” is
defined in Section 2.1.

 

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

 

“Confidentiality
Agreement” means the Confidentiality Agreement dated October 31, 2005,
between Buyers and Sellers (or their representatives).

 

33

 

“Contract” means any
written contract, agreement, license, lease, guaranty, indenture, sales or
purchase order or other legally binding commitment in the nature of a contract
to which a Seller is a party.

 

“Court Order” means
any judgment, order, writ, decision, injunction, award or decree of any
foreign, federal, state, local or other court or tribunal and any ruling or
award in any arbitration proceeding.

 

“Defensible Title”
means such title to the Assets as is deducible from public records, is free and
clear of Encumbrances other than (i) Permitted Encumbrances and (ii) any
other Encumbrance made, done or suffered by, through or under the Sellers, or
either of them, which is not reflected in public records.

 

“Encumbrance” means
any lien, encumbrance, claim, charge, security interest, mortgage, deed of
trust, pledge, easement, conditional sale or other title retention agreement,
defect in title or other restriction of a similar kind, other than Permitted
Encumbrances.

 

“Environmental Laws”
means all past, present and future federal, state, local or foreign laws,
statutes, ordinances, regulations, rules, judgments, orders, notice
requirements, court decisions, agency guidelines or principles of law,
restrictions and licenses, which (a) regulate or relate to the protection
or clean-up of the environment; the use, treatment, storage, transportation,
handling, disposal or release of Hazardous Substances; the preservation or
protection of waterways, groundwater, drinking water, air, wildlife, plants or
other natural resources; or the health and safety of persons or property,
including, without limitation. protection of the health and safety of
employees; or (b) impose liability with respect to any of the foregoing.

 

“Environmental
Obligations” has the meaning set forth in Section 1.2(b)(v).

 

“Equipment” means all
of Sellers’ furniture, fixtures, equipment, and appurtenances associated with
or related to the NWU.

 

“Escrow
Agent” and “Escrow” mean, respectively, First
American Title Company and the escrow relationship established with the Escrow
Agent pursuant to the terms of this Agreement.

 

“Excluded Assets” is
defined in Section 1.1(c).

 

“Excluded Liabilities”
is defined in Section 1.2(c).

 

“Expenses” means any
and all reasonable out-of-pocket expenses incurred in connection with investigating,
defending or asserting any claim, action, suit or proceeding incident to any
matter indemnified against hereunder (including, without limitation, court
filing fees, court costs, arbitration fees or costs, witness fees and
reasonable fees and disbursements of legal counsel, investigators, expert
witnesses, accountants and other professionals).

 

“Final Settlement
Statement” means the Final Settlement Statement to be delivered by Sellers
pursuant to Section 1.7(b).

 

34

 

“Global” means Global
Oil Production, LLC, a California limited liability company.

 

“Governmental Authority”
means any foreign, domestic, federal, territorial, state or local governmental
authority, quasi-governmental authority, court, commission, board, bureau,
agency or instrumentality, or any regulatory, administrative or other
department, agency, or any political or other subdivision, department or branch
of any of the foregoing.

 

“Hazardous Substances”
shall mean any quantity of asbestos in any form, urea formaldehyde, PCBs, radon
gas, crude oil or any fraction thereof, all forms of natural gas, petroleum
products or by-products, any radioactive substance, any toxic, infectious,
reactive, corrosive, ignitable or flammable chemical or chemical compound and
any other hazardous substance, material or waste (as defined in, or for
purposes of, any Environmental Law), whether solid, liquid or gas.

 

“Holdback Amount” is
defined in Section 1.3(d)(ii).

 

“Holdback Escrow Account”
is defined in Section 1.3(d)(ii).

 

“Holdback Escrow
Agreement” means the escrow agreement in the form attached as Exhibit ”E”,
to be entered into among Sellers, Buyers and the Escrow Agent.

 

“Income Taxes” means
Taxes imposed on or measured with respect to net income.

 

“Indemnified Party”
is defined in Section 8.3(a).

 

“Indemnitor” is
defined in Section 8.3(a).

 

“Insurance” is
defined in Section 7.5.

 

“Insurance Benefits”
is defined in Section 8.5(c).

