PURCHASE AND SALE AGREEMENT
BETWEEN
SAGA PETROLEUM CORP.,
SAGA SALTWATER DISPOSAL CORP.,
BRENT J. MORSE,
MORSE FAMILY SECURITY TRUST, AND
J. CHARLES FARMER
AS SELLERS
AND
DELTA PETROLEUM CORPORATION
AS BUYER
Dated September 6, 2000
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement"), dated
September 6, 2000, is between SAGA PETROLEUM CORP., a Colorado
corporation ("Saga Petroleum"), SAGA SALTWATER DISPOSAL CORP., a
Texas corporation ("Saga SWD"), BRENT J. MORSE ("Morse"), MORSE
FAMILY SECURITY TRUST (the "Morse Family Trust") and J. CHARLES
FARMER ("Farmer") (collectively, "Sellers"), 415 West Wall
Street, Suite 835, Midland, Texas, 79701, and DELTA PETROLEUM
CORPORATION, a Delaware corporation ("Buyer"), 555 - 17th Street,
Suite 3310, Denver, Colorado 80202.
Agreement
In consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Sellers
agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale. Saga Petroleum and Saga SWD agree
to sell and Buyer agrees to purchase the Assets, and Morse, Morse
Family Trust and Farmer agree to sell and Buyer agrees to
purchase all of the membership interests (the "Saga LLC
Interests") in Saga Petroleum Limited Liability Company of
Colorado, a Colorado limited liability company ("Saga LLC").
1.2 Oil and Gas Assets. As used herein, the term "Oil and
Gas Assets" refers to all of Saga Petroleum's and Saga SWD's
right, title and interest in and to the following:
(a) The leasehold estates created by the oil and gas
leases specifically described in Schedule 1.2 attached hereto
(collectively, the "Leases"), and the oil, gas and all other
hydrocarbons ("Hydrocarbons") attributable to the Leases and the
lands covered thereby (the "Lands").
(b) All rights to production after the Effective Time
relating to the Leases or Lands including, without limitation,
all reversionary interests, backin interests, overriding royalty
interests, production payments, net profits interests and mineral
and royalty interests in production of oil, gas or other
minerals.
(c) The oil and gas wells specifically described in
Schedule 1.2 (the "Wells"), together with all injection and
disposal wells on the Leases or Lands or on lands pooled or
unitized therewith, and all personal property, equipment,
fixtures, improvements and permits (to the extent transferable)
used in connection with the production, gathering, treatment,
processing, storing, sale or disposal of Hydrocarbons or water
produced from the properties and interests described in Section
1.2(a) regardless of whether such personal property, equipment,
fixtures or improvements are physically located upon the Leases
or Lands.
(d) The unitization, pooling and communitization
agreements, declarations and orders, drilling and spacing units,
and the units created thereby (the "Units") related to the
properties and interests described in Sections 1.2(a) through
(c) and all other such agreements relating to the production of
Hydrocarbons, if any, attributable to said properties and
interests.
(e) All surface leases, rights-of-way, easements,
licenses and servitudes appurtenant to or used in connection with
the properties and interests described in Sections 1.2(a) through
(d).
(f) All existing and effective sales, purchase,
exchange, gathering, transportation and processing contracts,
operating agreements, unit agreements, unit operating agreement,
balancing agreements, farmout agreements, service agreements and
other contracts, agreements and instruments, insofar as they
relate to the properties and interests described in Sections
1.2(a) through (e).
(g) Geologic, geophysical and internal interpretative
data and analyses, including without limitation, seismic data and
licenses, to the extent transferable and insofar as they relate
to the properties and interests described in Sections 1.2(a)
through (e).
(h) All saltwater disposal wells and facilities owned
by Saga Petroleum and Saga SWD.
(i) All other rights, titles or interests in, to or
under or derived from the Lands or Leases, except as described in
Section 4.3(a), even though the same may be improperly described
in or omitted from the Schedules. It is the express intent of
the parties that all of Saga Petroleum's and Saga SWD's rights,
titles and interests in any and all of the oil and gas properties
described in Section 1.2(a) through (e) be assigned to Buyer
hereunder except as otherwise provided in Section 4.3(a).
1.3 Other Assets. As used herein, the term "Other Assets"
shall refer to all of Saga Petroleum's and Saga SWD's right,
title and interest in and to the following:
(a) All equipment, furniture, computer hardware and
software (to the extent transferrable) and other property owned
by Saga Petroleum and Saga SWD comprising or used in connection
with the Saga Petroleum's business office located in Midland,
Texas, including, without limitation, the office leases and
office equipment leases described in Schedule 1.3(a)
(collectively, the "Office Leases").
(b) The real property described on Schedule 1.3(b)
attached hereto (the "Real Estate").
(c) The files and records relating directly to the
items described in Sections 1.2 and 1.3 maintained by Saga
Petroleum and Saga SWD, to the extent disclosure of the same to
Buyer is not restricted by confidentiality, licensing or other
agreements with third parties. Such records, together with the
Saga LLC records (which are maintained by Saga Petroleum) are
herein referred to as the "Records".
The Oil and Gas Assets and the Other Assets are sometimes
referred to herein as the "Assets". The agreements, contracts
and instruments described in Section 1.2(d) through (e), and the
Office Leases are herein called the "Contracts."
1.4 Saga LLC Assets. As used herein, the term "LLC Assets"
refers to all of Saga LLC's right, title and interest in and to
the following:
(a) The leasehold estates created by the oil and gas
leases specifically described in Schedule 1.4 attached hereto
(collectively, the "LLC Leases"), and the oil, gas and all other
Hydrocarbons attributable to the Leases and the lands covered
thereby (the "LLC Lands").
(b) All cars, trucks, trailers and other rolling stock
and workover rigs owned by Saga LLC on the date of this Agreement
(the "Rolling Stock and Rigs").
(c) All rights to production after the Effective Time
relating to the LLC Leases or LLC Lands including, without
limitation, all reversionary interests, backin interests,
overriding royalty interests, production payments, net profits
interests and mineral and royalty interests in production of oil,
gas or other minerals.
(d) The oil and gas wells specifically described in
Schedule 1.4 (the "LLC Wells"), together with all injection and
disposal wells on the Leases or Lands or on lands pooled or
unitized therewith, and all personal property, equipment,
fixtures, improvements and permits (to the extent transferrable)
used in connection with the production, gathering, treatment,
processing, storing, sale or disposal of Hydrocarbons or water
produced from the properties and interests described in Section
1.4(a) regardless of whether such personal property, equipment
fixtures or improvements are physically located upon the LLC
Leases or LLC Lands.
(e) The unitization, pooling and communitization
agreements, declarations and orders, and the units created
thereby described in Schedule 1.4 (the "LLC Units") and all other
such agreements relating to the properties and interests
described in Sections 1.4(a) through (c) and to the production of
Hydrocarbons, if any, attributable to said properties and
interests.
(f) All surface leases, rights-of-way, easements,
licenses and servitudes appurtenant to or used in connection with
the properties and interests described in Sections 1.4(a) through
(d).
1.5 Excluded Assets and LLC Assets. The Assets
and the LLC Assets do not include (i) any oil and gas properties
and related assets acquired by Saga Petroleum, Saga SWD or Saga
LLC after July 1, 2000, other than reserves developed through the
Development Activities, (ii) any of the personal property
described on Schedule 1.5, or (iii) any overriding royalty
interests or other interests owned by Morse, the Morse Family
Trust or Farmer which were of record on July 1, 2000, other than
the Saga LLC Interests, and Sellers shall be entitled to retain
all such assets and Saga LLC shall have the right to distribute
any such assets to its members or their designees prior to
Closing.
1.6 Effective Time. The purchase and sale of the Assets
shall be effective as of October 1, 2000, at 7:00 A.M. local time
where the Assets are located (the "Effective Time"). The purchase
and sale of the Saga LLC Interests shall be effective as of 11:59
P.M. CST on the last day of the month preceding the month in
which Closing occurs (the "LLC Effective Time").
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price.
(a) The purchase price for the Assets and Saga LLC
Interests shall be $49,500,000.00, which amount shall be
allocated between the Assets (the "Assets Purchase Price") and
the Saga LLC Interests (the "Saga LLC Purchase Price" ) by the
parties prior to the Closing Date. At Closing, Buyer shall pay
Saga Petroleum the Assets Purchase Price, as adjusted pursuant to
Sections 2.3 and 13.1, and Buyer shall pay the Saga LLC Purchase
Price, as adjusted pursuant to Sections 2.4 and 13.1, 37-1/2% to
Morse, 12-1/2% to the Morse Family Trust, and 50% to Farmer.
(b) Buyer shall have the option to pay up to
$6,000,000.00 of the Assets Purchase Price (the "Share Portion of
the Assets Purchase Price") in the form of Buyer's common stock,
including Buyer's common stock delivered as part of the Deposit
(such shares are referred to herein as the "Assets Purchase Price
Shares"); provided, however, if the Assets Closing Amount plus
the LLC Closing Amount is less than $49,500,000, the Share
Portion of the Purchase Price shall be limited to an amount equal
to $6,000,000 multiplied by a fraction whose numerator is the
Assets Closing Amount plus the LLC Closing Amount and whose
denominator is $49,500,000. The value of such stock delivered as
part of the Deposit shall be determined based on the average
closing sales price per share for the period of 60 trading days
ending with and including the second trading day immediately
preceding September 1, 2000; and the value of the balance of the
stock delivered as the Share Portion of the Assets Purchase Price
shall, solely for purposes of determining the number of shares of
such stock to be delivered, be deemed to be $5.00 per share
(adjusted for any stock split, stock dividend, and the like
occurring after the date of this Agreement). Morse and Farmer
shall execute the Investment Representation Agreement attached as
Exhibit A hereto. The Asset Purchase Price Shares delivered to
Sellers shall be validly issued, fully paid and non-assessable.
Sellers shall have demand registration rights with respect to
Buyer's stock held by them as provided in Exhibit B attached
hereto, including any shares delivered as part of the Deposit and
retained by Sellers pursuant to the terms of this Agreement if
Closing does not occur.
(c) Buyer has paid to Sellers a performance guarantee
deposit (the "Initial Deposit") in the form of 103,423 shares of
Buyer's common stock. On or before 5:00 p.m., Denver time, on
October 2, 2000, Buyer shall pay to Sellers an additional
performance guaranty deposit (the "Additional Deposit") in an
amount equal to $1,900,000 with $500,000 of such amount in cash
by wire transfer and the balance in the form of 289,583 shares of
Buyer's common stock (adjusted for any stock splits, stock
dividends and the like occurring after the date of this
Agreement). If Buyer does not pay the Additional Deposit on or
before 5:00 p.m., Denver time, on October 2, 2000 (i) Sellers
shall be entitled to retain the Initial Deposit as liquidated
damages, it being agreed that the Initial Deposit is a fair
measure of the damages that will be suffered by Sellers if Buyer
fails to timely pay the Additional Deposit, (ii) such remedy
shall be Sellers' sole and exclusive remedy for Buyer's failure
to timely pay the Additional Deposit, and (iii) this Agreement
shall terminate and the parties shall have no further liability
hereunder. If Buyer timely pays the Additional Deposit and if
Closing occurs, the Initial Deposit and the Additional Deposit
(collectively, the "Deposit") shall be deducted from the Assets
Closing Amount as provided in Section 12.3(d). If this Agreement
is terminated after the Additional Deposit is made, the Deposit
shall be handled as provided in Section 11.1.