 

“IRS” means the
United States Internal Revenue Service.

 

“Knowledge of Buyer,”
“Buyers’ Knowledge” or “Knowledge,” when used in connection with
Buyer, means, as to a particular matter, the actual current knowledge of the
following persons at Buyers: the Person who has executed this Agreement on
behalf of each Buyer entity.

 

“Knowledge of Seller,”
“Sellers’ Knowledge” or “Knowledge,” when used in connection with
Sellers, means, as to a particular matter, the actual current knowledge of Michelle
Hsueh (without any duty of inquiry).

 

“Law” means any law,
statute, treaty, rule, regulation, ordinance, order, decree, consent decree or
similar instrument or determination or award of an arbitrator or a court or any
other Governmental Authority.

 

35

 

“Liability (and with
correlative meaning, “Liabilities”)” means all obligations, damages, fines,
fees, penalties, and other liabilities (or contingencies that have not yet
become liabilities), whether absolute, accrued, matured, contingent (or based
upon any contingency), known or unknown, fixed or otherwise, or whether due or
to become due, including without limitation, any fines, penalties, judgments,
awards or settlements respecting any judicial, administrative or arbitration
proceedings or any damages, losses, claims or demands.

 

“Material Adverse Effect”
means any change, circumstance or effect that does have, or would reasonably be
expected to have, a material adverse effect on the Assets, financial condition
or results of operations of the NWU or the ability of Seller to consummate the transactions
contemplated by this Agreement; provided, however, that Material
Adverse Effect shall exclude any adverse changes or conditions as and to the
extent such changes or conditions relate to or result from (a) public or
industry knowledge of the transactions contemplated by this Agreement
(including, without limitation, any action or inaction by the Business’
employees and vendors) or (b) general economic conditions or other
conditions generally affecting the industry in which Sellers’ Mineral Properties
compete.

 

“Neutral Accounting Firm”
means an independent accounting firm of nationally recognized standing that has
not rendered services domestically to Buyers or Seller, or any Affiliate of
either, within twelve (12) months prior to the date hereof.

 

“NWU” means the North
Wilmington Unit of the Wilmington Oil Field located in Los Angeles County,
California, as established by the Unit Agreement.

 

“Oil” means crude
oil, distillate, drip gasoline, condensate, and other liquid hydrocarbons.

 

“Oil in Storage” is
defined in Section 1.6(a).

 

“Operator” means the
Person recognized as operator of the NWU by the applicable regulatory agency.

 

“Party”
or “Parties” means Global, Wilmington, WRC, WEP and WRI, individually or
collectively.

 

“Permits” means all
licenses, permits, franchises, approvals, authorizations, consents or orders
of, or filings with, any Governmental Authority, or any other Person, necessary
for the conduct of, or relating to the operation of, the NWU.

 

“Permitted Encumbrances”
means any or all of the following:

 

(a)                                  Royalties and
any overriding royalties, reversionary interests and other burdens owned by
third parties to the extent that they do not, individually or in the aggregate,
impair the Sellers’ rights to receive proceeds of production from the Mineral
Properties;

 

36

 

(b)                                 The Unit
Agreement, the Unit Operating Agreement and any other leases, unit agreements,
pooling agreements, operating agreements, and division orders applicable to the
Assets that are of record, or subject to which Sellers acquired the Assets;

 

(c)                                  Preferential
rights to purchase the Assets other than any such preferential rights granted
by Sellers;

 

(d)                                 Third-party
consent requirements and similar restrictions other than such requirements
created by Sellers;

 

(e)                                  A lien to
secure payment of Property Taxes not delinquent and the lien for supplemental
taxes assessed pursuant to Chapter 3.5 commencing with Section 7.5 of the
California Revenue and Taxation Code;

 

(f)                                    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);

 

(g)                                 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;

 

(h)                                 Easements,
rights-of-way, restrictions, covenants, conditions, servitudes, permits,
preferential rights, consent requirements, liens, and other rights and obligations
that are of record, that are apparent from physical inspection of the Assets,
or subject to which Sellers acquired the Assets;

 

(i)                                     That certain
unrecorded quitclaim mineral deed granted by Louis M. Vidaillet Trust on
or about May 16, 2005, in favor of Global Oil Production, LLC;

 

(j)                                     That certain
unrecorded quitclaim mineral deed granted by Ann Marik on or about October 27,
2005, in favor of Global Oil Production, LLC;

 

(k)                                  That certain
unrecorded quitclaim deed executed by Global Oil Production, LLC, on or about June 7,
2001, in favor of Seymour Waterman as Trustee of the Seymour Waterman and Betty
Joyce Waterman Intervivos Trust dated January 7, 1982;

 

(l)                                     That certain
unrecorded quitclaim deed and reconveyance easement executed by Topko North
Wilmington General Partnership on April 17, 1995, in favor of Russell H.
Cox and Beverly J. Cox;

 

(m)                               That certain
unrecorded quitclaim deed executed by Global Oil Production, LLC, on November 17,
2005, in favor of Dennis Debritz; and

 

(n)                                 Any Encumbrance
included within the Assumed Liabilities.

 

37

 

“Person” means an
individual, partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.

 

“Plugging Obligations”
is defined in Section 1.2(b)(iii).

 

“Preliminary Settlement
Statement” means the Preliminary Settlement Statement to be delivered by
Sellers pursuant to Section 1.7(a).

 

“Production
Taxes” means all taxes (other than Property Taxes and income taxes) imposed
on or with respect to the production of Oil, gas, or other hydrocarbons or
minerals, or the receipt of proceeds from their sale (including severance,
production, excise taxes, and the State of California Department of
Conservation Tax).

 

“Property or Properties”
means the real property in which and on which the Assets exist or are located,
whether in whole or in part

 

“Property Taxes”
means ad valorem taxes
(including production-based ad valorem
taxes), real property taxes, personal property taxes, the California Mining
Rights Tax and similar obligations applicable to the Assets, which will be
apportioned between Sellers (on the one hand) and Buyers (on the other hand) as
of the Adjustment Time.

 

“Purchase Price” is
defined in Section 1.3.

 

“Related Agreements”
is defined in Section 7.2.

 

“Seller” is defined
in the preamble of this Agreement.

 

“Seller Group Member”
means Seller and its Affiliates and their respective directors, officers,
employees, members, stockholders, agents, attorneys, consultants, advisors and
representatives and their respective successors and assigns.

 

“Seller Transaction
Agreements” means all agreements, instruments and documents being or to be
executed and delivered by Seller pursuant to this Agreement.

 

“Tax” (and, with
correlative meaning, “Taxes”) means any federal, state, local or foreign
income, gross receipts, estimated profits, windfall profits, intangible
property, occupation, production, emergency excess, capital gains, capital
stock, stamp, goods and services, value-added property, sales, use, license,
excise, franchise, employment, payroll, withholding, alternative or add-on
minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any Governmental Authority.

 

“Tax Arbitrator” is
defined in Section 1.4(b).

 

“Tax Return” means
any return, report or similar statement required to be filed with respect to
any Tax (including any attached Schedules), including, without limitation, any

 

38

 

information return, claim
for refund, amended return or declaration of estimated Tax and any affiliated,
consolidated, combined, unitary or similar return.

 

“Unit Agreement”
means the Unit Agreement dated May 1, 1975, recorded as Document Number
3339 on June 2, 1975 in Los Angeles County, California, establishing the
NWU, as such agreement has been amended from time to time.

 

“Unit Operating Agreement”
means the Unit Operating Agreement dated May 1, 1975, recorded as Document
Number 3340 on June 2, 1975, in Los Angeles County, California, for the
North Wilmington Unit, Wilmington Oil Field, which controls operations within
the NWU, as such agreement has been amended from time to time.

 

“Unit Operations” has
the meaning ascribed to it in the Unit Agreement.

 

“WRI” means Warren
Resources, Inc., a Maryland corporation.

 

“WRC” means Warren
Resources of California, Inc., a California corporation.

 

“Well” or “Wells”
means wellbores, both abandoned and unabandoned, including oil wells, gas
wells, injection wells, disposal wells and water wells.

 

“WEP” means Warren
E&P, Inc., a New Mexico corporation.