2.2 Allocation of the Purchase Price. The Assets Purchase
Price shall be allocated as set forth in Schedule 2.2. A portion
of the LLC Purchase Price shall be allocated to the LLC Assets
for purposes of the adjustment to the LLC Purchase Price. The
value allocated to an Asset or LLC Asset as set forth in Schedule
2.2 is referred to as the "Allocated Value" for that Asset or LLC
Asset as the case may be.
2.3 Adjustments to Assets Purchase Price. The Assets
Purchase Price shall be adjusted according to this Section 2.3
without duplication. The Assets Purchase Price shall be adjusted
at Closing pursuant to an "Assets Preliminary Settlement
Statement" prepared by Saga Petroleum and submitted to Buyer five
days prior to Closing for Buyer's comment and review. The Assets
Preliminary Settlement Statement shall set forth the Assets
Closing Amount (as hereinafter defined) and all adjustments to
the Assets Purchase Price and associated calculations. The term
"Assets Closing Amount" means the Assets Purchase Price adjusted
as provided in this Section 2.3, using the best information
available, less any amount to be placed into the Escrow Account
(as defined in Section 4.2(d)) on account of the Assets. After
Closing, the Assets Purchase Price shall be adjusted pursuant to
the Final Assets Settlement Statement delivered pursuant to
Section 13.1.
(a) Upward Adjustments. The Assets Purchase Price
shall be adjusted upward by the following:
(1) the value of all oil and natural gas
liquids in storage above the pipeline connection owned
by Saga Petroleum at the Effective Time, and not
previously sold by Saga Petroleum, that is attributable
to the Oil and Gas Assets, such value to be the market
or contract price in effect as of the Effective Time
less taxes or gravity adjustments, transportation and
marketing costs that are deducted by the purchaser of
such oil or liquids (net of all royalties and overriding
royalties payable to third parties that Buyer assumes
and agrees to pay);
(2) the amount of all expenditures (including
without limitation capital expenditures (but excluding
expenditures for the Development Activities), royalties,
rentals and other charges, "Taxes" (which shall mean all
ad valorem, property, production, excise, severance and
other taxes based upon or measured by the ownership of
property or the production of Hydrocarbons or the
receipt of proceeds therefrom other than income taxes),
expenses of the sort customarily billed under operating
agreements) paid by or on behalf of Saga Petroleum or
Saga SWD in connection with the ownership or operation
of the Assets from the Effective Time to the Closing
Date;
(3) an amount equal to all prepaid expenses
attributable to the Assets that are paid by or on behalf
of Saga Petroleum or Saga SWD prior to the Closing Date
and that are attributable to the period after the
Effective Time, including without limitation prepaid
utility charges, prepayments under rights-of-way,
prepaid insurance premiums and prepaid Taxes; delay
rentals shall be allocated per day over the period by
which the applicable lease is extended thereby and
amounts attributable to the period after the Effective
Time shall be deemed to be prepaid expenses;
(4) an amount equal to the sum of all Assets
Reserve Adjustments (as defined in Section 4.3(a))
attributable to the Oil and Gas Assets; and
(5) an amount equal to the sum of all Asset
Interest Addition Adjustments (as defined in Section
4.3(b)) attributable to the Oil and Gas Assets in excess
of the deductible amount set forth in Section 4.3.
(b) Downward Adjustments. The Assets Purchase Price
shall be adjusted downward by the following:
(1)proceeds received by Saga Petroleum or
Saga SWD prior to the Closing Date attributable to the
Oil and Gas Assets and that are attributable to the
period of time from and after the Effective Time;
(2) an amount equal to all unpaid Taxes
attributable to the Assets, for any period ending prior
to the Effective Time that are assumed by Buyer pursuant
to Section 9.1;
(3) an amount equal to all funds held in
suspense for the benefit of third parties, including all
unpaid royalties, overriding royalties and other
burdens on production from the Oil and Gas Assets prior
to the Effective Time that are assumed by Buyer pursuant
to Section 14.1;
(4) an amount equal to the sum of all Defect
Adjustments attributable to the Oil and Gas Assets as
set forth in Section 4.2(c); and
(5) an amount equal to the sum of all Defect
Adjustments for Excluded Assets (as defined in
Section 4.2(c)) and Exclusion Adjustments (as defined
in Section 5.3(b)) attributable to the Oil and Gas
Assets.
2.4 Adjustments to LLC Purchase Price. The LLC Purchase
Price shall be adjusted according to this Section 2.4 without
duplication. The LLC Purchase Price shall be adjusted at Closing
pursuant to the "LLC Preliminary Settlement Statement" prepared
by Saga LLC and submitted to Buyer five days prior to Closing for
Buyer's comment and review. The LLC Preliminary Settlement
Statement shall set forth the LLC Closing Amount (as hereinafter
defined) and all adjustments to the LLC Purchase Price and
associated calculations. The term "LLC Closing Amount" means the
LLC Purchase Price adjusted as provided in this Section 2.4,
using the best information available, less any amount to be
placed into the Escrow Account on account of the LLC Assets.
After Closing, the LLC Purchase Price shall be adjusted pursuant
to the Final LLC Settlement Statement.
(a) Upward Adjustments. The LLC Purchase Price shall
be adjusted upward by the following:
(1) an amount equal to all proceeds (net of
all royalties and overriding royalties payable to third
parties that Saga LLC will retain the obligation to
pay) received by Saga LLC from the sale, after the
Effective Time, of all oil and natural gas liquids
produced from or credited to the LLC Assets prior to the
Effective Time (except that to the extent any such
proceeds are scheduled as current assets they shall be
accounted for pursuant to Section 2.4(a)(6) below);
provided, however, that if, as of the Closing, any
merchantable oil or natural gas liquids produced from or
credited to the LLC Assets prior to the Effective Time
remain in storage without sale, then the LLC Purchase
Price shall be further increased by the value of such
oil and natural gas liquids in storage above the
pipeline connection, such value to be the market or
contract price in effect as of the Effective Time less
taxes or gravity adjustments deducted by the purchaser
of such oil or liquids (net of all royalties and
overriding royalties payable to third parties that Buyer
assumes and agrees to pay);
(2) the amount of all expenditures (including
without limitation capital expenditures (but excluding
expenditures for the Development Activities), royalties,
rentals and other charges, Taxes, and expenses of the
sort customarily billed under operating agreements) paid
by or on behalf of Saga LLC in connection with the
ownership or operation of the LLC Assets from the
Effective Time to the Closing;
(3) an amount equal to all prepaid expenses
attributable to the LLC Assets that are paid by or on
behalf of Saga LLC prior to the Closing and that are
attributable to the period after the Effective Time,
including without limitation prepaid utility charges,
prepayments under rights-of-way, prepaid insurance
premiums and prepaid ad valorem, property, production,
excise, severance and similar taxes (but not including
income taxes) based upon or measured by the ownership of
property or the production of hydrocarbons or the
receipt of proceeds therefrom delay rentals shall be
allocated per day over the period by which the
applicable lease is extended thereby and amounts
attributable to the period after the Effective Time
shall be deemed to be prepaid expenses;
(4) the amount of the adjustment for Taxes
pursuant to Section 13.5;
(5) an amount equal to the sum of all LLC
Asset Reserve Adjustments (as defined in Section 4.3(a))
attributable to the LLC Assets; and
(6) An amount equal to the current assets of
Saga LLC as of the LLC Effective Time determined on an
accrual basis in accordance with generally accepted
accounting principles consistently applied ("GAAP").
The current assets (i) shall include, without
limitation, all revenue and fees received or receivable
by Saga LLC as overhead under the applicable operating
agreements from Saga Petroleum or chargeable to the LLC
Assets or any other person or entity on account of Saga
LLC's operation of the Oil and Gas Assets, the LLC
Assets and all other properties operated by Saga LLC,
attributable to the periods through the LLC Effective
Time, and (ii) shall exclude all amounts owed by Saga
Petroleum to Saga LLC which as of the June 30, 2000
Balance Sheet, is an amount of $1,432,423.16 (which
intercompany payables shall be canceled by Saga LLC) and
any amounts accounted for in the adjustments described
in (1) through (5) above.
(b) Downward Adjustments. The LLC Purchase Price shall
be adjusted downward by the following:
(1) an amount equal to all unpaid Taxes
attributable to the LLC Assets for any period ending
prior to the Effective Time;
(2) an amount equal to all unpaid royalties,
overriding royalties and other burdens on production
from the LLC Assets prior to the Effective Time; and
(3) An amount equal to the current liabilities of
Saga LLC as of the LLC Effective Time determined in
accordance with GAAP but excluding any amounts payable
by Saga LLC to Saga Petroleum, Saga SWD, Morse, Morse
Family Trust or Farmer and all indebtedness to Bank One
Texas (which indebtedness will be paid off at Closing
out of amounts payable by Buyer to Morse and Farmer) and
any amounts accounted for in the adjustments described
in (1) and (2) above.
2.5 Gas Imbalance Adjustments. The parties shall cooperate
to identify any gas imbalances relating to the Oil and Gas
Interests by the Closing. The sum of all gas underproduction
imbalances less the sum of all overproduction imbalances is
herein called the "Net Imbalance." If the absolute value of the
Net Imbalance exceeds 100,000 Mcf, the Assets Purchase Price
shall be adjusted upward (if the Net Imbalance is a positive
number), or downward (if the Net Imbalance is a negative number)
by an amount equal to (i) the absolute value of the Net Imbalance
less 100,000 MCF, multiplied by (ii) $1.00 per Mcf.
2.6 Balance Sheet. Attached as Schedule 2.6 is a
preliminary balance sheet for Saga LLC as of June 30, 2000 (the
"Balance Sheet"), prepared in accordance with GAAP and based on
the best information currently available, reflecting all assets
and liabilities of Saga LLC that are required by GAAP to be
reflected therein. No later than five days prior to Closing,
Saga Petroleum will submit to Buyer for Buyer's review and
comment any revisions to the preliminary Balance Sheet based on
new information, if any, subject to final revision as provided in
Section 13.1.
ARTICLE III
BUYER'S INSPECTION
3.1 Access to Records. Prior to Closing and subject to this
Section 3.1 and Section 8.3(a), Saga Petroleum will make the
Records available to Buyer and its representatives for inspection
and review at Saga Petroleum's offices in Midland, Texas, during
its normal business hours for the purpose of permitting Buyer to
perform its due diligence review. Saga Petroleum shall permit
Buyer to inspect the Records only to the extent, in each case,
that Saga Petroleum may do so without violating any obligation of
confidence or contractual commitment of any Seller or Saga LLC to
a third party. Subject to the consent and cooperation of
operators and other third parties, Saga Petroleum will assist
Buyer in Buyer's efforts to obtain, at Buyer's expense, such
additional information from such parties as Buyer may reasonably
desire, to the extent in each case that Saga Petroleum may do so
without violating legal constraints or any obligation of
confidence or other contractual commitment of any Seller or Saga
LLC to a third party. No Seller makes any warranty or
representation of any kind as to the Records or any information
contained therein, and Buyer agrees that any conclusions drawn
therefrom shall be the result of its own independent review and
judgment.
3.2 Access to Properties. Prior to Closing as to Assets
and LLC Assets operated by Saga LLC, Saga LLC will upon advance
notice allow Buyer to conduct, at Buyer's sole risk and expense,
on-site inspections and environmental assessments (including soil
and water tests and borings) of the Wells during reasonable
business hours. If Saga LLC is not the operator of the Assets or
LLC Assets, Saga Petroleum will use its best efforts to cause
the operator to grant such access to Buyer. In connection with
any such on-site inspections, Buyer agrees not to interfere with
the normal operation of the properties and agrees to comply with
all requirements of the operator. If Buyer or its agents
prepares an environmental assessment of any property, Buyer will
furnish copies thereof to Saga Petroleum. The parties shall
execute a "common undertaking" letter regarding the
confidentiality of environmental assessments where appropriate.
In connection with granting such access, Buyer represents that it
is adequately insured and, except to the extent caused by Saga
LLC's gross negligence or willful misconduct, waives, releases
and agrees to indemnify, defend and hold harmless the Sellers and
Saga LLC, and their respective directors, officers, shareholders,
employees, agents, partners, members, managers and
representatives against all claims for injury to, or death of,
persons or for damage to property arising in any way from the
access afforded to Buyer hereunder or the activities of Buyer.
This waiver, release and indemnity by Buyer shall survive
termination of this Agreement.
ARTICLE IV
TITLE MATTERS
4.1 Defensible Title.
(a) Defensible Title--Leases, Wells and Units. The
term "Defensible Title" with respect to the Leases, Wells and
Units described on Schedules 1.2 and 1.4 means such title held by
Saga Petroleum or Saga LLC that, subject to and except for
Permitted Encumbrances: (i) entitles Saga Petroleum or Saga LLC
to receive not less than the net revenue interest set forth for
each Well or Unit on Schedules 1.2 and 1.4, ("NRI"); (ii)
obligates Saga Petroleum or Saga LLC to bear costs and expenses
relating to the maintenance, development, operation and the
production of Hydrocarbons from the producing formation from the
Well or Unit in an amount not greater than the corresponding
working interest set forth in Schedules 1.2 and 1.4 ("WI"); and
(iii) is free and clear of encumbrances, liens and defects.
(b) Permitted Encumbrances. The term "Permitted
Encumbrances" shall mean:
(1) lessors' royalties, overriding royalties, net
profits interests, production payments, reversionary
interests and similar burdens if the net cumulative effect of
such burdens does not operate to (i ) reduce the NRI below
that set forth in Schedules 1.2 and 1.4;
(2) subject to the provisions of Section 4.5, any
preferential rights to purchase and required third party
consents to assignments of contracts or property and similar
agreements;
(3) liens for Taxes or assessments not yet due
and delinquent or, if delinquent, that are being contested in
good faith in the normal course of business to the extent
such contested Taxes are covered by Saga Petroleum's
indemnification obligations under Section 14.2;
(4) all rights to consent by, required notices
to, filings with, or other actions by federal, state, local,
tribal or foreign governmental bodies, authorities and
agencies in connection with the sale or conveyance of the
applicable Asset or LLC Asset if the same are customarily
sought subsequent to such sale or conveyance;
(5) rights of reassignment upon the surrender or
expiration of any Lease;
(6) easements, rights-of-way, servitudes,
permits, surface leases and other rights with respect to
surface operations, on, over or in respect of any of the
properties or any restriction on access thereto that do not
materially interfere with the operation of the affected
property as has been conducted in the past;
(7) such Title Defects as Buyer has waived;
(8) the terms and conditions of the Contracts to
the extent such terms and conditions do not cause the present
NRI to be less than or the present WI to be more than (unless
the NRI therein is increased in the same proportion) as set
forth in Schedules 1.2 and 1.4 for the applicable Asset or
LLC Asset (other than reversions, back-ins, unit revisions
and other events expressly contemplated by such agreements);
(9) materialmen's, mechanics', repairmen's,
employees', contractors', operators' or other similar liens
or charges arising in the ordinary course of business
incidental to construction, maintenance or operation of the
Assets or LLC Assets (i) if such liens and charges have not
been filed pursuant to law and the time for filing such liens
and charges has expired, (ii) if filed, such liens and
charges have not yet become due and payable or payment is
being withheld as provided by law, or (iii) if their validity
is being contested in good faith by appropriate actions, to
the extent such contested liabilities are covered by Saga
Petroleum's indemnification obligations under Section 14.2;
(10) rights reserved to or vested in any federal,
state, local, or tribal governmental body, authority or
agency to control or regulate any of the Assets or LLC Assets
in any manner; and all applicable laws, rules, regulations
and orders of general applicability in the area of the Assets
or LLC Assets;
(11) liens arising under operating agreements,
unitization and pooling agreements and production sales
contracts securing amounts not yet delinquent or, if
delinquent, being contested in good faith in the ordinary
course of business, to the extent such contested liabilities
are covered by Saga Petroleum's indemnification obligations
under Section 14.2;
(12) all calls on or preferential rights to
purchase production;
(13) the Existing Claims and Litigation (as
defined in Section 6.6 , to the extent the same are covered
by Saga Petroleum's indemnification obligations under Section
14.2;
(14) liens and security interests that are to be
released at Closing;
(15) defects in the early chain of title
consisting of the mere failure to recite marital status in a
document or omissions of successors of heirship proceedings,
unless Buyer provides affirmative evidence that such failure
or omission has resulted in another party's actual and
superior claim of title to the relevant Asset;
(16) defects arising out of lack of corporate
authorization unless Buyer provides affirmative evidence that
such corporate action was not authorized and results in
another party's actual and superior claim of title to the
Asset;
(17) defects that have been cured by possession
under applicable statutes of limitation for adverse
possession or for prescription;
(18) any increase in royalty rate payable to the
United States of America in the event any reduced royalty
rates in effect on the date hereof terminate or otherwise are
no longer applicable to any Asset;
(19) defects arising out of lack of survey, unless
a survey is required by applicable laws or regulations;
(20) defects based on failure to record Leases
issued by the BLM, BIA or any state, or any assignments of
record title or operating rights in such Leases, in the real
property or other county records of the county in which such
Asset is located;
(21) defects based on a gap in Saga Petroleum's
chain of title in the BLM records as to federal leases, or in
the BIA or BLM records as to Native American leases, in the
state's records as to state leases or in the county records
as to fee leases, unless such gap is affirmatively shown to
exist in such records by an abstract of title, title opinion
or landman's title chain, which documents shall be included
in a Notice of Defective Interests; and
(22) defects relating to gas balancing issues,
which matters shall be handled as provided in Section 2.5.
(c) Title Defect. The term "Title Defect" means any
lien, encumbrance, adverse claim, encroachment, irregularity,
defect in or objection to real property title, excluding
Permitted Encumbrances, that alone or in combination with other
defects renders Saga Petroleum's or Saga LLC's title, as the case
may be, less than Defensible Title.
4.2 Purchase Price Adjustments for Defective Interests.
(a) Defective Interest. "Defective Interest" means an
Asset or LLC Asset affected by a Title Defect that reduces the
Allocated Value of the affected asset by more than one percent
(1%) or $10,000.00 (whichever is greater). The amount by which
the Allocated Value of a Defective Interest has been reduced by a
Title Defect (the "Defect Value") shall be calculated pursuant to
Section 4.2(d).
(b) Notice of Defective Interest. Buyer shall give
Saga Petroleum written "Notice of Defective Interests" as soon as
possible but no later than 5:00 p.m. Denver, Colorado time on
November 15, 2000. This notice must be in writing and will
include all of the following: (i) a description of each
Defective Interest; (ii) the basis for each Defective Interest,
and, if the basis is derived from any document, a copy of such
document (or pertinent part thereof) shall be attached or if the
basis is derived from any gap in the chain of title, the
documents preceding and following the gap shall be attached;
(iii) the Allocated Value of the affected Asset or LLC Asset; and
(iv) Buyer's good faith estimate of the Defect Value and the
computations upon which Buyer's estimate is based.
(c) Defect Adjustments. (1) Subject to Sections 4.2(a)
and (b) and the last sentence of this Section 4.2(c), if an Asset
or LLC Asset is a Defective Interest, the Assets Purchase Price,
if the Defective Interest relates to the Assets (or the Saga LLC
Purchase Price if the Defective Interest related to the LLC
Assets) will (subject to the limitation in the next succeeding
sentence) be reduced under Section 2.3 or 2.4, as applicable, by
the corresponding Defect Value (which reduction is called a
"Defect Adjustment") unless, at Saga Petroleum's election, (i)
the basis for treating such property as a Defective Interest has
been removed by Saga Petroleum or Saga LLC at its sole cost and
expense prior to Closing, (ii) Buyer agrees to waive the
relevant Title Defect, (iii) Saga Petroleum or Saga LLC elects on
or before Closing to cure such Title Defect no later than 90 days
after Closing (iv) Saga Petroleum elects on or before Closing to
indemnify Buyer against any loss attributable to the relevant
Title Defect, or (v) Saga Petroleum elects on or before Closing
to retain the affected Asset, or Saga LLC elects on or before
Closing to assign the affected LLC Asset to Morse and Farmer's
designee (in either case, an "Excluded Asset"), as of the
Effective Time in which case the Defect Adjustment shall equal
the Allocated Value of the Excluded Asset. If Saga Petroleum or
Saga LLC elects not to pursue any of its options in the previous
sentence, the Assets Purchase Price or the LLC Purchase Price, as
the case may be, shall be adjusted only to the extent that the
aggregate of all Defect Adjustments with respect to the Assets
and the LLC Assets (other than Defect Adjustments for Excluded
Assets), net of Interest Addition Adjustments, exceeds
$1,500,000.00.