 

“Wilmington” means Wilmington Management, LLC, a
California limited liability company.

 

39

 

IN WITNESS WHEREOF, the
parties hereto have caused this Asset Purchase Agreement to be executed and
delivered as of the day and year first above written.

 

	
   

  	
  SELLERS

  
	
   

  	
  Global Oil Production,
  LLC,

  
	
   

  	
  a California limited
  liability company

  
	
   

  	
  By:

  	
  Fort Investments, LLC, a
  California limited

  liability company, its manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Yu-Huai
  (Michelle) Hsueh

  	
   

  
	
   

  	
  Name: Yu-Huai (Michelle)
  Hsueh

  
	
   

  	
  Title: Manager

  
	
   

  	
   

  
	
   

  	
  Wilmington Management,
  LLC,

  
	
   

  	
  a California limited
  liability company

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Yu-Huai (Michelle) Hsueh

  	
   

  
	
   

  	
  Name: Yu-Huai (Michelle)
  Hsueh

  
	
   

  	
  Title: Manager

  
	
   

  	
   

  
	
   

  	
  BUYERS

  
	
   

  	
  Warren Resources of
  California, Inc.,

  
	
   

  	
  a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Lloyd G. Davies

  	
   

  
	
   

  	
  Name: Lloyd G. Davies

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  Warren E&P, Inc.,

  
	
   

  	
  a New Mexico corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Lloyd G. Davies

  	
   

  
	
   

  	
  Name: Lloyd G. Davies

  
	
   

  	
  Title: Chairman &
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Warren Resources, Inc.,

  
	
   

  	
  a Maryland corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Norman F. Swanton

  	
   

  
	
   

  	
  Name: Norman F. Swanton

  
	
   

  	
  Title: Chairman, CEO &
  President

  

 

40

 

EXHIBIT ”A-1”

 

Assignment, Assumption and
Bill of Sale

 

1

 

EXHIBIT ”A-2”

 

Assignment and Assumption of
Contracts and Liabilities

 

1

 

EXHIBIT ”B”

 

Quitclaim Deed – Surface
Properties

 

1

 

EXHIBIT ”C”

 

Quitclaim Deed – Mineral
Properties

 

1

 

EXHIBIT ”D”

 

Change of Operator Form

 

1

 

EXHIBIT ”E”

 

Holdback Escrow Agreement

 

1Exhibit 10.18

FIRST MODIFICATION AGREEMENT

This FIRST MODIFICATION
AGREEMENT is entered into as of September 26, 2005, by and among MOTHERS
WORK, INC., a Delaware corporation, CAVE SPRINGS, INC., a Delaware corporation
(each a “Borrower”), and MOTHERS WORK CANADA, INC., a Delaware corporation (“Guarantor”),
each of which has its principal executive offices at 456 North Fifth Street,
Philadelphia, Pennsylvania 19123; and FLEET RETAIL GROUP, LLC, a Delaware
limited liability company f/k/a Fleet Retail Finance, Inc., with an
address of 40 Broad Street, Boston, MA 02109, as Administrative Agent,
for the benefit of the Lenders; FLEET RETAIL GROUP, LLC, as Collateral Agent
for the benefit of Lenders and the Administrative Agent; and FLEET RETAIL
GROUP, LLC, as a Lender.

WHEREAS, the Lender established
a revolving line of credit pursuant to the Amended and Restated Loan and
Security Agreement dated as of October 15, 2004 (together with any
amendments thereto, the “Loan Agreement”) by and among Fleet Retail Group, Inc.
n/k/a Fleet Retail Finance, LLC, as Administrative Agent, Collateral Agent, and
Lender, and the Borrower and Guarantors;

WHEREAS, the Borrowers and
Guarantor have requested that the Lenders modify the Loan Agreement as set
forth herein on the terms and subject to the conditions hereof; and

WHEREAS, subject to the terms
and conditions in this Agreement, the Agents and Lender are willing to modify
the terms of the Loan Agreement in order to accommodate the Borrowers’ request;

NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Agents, Lender and the
Borrowers and Guarantor mutually agree as follows:

1.     Definitions.   All
capitalized terms used herein shall have the same meaning as set forth in the
Loan Agreement, unless otherwise defined herein.