(d) If Saga Petroleum or Saga LLC elects to cure
the relevant Title Defect post-Closing, Buyer and Saga Petroleum
or Saga LLC shall attempt in good faith to agree on an amount to
be placed at Closing into an escrow account (the "Escrow
Account") established pursuant to an escrow agreement (the
"Escrow Agreement") with Wells Fargo Bank or another mutually
acceptable financial institution ("Escrow Agent") pending receipt
of Saga Petroleum's or Saga LLC's curative materials. If Buyer
and Saga Petroleum or Saga LLC cannot agree on such amount, the
average of Buyer's and Saga Petroleum's or Saga LLC's Defect
Value shall be deposited into the Escrow Account. If a Title
Defect Saga Petroleum or Saga LLC has elected to cure is cured on
or before 90 days after Closing, the Escrow Agent shall
distribute to Saga Petroleum or Saga LLC, immediately upon
Buyer's receipt of adequate curative materials, the amount placed
in the Escrow Account with respect to such Title Defect (and any
account interest accrued thereon). If Saga Petroleum or Saga LLC
does not cure a Title Defect to Buyer's reasonable satisfaction
within the 90 day time period, Saga Petroleum or Saga LLC may
elect to treat the affected Asset or LLC Asset as an Excluded
Asset. If Saga Petroleum or Saga LLC elects to treat the
affected asset as an Excluded Asset, Buyer will cause the
Excluded Asset to be assigned to Saga Petroleum, or Saga
Petroleum's designee effective as of the Effective Time free of
all liens, encumbrances and defects arising by, through or under
Buyer, and the Allocated Value of the Excluded Asset will be a
credit to Buyer in the Final Asset Settlement Statement or Final
LLC Settlement Statement, as the case may be, prepared under
Section 13.1, less the amount distributed to Buyer pursuant to
the succeeding sentence. The Escrow Agent shall distribute to
Buyer, promptly after Saga Petroleum's or Saga LLC's election to
treat the affected asset as an Excluded Asset, the amount placed
in the Escrow Account with respect to such Title Defect (and any
interest accrued thereon). If the Title Defect is not cured and
this election is not made, the issue of the amount of the Defect
Value will be deemed submitted for resolution under Section 4.4,
unless the Parties mutually agree otherwise, and the amount
placed in the Escrow Account for such Title Defect (and any
interest accrued thereon) shall be distributed to Buyer on the
Final Settlement Date (or later determination of the Defect
Value) to the extent of the actual Defect Value for the Title
Defect as determined under Section 4.4 (which may be more or less
than the amount placed in the Escrow Account for the Title
Defect), and any remainder (and any interest accrued thereon)
shall be distributed to Saga Petroleum or Saga LLC. If the
Defect Value exceeds the amount placed into Escrow for the Title
Defect, Saga Petroleum or Saga LLC will pay the excess amount to
Buyer on the Final Settlement Date. If Buyer disputes the
adequacy of Saga Petroleum's or Saga LLC's curative material,
Buyer shall invoke the dispute resolution mechanism set forth in
Section 4.4 within 100 days after Closing.
(e) Defect Value. In determining which portion of a
property is a Defective Interest, it is the intent of the parties
to include, to the extent possible, only that portion of the
property materially and adversely affected by the defect or basis
for such property being treated as a Defective Interest. The
Defect Value may not exceed the Allocated Value of the Asset or
LLC Asset, as the case may be, and shall be determined by the
parties in good faith taking into account all relevant factors,
including without limitation, the following:
(1) The Allocated Value of the affected property;
(2) As to Well and Unit interests, the potential
for or actual reduction in the NRI of the Defective Interest,
or the potential for or actual increase in the WI to the
extent such increase is not accompanied by a corresponding
increase in NRI;
(3) The current status of the Defective Interest
(i.e., proved developed producing, etc.) and if such interest
is producing, the present value of the future income expected
to be produced therefrom;
(4) If the Title Defect represents only a
possibility of title failure, the probability that such
failure will occur;
(5) The legal effect of the Title Defect;
(6) If the Title Defect is a lien or encumbrance
on the property, the cost of removing such lien or
encumbrance; and
(7) Whether Saga Petroleum or Saga LLC has
received proceeds of production from the Defective Interest,
consistent with the NRI set forth on Schedules 1.2 and 1.4, for
the last three years without interruption or challenge based on
the Title Defect.
4.3 Development Activities; Interest Additions.
(a) The parties recognize that Saga Petroleum and Saga
LLC may in their discretion drill additional wells on the Assets
or LLC Assets or conduct workover operations on various wells
included in the Assets or LLC Assets during the period from July
1, 2000 through the Closing (the "Development Activities"),
including, without limitation, the operations described in
Schedule 4.3(a)-1. The Assets Purchase Price and LLC Purchase
Price, as applicable, shall be increased by the value of any
additional reserves that may be added to the Assets or the LLC
Assets as a result of the Development Activities which are
classified as proved developed producing reserves between July 1,
2000 and the day that is 120 days after the Closing Date (the
"Development Evaluation Date") as provided in this Section
4.3(a). The engineering evaluation for the additional reserves
shall be performed, at Buyer's expense, by Ryder Scott and
Company using an oil price of $22.34 per barrel and a gas price
of $2.47 per Mcf, with such prices, and operating costs,
unescalated. The Assets Purchase Price or LLC Purchase Price, as
applicable, shall be increased by 100% of the net present value
as of the Development Evaluation Date (determined using a 20%
discount rate) of additional proved developed producing reserves
added to the Assets or the LLC Assets as a result of the
Development Activities which are not included as proved developed
non-producing reserves or proved undeveloped reserves in the
engineering summaries Saga Petroleum has furnished to Buyer (the
"Reserve Summaries," a copy of which are attached hereto as
Schedule 4.3(a)-2). In addition, the Assets Purchase Price
and/or LLC Purchase Price, as applicable, shall be increased by
50% of the net present value (determined using a 20% discount
rate and using the prices set forth above, with such prices, and
operating costs, unescalated) of any proved developed non-
producing reserves and proved undeveloped reserves included in
the Assets or the LLC Assets which are reflected on the Reserve
Summaries and which are reclassified as proved developed
producing reserves on or prior to the Development Evaluation Date
as a result of the Development Activities. In addition to the
adjustments to the Assets Purchase Price and the LLC Purchase
Price described above, Buyer shall pay to Saga Petroleum an
amount equal to the net proceeds (being the gross proceeds of
production from the Assets and LLC Assets on which Development
Activities are conducted, less Taxes, royalties, and operating
costs) attributable to the incremental increase in production
attributable to the Development Activities from the Effective
Time through the Development Evaluation Date. The price
adjustments described in this Section 4.3(a) shall be determined
and paid as part of the post-closing adjustment pursuant to
Article XIII. The additions to the Assets Purchase Price
described above are herein called the "Assets Reserve Adjustment"
and the additions to the LLC Purchase Price described above are
herein called the "LLC Reserve Adjustment."
(b) Promptly on discovery, Buyer or Saga Petroleum,
whichever is the discovering party, shall notify the other of any
interest that would be an Asset or LLC Asset hereunder, but that
is not listed on Schedules 1.2 or 1.3, including any interest
that entitles Saga Petroleum or Saga LLC to receive more than the
NRI set forth in Schedule 1.2, or obligates Saga Petroleum or
Saga LLC to bear costs and expenses in an amount less than the WI
set forth in Schedule 1.2 (collectively, "Interest Additions").
The party who discovers Interest Additions shall give the other
party written notice of Interest Additions as soon as possible,
but in no event later than on or before two business days prior
to Closing. This notice shall be in writing and shall include
(i) a description of each Interest Addition, (ii) the basis for
each Interest Addition, (iii) the Allocated Value of the Asset
affected by the Interest Addition, and (iv) the value of the
Interest Addition or the amount by which the notifying party
believes the Allocated Value of the Asset has been increased by
the Interest Addition ("Value of Interest Addition") and the
computations upon which such party's belief is based. The Value
of the Interest Addition shall be determined by the parties in
good faith taking into account all relevant factors and the
Assets Purchase Price will be increased in accordance with
Section 2.3 by such an amount ("Interest Addition Adjustment") to
the extent that the aggregate of all Interest Addition
Adjustments, net of Title Defect Adjustments, exceed $150,000.
4.4 Dispute Resolution. The parties agree to resolve
disputes concerning the following matters pursuant to this
Section 4.4: (i) the existence and scope of a Title Defect, (ii)
the Defect Value of that portion of the Asset or LLC Asset
affected by a Title Defect, (iii) the Value of an Interest
Addition, and (iv) the adequacy of Saga Petroleum's or Saga LLC's
Title Defect curative materials submitted pursuant to Section
4.2(c) (collectively, the "Disputed Title Matters"). The parties
agree to attempt to initially resolve all disputes through good
faith negotiations. If the parties cannot resolve such disputes
on or before two days prior to Closing, subject to the threshold
set forth in Section 4.2(a) and deductible set forth in Section
4.2(c), (a) Sellers or Buyer may terminate this Agreement if the
Assets affected by the dispute have Allocated Values exceeding,
in the aggregate, $2,500,000.00, in which event neither Sellers
nor Buyer shall have any further obligation under this Agreement
except that Sellers shall return the Deposit to Buyer as set
forth in the first sentence of Section 11.2(b) or (b) if neither
Sellers nor Buyer elect to so terminate this Agreement, Buyer
shall place the average of Buyer's and Saga Petroleum's or Saga
LLC's Defect Value or Interest Addition Value, as appropriate,
into the Escrow Account, which will be governed by the Escrow
Agreement. The Disputed Title Matters will be finally determined
by an independent arbitrator mutually acceptable to the parties
or, if no such agreement can be reached by the accounting firm of
Arthur Andersen (which firm Buyer and Saga Petroleum each
represents it has not engaged in the last three years) (in either
event, the "Title Arbitrator"), taking into account the factors
set forth in Sections 4.1 through 4.3 and employing such
independent attorneys and petroleum engineers as the Title
Arbitrator deems necessary. On or before 30 days after Closing,
Buyer and Saga Petroleum or Saga LLC shall present their
respective positions in writing to the Title Arbitrator, together
with such evidence as each party deems appropriate. The Title
Arbitrator shall be instructed to resolve the dispute through a
final decision within 45 days after Closing. Notwithstanding the
foregoing, for matters brought before the Title Arbitrator under
Section 4.2(c), the parties shall have until 110 days after
Closing to present their respective evidence and positions in
writing to the Title Arbitrator and the Title Arbitrator will be
instructed to render a final decision within 125 days after
Closing. The costs incurred in employing the Title Arbitrator
shall be borne 50% by the Saga Petroleum and 50% by Buyer. After
the Title Arbitrator makes a determination as to all disputes,
the Title Arbitrators shall instruct the Escrow Agent to pay to
Saga Petroleum, Saga LLC or Buyer the appropriate funds from the
Escrow Account (including any interest accrued on the amounts
paid to each), and any remaining funds in the Escrow Account plus
interest thereon shall be paid to Saga Petroleum. Any
incremental costs incurred for continuing the Escrow Account
after the Final Settlement Date in order to effect the foregoing
provisions shall be shared 50% by Saga Petroleum and 50% by
Buyer.