2.     Effective Date:   The “Effective
Date” of this Agreement shall be June 22, 2005, upon the Administrative
Agent’s receipt of this First Modification Agreement, duly executed by all
parties hereto, together with all exhibits and schedules hereto.

3.     Modifications to Loan Agreement.

a)     Article I: Definition of “Fixed Charge Coverage Ratio”.   Article I
of the Loan Agreement is hereby amended to strike and delete the definition of “Fixed
Charge Coverage Ratio” therefrom and to replace it with the following:

“Fixed Charge Coverage Ratio”:   For any twelve month period, the ratio
of Borrowers’ consolidated (a) EBITDA minus Gross
Non-Financed Capital Expenditures minus the
payment of any dividends or other distributions on capital stock of the Lead
Borrower (except distributions in such stock), plus
(or minus) the increase (or decrease) in
total deferred rent liability, to (b) scheduled cash interest expense, plus scheduled principal payments on account of current maturities
of long term Indebtedness, plus, without
duplication, payments for the scheduled redemption or acquisition of
Securities, plus income taxes paid in cash, all as
determined in accordance with GAAP.

b)     Article I: Definition of “Gross Non-Financed Capital Expenditures”.   Article I
of the Loan Agreement is hereby amended to insert the following definition in
appropriate alphabetical order:

“Gross Non-Financed Capital Expenditures”:   The
amount equal to: (a) Capital Expenditures minus (b) only to the extent
included in clause (a) hereof, the amount of Capital Expenditures financed
through Indebtedness.

 1
 

c)     Article I: Definition of “Net Capital Expenditures”.   Article I
of the Loan Agreement is hereby amended to insert the following definition in
appropriate alphabetical order:

“Net Capital Expenditures”:   The
amount equal to: (a) Capital Expenditures minus (b) the amount of
tenant improvement allowances received in cash, to the extent not already
deducted from clause (a) hereof.

d)     Article I: Definition of “Pro Forma Fixed Charge Coverage Ratio”.   The
definition of “Pro Forma Fixed Charge Coverage Ratio” in Article I of the
Loan Agreement is hereby stricken and deleted in its entirety and replaced with
the following in lieu thereof:

“Pro Forma Fixed Charge Coverage Ratio”:   For
any twelve month period, the ratio of Borrowers’ consolidated (a) EBITDA
during such period minus projected
Gross Non-Financed Capital Expenditures for the following twelve month period minus projected Distributions for the following twelve month
period plus (or minus)
the projected increase (or decrease) in total deferred rent liability for the
following twelve month period, to (b) projected cash interest expense for
the following twelve month period, plus projected
principal payments on account of current maturities of long term Indebtedness
for the following twelve month period, plus projected
income taxes paid in cash for the following twelve month period, all as
determined in accordance with GAAP. Any projections used in computing Pro Forma
Fixed Charge Coverage Ratio shall be determined by the Borrowers and acceptable
to the Administrative Agent in its reasonable discretion.

e)     Section 4.21: Advances to employees.   Section 4.21
of the Loan Agreement is hereby amended to strike and delete clause (c) therefrom
and to replace it with the following:

“(c) Additional advances to the Obligors’
employees approved by the Chief Financial Officer, in an amount not more than
$1,000,000 in the aggregate.”

f)      Exhibit 5.12(a): Maximum Capital Expenditures Covenant.   Section 2
of Exhibit 5.12(a) is hereby amended to replace the term “Capital
Expenditures” with the term “Net Capital Expenditures” in the last line of
clause (B) of such Section 2, and in the second, third, and fourth
lines of the last paragraph of such Section 2.

4.     General Representations and Warranties.   Each
Borrower and Guarantor hereby further represents and warrants to the Agents and
Lender as follows:

a)     Representations and Warranties: No Event of
Default.   The representations and warranties herein, in the
Loan Agreement and in each other Loan Document and certificate or other writing
delivered by the Borrowers and Guarantor to the Administrative Agent on or
prior to the Effective Date of this Agreement in connection therewith shall be
correct and accurate on and as of the Effective Date of this Agreement as
though made on and as of such date (except to the extent such representation or
warranty expressly related to an earlier date, in which case such
representation and warranty shall have been correct and accurate in all
material respects as of such earlier date); and no Event of Default shall have
occurred and be continuing as of the Effective Date of this Agreement or would
result from this Agreement becoming effective in accordance with its terms.

b)     Organization, Good Standing, Etc.   Each
Borrower and Guarantor: (i) is a corporation, duly incorporated, validly
existing and in good standing under the laws of its state of formation, (ii) has
all requisite power and authority to execute, deliver and perform this
Agreement, and to perform the Loan Agreement, as amended hereby, and (iii) is
duly qualified to do business and is in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary, expect where
the failure to do so would not have a Material Adverse Effect.

 2
 

c)     Authorization, Etc.   The
execution, delivery and performance by each Borrower and Guarantor of this
Agreement, and the performance by each Borrower and Guarantor of the Loan
Agreement, as amended hereby, (i) have been duly authorized by all
necessary action on the part of each Borrower and Guarantor, (ii) do not
and will not contravene any Borrower’s or Guarantor’s certificate of
incorporation, or by-laws, or other organizational documents, (iii) do not
and will not contravene in any material respect any applicable laws or any
contractual restriction binding on or otherwise affecting it or any of its
properties, and (iv) do not and will not result in or require the creation
of any lien or other encumbrance (other than pursuant to any Loan Documents)
upon or with respect to any of its properties.

d)     Government Approvals.   No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
agency or other regulatory body is required in connection with the due
execution, delivery and performance by any Borrower or Guarantor of this
Agreement, or for the performance of the Loan Agreement, as amended hereby,
except where the failure to obtain such authorizations or approval, or the
failure to take such other action would not have a Material Adverse Effect.

5.     Enforceability, Etc.   Except
as otherwise expressly provided herein, the Loan Agreement and the other Loan
Documents are, and shall continue to be, in full force and effect and are
hereby ratified and confirmed in all respects, except that on and after the
Effective Date hereof (i) all references in the Loan Agreement to “this
Agreement”, “hereto”, “hereof”, “hereunder”, or words of like import referring
to the Loan Agreement shall mean the Loan Agreement as amended by this
Agreement and (ii) all references in the other Loan Documents to the “Loan
Agreement”, “thereto”, “thereof”, “thereunder” or words of like import
referring to the Loan Agreement shall mean the Loan Agreement as amended by
this Agreement. Except as expressly provided herein, the execution, delivery
and effectiveness of this Agreement shall not operate as an amendment of any
right, power or remedy of the Agents or any Lender under the Loan Agreement or
any other Loan Document, nor constitute an amendment of any provision of the
Loan Agreement or any other Loan Documents.

6.     General Provisions.

a)     Integration; Amendment; Waivers.   This
Agreement and Loan Documents set forth in full are terms of agreement between
the parties and are intended as the full, complete and exclusive contract
governing the relationship between the parties, superseding all other
discussions, promises, representations, warranties, agreements and the
understandings between the parties with respect thereto. No term of the Loan
Documents may be modified or amended, nor may any rights thereunder be waived,
except in a writing signed by the party against whom enforcement of the
modification, amendment or waiver is sought. Any waiver of any condition in, or
breach of, any of the foregoing in a particular instance shall not operate as a
waiver of other or subsequent conditions or breaches of the same or a different
kind. The Agents’ or any Lender’s exercise or failure to exercise any rights
under any of the foregoing in a particular instance shall not operate as a
waiver of its right to exercise the same or different rights in subsequent
instances. Except as expressly provided to the contrary in this Agreement, or
in another written agreement, all the terms, conditions, and provisions of the
Loan Documents shall continue in full force and effect. If in this Agreement’s
description of an agreement between the parties, rights and remedies of the
Agents or Lenders or obligations of the Borrowers or Guarantor are described
that also exist under the terms of the other Loan Documents, the fact that this
Agreement may omit or contain a briefer description of any rights, remedies and
obligations shall not be deemed to limit any of such rights, remedies and
obligations contained in the other Loan Documents.