4.5 Preferential Purchase Rights and Consents to Assign. If
Saga Petroleum or Saga LLC become aware that any of the Assets
are burdened by preferential rights to purchase or required third
party consents to assignment, that apply to the transactions
contemplated by this Agreement, or that any such rights or
consents apply to the Saga LLC Interests or the LLC Assets as a
result of the sale of the Saga LLC Interests to Buyer, Saga
Petroleum or Saga LLC, as the case may be, shall send notice of
this Agreement to all persons holding such rights (i) offering to
sell to each such person that portion of the Assets, LLC Assets
or Saga LLC Interests for which such a preferential right is held
for an amount equal to the Allocated Values of such assets and on
and subject to the terms hereof, or (ii) requesting, where
required, consent to any of the transactions contemplated by this
Agreement. Buyer shall be entitled to review and approve the
form of all such notices, provided that such approval shall not
be unreasonably withheld or delayed. If, prior to Closing, any
of such persons asserting a preferential purchase right notifies
Saga Petroleum or Saga LLC that it intends to consummate the
purchase of that portion of the Assets or LLC Assets to which it
holds a preferential purchase right pursuant to the terms and
conditions of such notice and this Agreement, then such assets
shall be excluded from the Assets and LLC Assets identified in
this Agreement and the Assets Purchase Price or LLC Purchase
Price, as the case may be, shall be reduced by the Allocated
Values of such Assets or LLC Assets, as applicable; provided,
however, that if the holder of such preferential right fails to
consummate the purchase of such Assets or LLC Assets on the
Closing Date, then Saga Petroleum shall promptly so notify Buyer,
and Saga Petroleum shall sell to Buyer, and Buyer shall purchase
from Saga Petroleum, the Assets to which the preferential
purchase right was asserted in accordance herewith for the
Allocated Values of such Assets; further provided, however, that
Buyer shall have the right to terminate this Agreement without
further obligation to Sellers in the event the Allocated Value of
the Assets and LLC Assets for which a third party has exercised a
preferential right hereunder exceeds ten percent (10%) of the
aggregate of the Asset Purchase Price and LLC Purchase Price or
in the event any third party elects to purchase a Saga LLC
Interest and, upon such election, Sellers shall return the
Deposit to Buyer. All Assets or LLC Assets for which a
preferential purchase right has not been asserted prior to
Closing by the holder of such right, or with respect to which
closing does not occur on or before the Closing Date following
the assertion of a preferential purchase right, shall be sold to
Buyer at Closing pursuant to the provisions of this Agreement.
If one or more of the holders of any preferential purchase rights
notifies Saga Petroleum subsequent to Closing that it intends to
assert its preferential purchase right, Saga Petroleum shall give
notice thereof to Buyer, whereupon Buyer shall satisfy all valid
preferential purchase right obligations of Saga Petroleum to such
holders and Buyer shall be entitled to receive (and Saga
Petroleum hereby assigns to Buyer all of Saga Petroleum's rights
to) all proceeds received from such holders in connection with
such preferential purchase rights.
ARTICLE V
ENVIRONMENTAL MATTERS
5.1 Environmental Concerns. An "Environmental Concern"
shall be deemed to exist with respect to an Asset or LLC Asset
if: (i) the operator of the asset has failed to comply with
Environmental Laws (as defined below) in conducting operations on
the asset, (ii) there exists any material litigation,
arbitration, claims, orders or proceedings under any
Environmental Law seeking money damages, injunctive relief,
remedial action, penalties, or cost recovery in connection with
operations conducted on the asset; (iii) the operator of the
asset has failed to obtain and comply in all material respects
with all permits, licenses, authorizations, registrations and
other governmental consents required by applicable Environmental
Laws, (iv) there have been releases of Pollutants in, on, under,
from or affecting any of the assets that have not been
remediated, or (v) there has been any off-site disposal of
Pollutants from an asset in violation of applicable Environmental
Laws.
The term "Environmental Laws" shall mean any and
all present and future laws (whether common or statutory),
compacts, treaties, conventions, rules, regulations, orders,
decrees, judgments, injunctions, promulgated or entered under
such laws by any federal, state, tribal or local governmental
entity relating to public or employee health and safety,
pollution or protection of the environment, including without
limitation, common law claims and theories of liability in
negligence, trespass, nuisance, strict liability or any other
common law theory, CERCLA, RCRA, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Emergency
Planning and Community Right-to-Know Act, the Clean Air Act, the
Oil Pollution Act, the Toxic Substances Control Act, and any and
all other federal, state, tribal and local laws, rules,
regulations and orders relating to reclamation of land, wetlands
and waterways or relating to use, storage, emissions, discharges,
cleanup, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous
substances, petroleum, produced salt water and naturally
occurring radioactive material ("Pollutants") on or into the
workplace or the environment (including without limitation,
ambient air, oceans, waterways, wetlands, surface water, ground
water (tributary and non-tributary), land surface or subsurface
strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation
or handling of pollutants, contaminants, chemicals, or
industrial, toxic, hazardous or similar substances, as all of the
foregoing may be amended, supplemented and reauthorized from time
to time.
5.2 Environmental Notice. Buyer may give Saga Petroleum
notice (the "Environmental Notice") of any fact or circumstance
that evidences a material Environmental Concern. Such
Environmental Notice shall be given, if at all, on or before
November 15, 2000, and shall satisfy the following conditions
precedent:
(a) It must be based on reliable evidence that shows
that it is more likely than not that there exists an
Environmental Concern;
(b) It must be in sufficient detail to put Saga
Petroleum on reasonable notice of the nature of the Environmental
Concern identified and include copies of reports, tests,
photographs, and other evidence then available to Buyer
supporting the position that an Environmental Concern exists;
(c) It must describe the necessary action to remedy the
Environmental Concern (the "Cleanup"); and
(d) It must state and estimate of the amount of Loss
likely to be incurred by Buyer on account of the Environmental
Concern, such amount to include only amounts that are recoverable
in accordance with Section 5.4 below.
5.3 Remedy for Environmental Concern. If Saga Petroleum
receives a valid Environmental Notice, Saga Petroleum shall
provide, at its election, the remedy in either Section 5.3(a) or
Section 5.3(b) below with respect to the Environmental Concern
that is the subject of such notice, but each such remedy, and the
aggregate of all remedies, shall be limited in accordance with
Section 5.4.
(a) Cleanup. Subject to the limitations of Section
5.4, the amount of any expense reasonably expected to be incurred
and attributable to the Cleanup shall be placed by Buyer in the
Escrow Account at Closing (and accounted for separately for each
Cleanup and separately from Defect Values and Interest Addition
Values within such Escrow Account). Buyer shall promptly effect
the remedy of the Environmental Concern referred to in the
Environmental Notice if Saga LLC or Buyer is the operator of the
relevant asset after Closing or, if Saga LLC or Buyer is not the
operator of the relevant asset, Buyer shall use its best efforts
to cause the operator of the relevant Asset promptly to effect
the remedy of the Environmental Concern referred to in the
Environmental Notice. Saga Petroleum shall have the right and
option to elect to conduct the Cleanup in lieu of Buyer. Upon
presentation to the Escrow Agent of invoices or other evidence of
costs for the Cleanup incurred by the party conducting the
Cleanup, the Escrow Agent shall notify the other parties and, if
no objection is raised within fifteen (15) days after their
receipt of such notice, shall pay such amounts to the party which
conducted the Cleanup or to third parties designated by such
party. Upon completion of the Cleanup but in any event no later
than one year after the Closing, the Escrow Agent shall
distribute all remaining Environmental Concern amounts in the
Escrow Account to Saga Petroleum; provided, however, that any
amounts placed in the Escrow Account and expressly designated to
cover monitoring or other Cleanup expenses that could not
reasonably be scheduled to occur within the one-year period shall
thereafter be distributed to Buyer as long as Buyer agrees to use
the funds solely for such purpose. Interest earned on funds
placed in the Escrow Account pursuant to this Section 5.3(a)
shall be paid to the party to whom the corresponding funds are
distributed.
(b) Exclusion of Affected Asset. In lieu of the
remedies provided in Section 5.3(a), if Cleanup costs to be
placed in Escrow for an Asset or LLC Asset exceed 10% of the
Allocated Value for such asset, (i) Saga Petroleum may elect to
retain the affected Asset or (ii) Saga LLC may assign the
affected LLC Asset to any person designated by Morse and Farmer,
in which case the Assets Purchase Price or LLC Purchase Price, as
applicable, shall be reduced by the Allocated Value of such asset
(an "Exclusion Adjustment").
(c) Extraordinary Environmental Concern. If an
Environmental Notice given by Buyer relates to an Environmental
Concern that is so open-ended in potential liability and so
incapable of remediation that Buyer cannot reasonably take
possession of the affected asset (an "Extraordinary Environmental
Concern"), Buyer shall include in its Environmental Notice, in
addition to the requirements of Section 5.2, Buyer's basis for
concluding that an Extraordinary Environmental Concern exists and
Buyer's desire to exclude the affected asset and reduce the
Assets Purchase Price or LLC Purchase Price by the Allocated
Value of the asset as an Exclusion Adjustment. After receipt of
such an Environmental Notice, but before Closing, Saga Petroleum
shall notify Buyer of its election to either: (i) retain or
exclude the asset as provided in Section 5.3(b); (ii) terminate
this Agreement, in which event neither Saga Petroleum nor Buyer
shall have any further obligations under this Agreement except as
expressly provided in this Agreement; or (iii) dispute Buyer's
conclusion that an Extraordinary Environmental Concern exists.
5.4 Limitations on Remedies for Environmental Concerns. The
remedies for Environmental Concerns under this Article V are
further limited as follows:
(a) The remedy shall only arise if the Loss to Buyer on
account of an Environmental Concern is expected to exceed a
threshold of $25,000 per "Incident." Incident means the Loss
from an Environmental Concern that is caused by the spill,
release, discharge or emission ("Release") of the same substance
that occurs or reoccurs in the same contaminated area at or prior
to Closing on account of a singular cause or course of conduct.
(b) The remedy shall apply only to that portion of the
Losses exceeding the threshold in Section 5.4(a) that, in the
aggregate, exceed a deductible amount of $2,500,000.00.
(c) The remedy shall be limited to the amount placed in
the Escrow Account pursuant to Section 5.3(a).
(d) Amounts payable out of the Escrow with respect to
Environmental Concerns shall include only the reasonable costs of
Cleanup actually incurred after the Closing by Buyer to the
extent necessary to put the relevant asset in a condition where
it is no longer affected by an Environmental Concern and amounts
payable to parties unrelated to Buyer through litigation or
binding arbitration or the settlement thereof and the reasonable
costs of defending such action, but not including any amounts
incurred as a result of Buyer's or, after the Closing, Saga LLC's
indemnifying a third party.
5.5 Buyer's Indemnification of Sellers. (a) Upon Closing,
Buyer shall assume all risk, liability, obligation and Losses in
connection with, and shall defend, indemnify and save and hold
harmless the Indemnified Seller Parties forever from and against
all Losses incurred by the Indemnified Seller Parties in
connection with any Environmental Matter. "Indemnified Seller
Parties" means (x) Saga Petroleum, Saga SWD, Morse, the Morse
Family Trust and Farmer, (y) all parties serving as officers,
directors, shareholders, partners, members, managers, principals
or trustees of Saga Petroleum, Saga SWD, Saga LLC or the Morse
Family Trust at any time prior to the Closing, and (z) as to all
of the persons and entities in clauses (x) and (y) above, their
respective representatives, employees, agents, affiliates, and
personal representatives. "Environmental Matter" means the
following matters arising in connection with the Assets or the
LLC Assets, regardless of whether incurred with respect to events
occurring prior to or after the Effective Time: (i) the
violation of, and compliance with past, present and future
Environmental Laws; (ii) remediation and restoration of the
Assets and LLC Assets, including, without limitation, plugging
and abandonment and remediation of Well and LLC Well sites; (iii)
naturally occurring radioactive materials; (iv) asbestos and (v)
damage to persons or property on account of Pollutants. The
procedures of Section 14.2 shall apply to Buyer's obligation
under this Section 5.5.
(b) If, within six (6) months after Buyer transfers, by
whatever means, any Asset or LLC Asset or any of the Saga LLC
Interests to another person or entity, then the transferee shall
be deemed to have waived any and all claims it may have against
any of the Indemnified Seller Parties for any Environmental
Matter and Buyer shall cause such transferee to execute a written
instrument for the benefit of the Indemnified Seller Parties
expressly waiving any and all such claims.
5.6 Applicability of Other Provisions. Sections 14.3 (No
Insurance or Subrogation) and 14.4 (Reservation as to Non-
Parties) shall apply to the provisions of this Article V.
5.7 Exclusive Remedy. Notwithstanding anything else in this
Agreement to the contrary, this Article V is the exclusive
agreement and only remedy of the parties with regard to
Environmental Matters even if some other provision of this
Agreement by its terms would otherwise cover Environmental
Matters.
ARTICLE VI
SAGA PETROLEUM'S REPRESENTATIONS AND WARRANTIES
6.1 Saga Petroleum, Saga SWD and Saga LLC make the following
representations and warranties:
(a) Organization and Good Standing. Saga Petroleum and
Saga SWD are corporations, and Saga LLC is a limited liability
company duly organized, validly existing and in good standing
under the laws of its state of formation, and each of them is
duly qualified to carry on its business in each state where
failure to be so qualified could adversely affect the Assets, LLC
Assets or consummation of the transactions contemplated under
this Agreement.
(b) Power. Saga Petroleum, Saga SWD, Saga LLC, and the
Morse Family Trust have all requisite power and authority to
carry on their businesses as presently conducted and to enter
into this Agreement. The execution and delivery of this
Agreement does not, and the fulfillment of and compliance with
the terms and conditions hereof will not, as of Closing, violate,
or be in conflict with, any material provision of their
governing documents, when applicable, or any material provision
of any agreement or instrument to which any of them is a party or
by which any of them is bound, or, to any judgment, decree,
order, statute, rule or regulation applicable to them or to Morse
or Farmer.
(c) Authorization and Enforceability. The execution,
delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all
requisite corporate or company action on the part of Saga
Petroleum, Saga SWD or Saga LLC. This Agreement constitutes the
legal, valid and binding obligation of Saga Petroleum, is
enforceable in accordance with its terms, subject, however, to
the effects of bankruptcy, insolvency, reorganization, moratorium
and other laws for the protection of creditors, as well as to
general principles of equity, regardless whether such
enforceability is considered in a proceeding in equity or at law.
(d) Liability for Brokers' Fees. Saga Petroleum, Saga
SWD, Saga LLC, Morse, the Morse Family Trust and Farmer have not
incurred any liability, contingent or otherwise for brokers' or
finders' fees relating to the transactions contemplated by this
Agreement, for which Buyer or Saga LLC shall have any
responsibility whatsoever.
(e) Litigation. Except as set forth in Schedule 6.1(e)
attached hereto ("Existing Claims and Litigation") there are no
actions, suits or proceedings pending or, to the knowledge of
Saga Petroleum, Saga Petroleum, Saga SWD, Saga LLC, Morse the
Morse Family Trust and Farmer, threatened in writing against Saga
Petroleum, Saga SWD, or Saga LLC or any of the Assets or LLC
Assets, in any court or by or before any federal, state,
municipal or other governmental agency that would materially
adversely affect the Assets, the LLC Assets or Saga LLC or impair
Sellers' ability to consummate the transaction contemplated
hereby.
(f) Balance Sheet. Saga Petroleum has furnished Buyer
the unaudited balance sheet of Saga LLC as of June 30, 2000 (the
"Balance Sheet"). The Balance Sheet has been prepared in a
manner consistent with the audited financial statements of Saga
LLC as of December 31, 1999, which have also been furnished to
Buyer. The December 31, 1999 financial statements have been
prepared in accordance with GAAP and fairly reflect the financial
condition of Saga LLC as of December 31, 1999. Saga LLC has no
known material liabilities, actual or contingent, in addition to
those reflected in the audited December 31, 1999 financial
statements or the Balance Sheet that are required by GAAP to be
reflected therein. Since the date of the Balance Sheet, Saga LLC
has not incurred or become subject to any known liability
required by GAAP to be reflected on a balance sheet other than
liabilities incurred in the ordinary course of business.
(g) Taxes. All Taxes which are attributable to the
Assets or LLC Assets and which are attributable to the ownership
of or production from the Assets or LLC Assets, as the case may
be, during the Saga Ownership Period (as defined in Section
14.2(a)), Saga SWD or Saga LLC have owned such assets, have been
properly paid.
(h) Lease Maintenance. To the knowledge of Saga
Petroleum, the Leases and LLC Leases have not terminated by
reason of lack of production in paying quantities therefrom
during the Saga Ownership Period and Saga Petroleum or Saga LLC
have properly paid all royalties, rentals and other payments due
under the Leases and LLC Leases attributable to the Saga
Ownership Period.
(i) Material Contracts. To the knowledge of Saga
Petroleum, none of the Sellers are in breach of or default under
any of the contract affecting the Assets or LLC Assets, which
breach or default could reasonably be expected to have a material
adverse effect on the Assets, LLC Assets or Saga LLC.
(j) No Plugging Orders. Sellers have not received any
written order from any governmental agency with jurisdiction over
the Assets or LLC Assets to plug and abandon any Well or other
facility located on the Leases or LLC Leases, except for orders
with which Sellers have complied.
6.2 Morse. Morse makes the following representations and
warranties as of the date hereof:
(a) Saga LLC is a limited liability company duly
organized and validly existing under the laws of the State of
Colorado, and is duly qualified to carry on its business in each
state where failure to be so qualified could adversely affect the
LLC Assets or consummation of the transactions contemplated under
this Agreement.
(b) Prior to giving effect to the transactions
contemplated by this Agreement, Morse owns of record and
beneficially a 37.5% membership interest in Saga LLC, and the
Morse Family Trust owns a 12.5% membership interest in Saga LLC,
free and clear of any liens and encumbrances.
(c) Morse, the Morse Family Trust and Farmer have been
the only members of Saga LLC, and, prior to giving effect to the
transactions contemplated by this Agreement, all membership
interests in Saga LLC are now held by Morse, the Morse Family
Trust and Farmer.
(d) Except as provided in this Agreement, neither Morse
nor the Morse Family Trust have granted any person any right or
have entered into any agreement or understanding (whether by
option, warrant, call, commitment, conversion, plan or
otherwise), fixed or contingent, with respect to the acquisition,
purchase, sale, transfer, assignment, creation or issuance of any
membership or other equity interest in Saga LLC.
6.3 Farmer. Farmer makes the following representations and
warranties as of the date hereof:
(a) Organization and Standing of Saga LLC. Saga LLC is
limited liability company duly organized and validly existing
under the laws of the State of Colorado, and is duly qualified to
carry on its business in each state where failure to be so
qualified could adversely affect the Assets or consummation of
the transactions contemplated under this Agreement.
(b) Prior to giving effect to the transactions
contemplated by this Agreement, Farmer owns of record and
beneficially a 50% membership interest in Saga LLC, free and
clear of any liens or encumbrances.
(c) Morse, the Morse Family Trust and Farmer have been
the only members of Saga LLC, and, prior to giving effect to the
transactions contemplated by this Agreement, all membership
interests in Saga LLC are now held by Morse, the Morse Family
Trust and Farmer.
(d) Except as provided in this Agreement, Farmer has
not granted any person any right or entered into any agreement or
understanding (whether by option, warrant, call, commitment,
conversion, plan or otherwise), fixed or contingent, with respect
to the acquisition, purchase, sale, transfer, assignment,
creation or issuance of any membership or other equity interest
in Saga LLC.
ARTICLE VII
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer makes the following representations and warranties:
7.1 Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws
of the state of Colorado and on the Closing Date will be duly
qualified to carry on its business in each state where failure to
be so qualified could adversely affect the Assets or consummation
of the transactions contemplated under this Agreement
7.2 Power. Buyer has all requisite power and authority to
carry on its business as presently conducted and to enter into
this Agreement. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby and the
fulfillment of and compliance with the terms and conditions
hereof will not violate, or be in conflict with, any material
provision of its articles of incorporation or bylaws or any
material provision of any agreement or instrument to which it is
a party or by which it is bound, or, to its knowledge, any
judgment, decree, order, statute, rule or regulation applicable
to it.
7.3 Authorization and Enforceability. The execution,
delivery and performance of this Agreement and the transaction
contemplated hereby have been duly and validly authorized by all
requisite action on behalf of Buyer. This Agreement constitutes
Buyer's legal, valid and binding obligation, enforceable in
accordance with its terms, subject, however, to the effects of
bankruptcy, insolvency, reorganization, moratorium and similar
laws for the protection of creditors, as well as to general
principles of equity, regardless whether such enforceability is
considered in a proceeding in equity or at law.
7.4 Liability for Brokers' Fees. Buyer has not incurred any
liability, contingent or otherwise, for brokers' or finders' fees
relating to the transactions contemplated by this Agreement for
which any Seller shall have any responsibility whatsoever. Any
broker's or finder's fees that may be payable to Steven Roitman
or BWAB Incorporated or their affiliates, shall be paid by Buyer.
7.5 Litigation. There is no action, suit, proceeding, claim
or investigation by any person, entity, administrative agency or
governmental body pending or, to Buyer's knowledge, threatened
against it before any governmental authority that impedes or is
likely to impede its ability to consummate the transactions
contemplated by this Agreement and to assume the liabilities to
be assumed by it under this Agreement.
7.6 Securities Laws, Access to Data and Information. Buyer
acknowledges that the Assets, including, without limitation, the
LLC Interests, are or may be deemed to be "securities" under the
Securities Act of 1933, as amended, and certain applicable state
securities or Blue Sky laws and that resales thereof may
therefore be subject to the registration requirements of such
acts. The Assets are being acquired solely for Buyer's own
account for the purpose of investment and not with a view to
resale, distribution or granting a participation therein in
violation of any securities laws. Buyer is familiar with the
business of Saga Petroleum, Saga SWD and Saga LLC and it is a
knowledgeable, experienced and sophisticated investor in
securities of companies engaged in the oil and gas business.