 3
 

b)     Payment of Expenses.   The Borrowers shall pay all
reasonable attorneys’ fees arising under or in connection with the negotiation,
preparation, execution, delivery, and enforcement of this Agreement and any and
all consents, waivers or other documents or instruments relating thereto.

c)     No Third Party Beneficiaries.   Except as may be
otherwise expressly provided for herein, this Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.

d)     Separability.   If any provision of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.

e)     Counterparts.   This Agreement may be executed in any
number of counterparts, which together shall constitute one and the same
agreement.

f)      Time of Essence.   Time is of the essence in each of the
Liabilities of the Borrowers and Guarantor and with respect to all conditions
to be satisfied by the Borrowers and Guarantor.

g)     Construction; Voluntary Agreement; Representation by Counsel.   This
Agreement has been prepared through the joint efforts of all the parties. Neither
its provisions nor any alleged ambiguity shall be interpreted or resolved
against any party on the ground that such party’s counsel was the draftsman of
this Agreement. Section headings herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose. Each of the parties declares that such party has carefully read this
Agreement and the agreements, documents and instruments being entered into in
connection herewith and that such party knows the contents thereof and sign the
same freely and voluntarily. The parties hereto acknowledge that they have been
represented in negotiations for and preparation of this Agreement and the
agreements, documents and instrument being entered into in connection herewith
by legal counsel of their own choosing, and that each of them has read the same
and had their contents fully explained by such counsel and is fully aware of
their contents and legal effect.

h)     Governing Law; Forum Selection.   This Agreement has
been entered into and shall be governed by the laws of the State of New York.

i)      Further Assurances.   The Borrower agrees to take all
further actions and execute all further documents as the Agents may from time
to time reasonably request to carry out the transactions contemplated by this
Agreement.

j)      Notices.   All notices, requests and demands to or upon
the respective parties hereto shall be given in accordance with the Loan
Agreement.

k)     Mutual Waiver of Right to Jury Trial.   THE AGENTS,
LENDERS AND THE BORROWERS AND GUARANTOR EACH HEREBY WAIVES THE RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY
RELATING TO: (I) THIS AGREEMENT, OR ANY OF THE AGREEMENTS, INSTRUMENTS OR
DOCUMENTS REFERRED TO HEREIN; OR (II) ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN THEM; OR (III) ANY CONDUCT, ACTS OR
OMISSIONS OF THE AGENTS, LENDERS OR THE BORROWERS OR GUARANTOR OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH THEM; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING
IN CONTRACT OR TORT OR OTHERWISE.

 4
 

l)      Copies and Facsimiles.   This Agreement and all
documents which have been or may be hereinafter furnished by the Borrowers and
Guarantor to the Agents may be reproduced by the Agents by any photographic,
photostatic, microfilm, xerographic or similar process, and any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course
of business).

 5

Intentionally Left Blank

 6

This
First Modification Agreement is executed under seal as of the date written
above.

	
  

  	
  Mothers Work, Inc.

  
	
   

  	
  (“Borrower”)

  
	
   

  	
  By:

  	
  /s/ EDWARD M. KRELL

  
	
   

  	
   

  	
  Name:

  	
  Edward M. Krell

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President—CFO

  
	
   

  	
  Cave
  Springs, Inc.

  
	
   

  	
  (“Borrower”)

  
	
   

  	
  By:

  	
  /s/ EDWARD M. KRELL

  
	
   

  	
   

  	
  Name:

  	
  Edward M. Krell

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President—CFO

  
	
   

  	
  Mothers
  Work Canada, Inc.

  
	
   

  	
  (“Borrower”)

  
	
   

  	
  By:

  	
  /s/ EDWARD M. KRELL

  
	
   

  	
   

  	
  Name:

  	
  Edward M. Krell

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President—CFO

  
	
   

  	
  Fleet
  Retail Group, Inc.

  
	
   

  	
  f/k/a FLEET RETAIL FINANCE INC.

  
	
   

  	
  (“Administrative Agent”, “Collateral Agent”, and
  “Lender”)

  
	
   

  	
  By:

  	
  /s/ SALLY A. SHEEHAN

  
	
   

  	
   

  	
  Name:

  	
  Sally Sheehan

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  

 

 7

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