Buyer understands and accepts the risks and absence of liquidity
inherent in ownership of the Assets and the Saga LLC Interests.
7.7 Holding Company. Buyer is not a "holding company," or a
"subsidiary company" of a "holding company," or an affiliate of a
"holding company" or of a "subsidiary company" of a "holding
company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
7.8 Independent Evaluation. Buyer is experienced and
knowledgeable in the oil and gas business and is aware of its
risks. Buyer has been afforded the opportunity to examine the
Records, and materials made available to it by Saga Petroleum
with respect to the Assets and Saga LLC (the "Background
Materials"). The Background Materials include files, or copies
thereof, that Saga Petroleum, Saga SWD, or Saga LLC have used in
their normal course of business and other information about the
Assets and Saga LLC that Saga Petroleum, Saga SWD and Saga LLC
have compiled or generated; however, Buyer acknowledges and
agrees that neither Saga Petroleum, Saga SWD, Saga LLC, Sellers
nor any other Indemnified Seller Party has made any
representations or warranties, express or implied, written or
oral, as to the accuracy or completeness of the Background
Materials or, except for the representations and warranties of
Saga Petroleum contained in this Agreement, as to any other
information relating to the Assets, the LLC Assets, or Saga LLC
furnished or to be furnished to Buyer or its representatives by
or on behalf of Sellers, including without limitation any
estimate with respect to the value of the Assets, the LLC Assets,
Saga LLC or reserves or any projections as to events that could
or could not occur. In entering into this Agreement, Buyer
acknowledges and affirms that it has relied and will rely solely
on the terms of this Agreement and upon its independent analysis,
evaluation and investigation of, and judgment with respect to,
the business, economic, legal, tax or other consequences of this
transaction including its own estimate and appraisal of the
extent and value of the petroleum, natural gas and other reserves
attributable to the Assets or LLC Assets and the value of any
other assets. Buyer's representatives have visited the offices
of Saga Petroleum and have been given opportunities to examine
the books and records Saga Petroleum has made available relating
to the Assets, the LLC Assets and Saga LLC. Except as expressly
provided in this Agreement, no Seller or any other Indemnified
Seller Party shall have any liability to Buyer or its affiliates,
agents, representatives or employees resulting from any use,
authorized or unauthorized, of the Background Materials or other
information relating to the Assets, the LLC Assets or Saga LLC
provided by or on behalf of Sellers or any other Indemnified
Seller Party.
ARTICLE VIII
COVENANTS AND AGREEMENTS
8.1 Covenants and Agreements of Saga Petroleum and Saga LLC.
Saga Petroleum, Saga SWD and Saga LLC (which is executing this
Agreement solely for the purpose of giving the pre-Closing
covenants set forth in this Section 8.1 and the covenant set
forth in the first sentence of Section 3.2 and for no other
purpose) covenant and agree with Buyer as follows:
(a) Operations Prior to Closing. Without the prior
written consent of Buyer to act otherwise, during the period from
the date of execution of this Agreement to the Closing Date, Saga
Petroleum, Saga SWD and Saga LLC will use their reasonable
commercial efforts within the constraints of the applicable
operating agreements and other applicable agreements to not:
(i) sell, transfer or abandon any part of the
Assets or LLC Assets (except in the ordinary course of
business or the abandonment of leases upon the
expiration of their respective primary terms or if not
capable of production in paying quantities);
(ii) except for the Development
Activities which shall be deemed to be approved by
Buyer, approve any operation on the Assets or LLC Assets
anticipated in any instance to cost more than $25,000
per activity net to the interest of Saga Petroleum, Saga
SWD and Saga LLC (except for emergency operations,
operations required under presently existing contractual
obligations, ongoing commitments under existing AFE's
and operations undertaken to avoid a monetary penalty or
forfeiture provision of any applicable agreement or
order);
(iii) to enter into any new marketing
contracts or agreements providing for the sale or
disposition of Hydrocarbons produced from the Assets or
LLC Assets for a term in excess of 90 days (other than
extension or renewal of the existing Contracts and sales
by or on their behalf under the applicable operating
agreement); and
(iv) to convey or dispose of any material
part of the Assets or LLC Assets (other than replacement
of equipment or sale of Hydrocarbons produced from the
Assets and LLC Assets in the regular course of business)
or enter into any farmout, except to maintain a lease or
fulfill a drilling commitment, or enter into any farmin
or other similar contract affecting the Assets or LLC
Assets if the net expense to the interest of Saga
Petroleum and Saga LLC will be in excess of $25,000.
Notwithstanding any provision to the contrary, nothing in
this Section 8.1(a) shall require Saga Petroleum, Saga SWD or
Saga LLC to revise, dishonor or delay performance of any
obligation under agreements in existence prior to the date
hereof.
(b) Status. Saga LLC shall maintain its limited
liability company status from the date hereof until Closing and
to assure that as of the Closing Date Saga LLC will not be under
any material legal or contractual restriction that would prohibit
or delay the timely consummation of the transactions contemplated
hereby. In addition, during the period from the date of this
Agreement to the Closing Date, Saga LLC will not:
(i) amend its articles of organization or other
governing documents;
(ii) purchase or redeem any equity interests
from, or declare or make any payment or distribution to, any
member;
(iii) issue or authorize the issuance of any
securities or equity interests or any options, warrants or rights
to purchase any securities or equity interests;
(iv) give any promise, assurance or guaranty of
the payment, discharge or fulfillment of any obligation of any
other person or entity; and
(v) resign, transfer or otherwise voluntarily
relinquish any right it has to act as operator of any of the Oil
and Gas Assets.
(c) Notices of Claims. Saga Petroleum shall promptly
notify Buyer, if, between the date of execution of this Agreement
and the Closing Date, any Seller or Saga LLC receives written
notice of any claim, suit, action or other proceeding of the type
referred to in Section 6.6 or written notice of any material
default under any Contract.
(d) Consents of Others; Conditions. Prior to the
Closing, Saga Petroleum shall use its reasonable efforts (a) to
cause the Sellers to obtain all authorizations and consents, if
any, required of the Sellers to permit them to consummate the
transaction contemplated by this Agreement and (b) to cause all
conditions for Closing set forth in Section 10.1 to be met.
(e) Maintenance of Operations. During the period from
the date of execution of this Agreement until the Closing Date,
each of Saga Petroleum and Saga LLC shall use its reasonable
commercial efforts and cooperate with Buyer's efforts to maintain
Saga LLC as the operator of those Assets and LLC Assets currently
operated by Saga LLC, provided, however, neither Saga Petroleum
nor Saga LLC shall be required to incur any expense or liability
in connection therewith.
8.2 Covenants and Agreements of Buyer. Buyer covenants and
agrees with Sellers that:
(a) Corporate Status. Buyer shall maintain its
corporate status from the date hereof until the post-Closing
adjustment, and use all reasonable efforts to assure that as of
the Closing Date it will not be under any material corporate,
legal or contractual restriction that would prohibit or delay the
timely consummation of the transaction contemplated hereby.
(b) Like-Kind Exchange. If requested by any Seller,
Buyer will cooperate with such Seller to accommodate a like-kind
exchange under Section 1031 of the Code with respect to all or
any of the Assets or LLC Assets (or any portion thereof). Such
cooperation will include, without limitation, the execution of
certain documents in connection with such like-kind exchange, but
Buyer need not assume any additional liabilities or obligations
in connection therewith. Saga Petroleum shall have the right,
without the consent of Buyer, to cause Saga LLC to assign all or
any portion of its interests in the LLC Assets or similar
agreement to Saga Petroleum or a third party designated by Saga
Petroleum for purposes of facilitating the like-kind exchange.
Saga Petroleum shall indemnify, save and hold harmless Buyer from
and against any and all costs, expenses, liabilities, fines,
penalties, taxes, and demands for damages arising from the like-
kind exchange.
(c) Consents of Others; Condition. Prior to Closing,
Buyer shall use its reasonable efforts (a) to obtain all
authorizations, consents and permits, if any, required of Buyer
to permit it to consummate the transaction contemplated by this
Agreement and (b) to cause all conditions for Closing set forth
in Section 10.2 to be met.
8.3 Covenants and Agreements of the Parties.
(a) Confidentiality. The existing Confidentiality and
Nondisclosure Agreement dated as of July 20, 2000 between Saga
Petroleum and Saga LLC and Buyer shall continue in full force and
effect according to its terms until the Closing and shall be
deemed terminated if Closing occurs.
(b) Communication Between The Parties. If Buyer
develops information during its due diligence that leads Buyer to
believe that Saga Petroleum has breached a representation or
warranty under this Agreement, Buyer shall inform Saga Petroleum
of such potential breach as soon as possible, but in any event,
at or prior to Closing.
(c) Cure Period for Breach. If any party to this
Agreement believes any other party has breached the terms of this
Agreement, the party who believes the breach has occurred shall
give written notice to the breaching party of the nature of the
breach and give that party five business days to cure.
Notwithstanding the foregoing, this Section 8.3(c) shall not
apply to breach of the parties' obligations at Closing and shall
not operate to delay Closing.
ARTICLE IX
TAX MATTERS
9.1 Apportionment of Tax Liability. All Taxes shall be
prorated between Buyer and Saga Petroleum or Saga SWD, as
applicable, to the extent attributable to the Oil and Gas Assets,
as of the Effective Time for all taxable periods that include the
Effective Time. For purposes of Section 2.4, Saga LLC's current
liabilities as of the Effective Time shall include all Taxes
attributable to periods ending prior to the Effective Time and a
share of Taxes, prorated as of the Effective Time, attributable
to the LLC Assets for taxable periods that include the Effective
Time. Based on the best current information available as of
Closing, the proration shall be made between the parties as an
adjustment to the Purchase Price pursuant to Sections 2.3 and 2.4
and shall be subject to adjustment in the Final Settlement
Statement based on then-current information, which shall then
constitute a final settlement of Taxes between the parties.
Taxes based on or measured by production of Hydrocarbons or the
value thereof shall be deemed attributable to the period when
such production occurred notwithstanding that such Taxes are not
assessed or payable until a subsequent period. Accordingly,
after Closing, and subject to adjustment in the Final Settlement
Statement, Buyer expressly assumes all obligations and
liabilities for all Taxes payable by the Sellers and Saga LLC,
regardless of whether such Taxes are attributable to the period
of time before or after the Effective Time; provided, however,
that such assumption of the obligation and liabilities for Taxes
of Sellers and Saga LLC shall be only for those tax periods
covered by the actual adjustment in the Final Settlement
Statement; all other Taxes attributable to the ownership of or
production from the Assets or LLC Assets during the Saga
Ownership Period, to the extent not addressed in such adjustment,
shall remain the responsibility of Saga Petroleum to the extent
the same are covered by Saga Petroleum's indemnification
obligations under Section 14.2.
9.2 Tax Reports and Returns. For the tax period in which
the Effective Time occurs, Saga Petroleum agrees to immediately
forward to Buyer any such tax reports and returns received by
Saga Petroleum after Closing and provide Buyer with any
information Saga Petroleum has that is necessary for Buyer to
file any required tax reports and returns. Buyer agrees to file
all tax returns and reports applicable to the Oil and Gas Assets,
or Saga LLC and its assets, and required to be filed after the
Closing, pay or cause Saga LLC to pay all required Taxes payable
with respect to the Oil and Gas Assets, and Saga LLC or its
assets, and indemnify the Sellers against liability for the
payment of Taxes and the filing of tax returns or reports.
ARTICLE X
CONDITIONS TO CLOSING
10.1 Sellers' Conditions. The obligations of Sellers at the
Closing are subject, at the option of Sellers, to the
satisfaction or waiver at or prior to the Closing of the
following conditions precedent:
(a) All representations and warranties of Buyer
contained in this Agreement are true in all material respects
(considering the transaction as a whole) at and as of the Closing
in accordance with their terms as if such representations and
warranties were remade at and as of the Closing, and Buyer has
performed and satisfied all covenants and agreements required by
this Agreement to be performed and satisfied by Buyer at or prior
to the Closing in all material respects and Buyer shall deliver a
certificate to Sellers confirming the foregoing;
(b) No order has been entered by any court or
governmental agency having jurisdiction over the parties or the
subject matter of this Agreement that restrains or prohibits the
purchase and sale contemplated by this Agreement and that remains
in effect at the time of Closing; and
(c) Unless otherwise agreed, the aggregate of the
amount to be paid into the Escrow and the aggregate reductions in
the Asset Purchase Price and LLC Purchase Price for Defect
Adjustments and Exclusion Adjustments shall not exceed
$2,500,000.00.
10.2 Buyer's Conditions. The obligations of Buyer at the
Closing are subject, at the option of Buyer, to the satisfaction
or waiver at or prior to the Closing of the following conditions
precedent:
(a) All representations and warranties of each of the
Sellers and Saga LLC contained in this Agreement are true in all
material respects (considering the transaction as a whole) at and
as of the Closing in accordance with their terms as if such
representations were remade at and as of the Closing, and Saga
Petroleum, Saga SWD and Saga LLC have performed and satisfied all
covenants and agreements required by this Agreement to be
performed and satisfied by them at or prior to the Closing in all
material respects;
(b) No order has been entered by any court or
governmental agency having jurisdiction over the parties or the
subject matter of this Agreement that restrains or prohibits the
purchase and sale contemplated by this Agreement and that remains
in effect at the time of Closing; and
(c) Unless otherwise agreed, the aggregate of the
amount to be paid into the Escrow and the aggregate reductions in
the Asset Purchase Price and LLC Purchase Price for Defect
Adjustments and Exclusion Adjustments shall not exceed
$2,500,000.00.
ARTICLE XI
RIGHT OF TERMINATION AND ABANDONMENT
11.1 Termination. This Agreement may be terminated in
accordance with the following provisions:
(a) by Sellers if the conditions set forth in
Section 10.1 are not satisfied through no fault of Sellers or
Saga LLC, or are not waived by Sellers, as of the Closing Date
(as defined in Section 12.1, below);
(b) by Buyer if the conditions set forth in
Section 10.2 are not satisfied through no fault of Buyer, or are
not waived by Buyer, as of the Closing Date;
(c) by Sellers pursuant to Sections 5.3;
(d) by either Buyer or Sellers pursuant to Section 4.4;
(e) by Sellers if, through no fault of Sellers or Saga
LLC, the Closing does not occur on or before December 31, 2000;
(f) by Buyer if, through no fault of Buyer, the
Closing does not occur on or before December 31, 2000;
(g) by Buyer if, by December 1, 2000, Buyer has not received
assurances from Forcenergy Inc, its successors or assigns
("Forcenergy") reasonably satisfactory to Buyer that Forcenergy
will not exercise its right to remove Saga LLC as the operator of
wells jointly owned by Saga Petroleum and Forcenergy and
currently operated by Saga LLC, provided that Buyer has used its
commercially reasonable efforts to obtain such assurances; or
(h) automatically without any further action by Buyer
or Sellers, if Buyer does not pay the Additional Deposit by the
time required in Section 2.1(c).
11.2 Liabilities Upon Termination.
(a) Buyer's Breach. If Closing does not occur because
Buyer fails to pay the Additional Deposit, Sellers' remedies
shall be as provided in Section 2.1(c). If Closing does not
occur because Buyer wrongfully fails to tender performance at
Closing or otherwise breaches this Agreement prior to Closing,
Sellers shall be entitled to retain the Deposit as liquidated
damages, it being agreed that the Deposit is a fair measure of
the damages that will be suffered by Sellers as a result of such
breach by Buyer. Buyer's failure to close shall not be
considered wrongful if (x) Buyer's conditions under Section 10.2
are not satisfied through no fault of Buyer or are not waived; or
(y) Buyer has terminated this Agreement as of right under
Section 11.1.
(b) Seller's Breach; Limitations. If Closing does not
occur because Sellers wrongfully fail to tender performance at
Closing or otherwise materially breach this Agreement or because
this Agreement is terminated as of right by Buyer under Section
11.1, Saga Petroleum will return the Initial Deposit, and the
Additional Deposit if it has been paid to Sellers, to Buyer
immediately after the determination that the Closing will not
occur and Buyer shall retain any legal or equitable remedies for
Sellers' or Saga LLC's breach of this Agreement, including,
without limitation, specific performance, subject to the
limitations set forth below; provided, however, that Sellers and
Saga LLC shall not have any liability to Buyer for consequential,
special, punitive or exemplary damages, lost profits, or lost
business opportunities arising out of or related to Sellers' or
Saga LLC's breach of any provision of this Agreement . Sellers'
failure to close shall not be considered wrongful if (x) Sellers'
conditions under Section 10.1 are not satisfied through no fault
of Sellers or Saga LLC or are not waived; or (y) Sellers have
terminated this Agreement as of right under Section 11.1.
ARTICLE XII
CLOSING
12.1 Date of Closing. Unless otherwise agreed to in writing
and subject to the conditions stated in this Agreement,
consummation of the transactions contemplated hereby (the
"Closing") shall be held on December 1, 2000 unless extended by
mutual agreement of the parties. The date the Closing actually
occurs is called the "Closing Date."
12.2 Place of Closing. The Closing shall be held at the
offices of Saga Petroleum in Denver, Colorado at 9:00 a.m. or at
such other time and place as Buyer and Saga Petroleum may agree
in writing.
12.3 Closing Obligations. At Closing, the following events
shall occur, each being a condition precedent to the others and
each being deemed to have occurred simultaneously with the
others:
(a) Saga Petroleum and Saga SWD shall execute,
acknowledge and deliver to Buyer, an assignment of the Assets,
with a special warranty of title against liens, claims, burdens
and encumbrances arising by, through or under Saga Petroleum and
Saga SWD, but not otherwise, in form and substance mutually
acceptable to the parties; and
(b) Morse, the Morse Family Trust and Farmer shall
execute and deliver to Buyer an assignment of the LLC Interests
substantially in the form and substance mutually acceptable to
the parties;
(c) Sellers and Buyer shall execute and deliver the
Assets Preliminary Settlement Statement and LLC Preliminary
Settlement Statement and Sellers shall deliver the Balance Sheet;
(d) Buyer shall deliver the Assets Closing Amount, less
$1,500,000 (which amount shall be evidenced by and paid pursuant
to the promissory note described in Section 12.3(f) below), and
less the Deposit (which shall be retained by Sellers), and less
the Share Portion of the Assets Purchase Price, to an account
designated by Saga Petroleum by wire transfer in immediately
available funds, and, if necessary, to Escrow Agent, the funds to
be placed into the Escrow Account (with such escrowed funds to be
held in separate accounts pursuant to the terms of this
Agreement) and Buyer shall deliver the shares constituting the
Share Portion of the Assets Purchase Price to Saga Petroleum;
(e) Buyer shall deliver the LLC Closing Amount to an
account designated by Morse and Farmer by wire transfer in
immediately available funds, and, if necessary, to Escrow Agent,
the funds to be placed into the Escrow Account (with such
escrowed funds to be held in separate accounts pursuant to the
terms of this Agreement);
(f) Buyer shall execute and deliver to Saga Petroleum a
promissory note in the form of Exhibit C attached hereto in the
original principal amount of $1,500,000 which shall be due and
payable, without interest, on April 1, 2001. Such note may be
prepaid in whole or in part from time to time without penalty and
shall bear interest on any unpaid amounts after April 1, 2001 at
12% per annum, compounded quarterly. Such note shall be secured
by a deed of trust in the form of Exhibit D attached hereto,
covering the Assets and LLC Assets located in the South Cowden
Field in Ector County, Texas.
(g) To the extent necessary, Sellers shall cause the
amounts payable to them pursuant to (d) and (e) above to be
applied to pay off all outstanding indebtedness of Saga Petroleum
and Saga LLC to Bank One Texas and Saga Petroleum and Saga LLC
shall provide releases in recordable form of the liens and
security interests securing such indebtedness acceptable to
Buyer;
(h) If necessary, Sellers and Buyer shall execute and
deliver the Escrow Agreement governing the Escrow Account;
(i) All intercompany payables and debts owed by Saga
Petroleum to Saga LLC shall be cancelled;
(j) Sellers shall execute and deliver to Buyer
affidavits of non-foreign status and no requirement for
withholding under Section 1445 of the Code;
(k) Sellers shall provide closing certificates as set
forth in Section 10.1;
(l) Buyer shall provide a closing certificate as set
forth in Section 10.2;
(m) Seller shall deliver all necessary instruments for
the transfer of the Other Assets, including any deeds for real
property; and
(n) Saga Petroleum and Buyer shall take such other
actions and deliver such other documents as are contemplated by
this Agreement.
ARTICLE XIII
POST-CLOSING OBLIGATIONS
13.1 Post-Closing Adjustments. (a) On or before the date
that is 150 days after Closing, Saga Petroleum, with assistance
from Buyer's or Saga LLC's staff, will prepare and deliver to
Buyer, in accordance with customary industry accounting
practices, (i) the final settlement statement (the "Final
Settlement Statement") setting forth each adjustment or payment
that was not finally determined as of the Closing and showing the
calculation of such adjustment and the resulting final purchase
price for the Assets (the "Final Assets Purchase Price") and the
final purchase price for the Saga LLC Interests (the "Final LLC
Purchase Price"), and (ii) revised Balance Sheet, if applicable.
As soon as practicable after receipt of the Final Settlement
Statement, but in no event later than on or before 20 days after
receipt of Saga Petroleum's proposed Final Settlement Statement,
Buyer shall deliver to Saga Petroleum a written report containing
any changes that Buyer proposes to make to the Final Settlement
Statement. Buyer's failure to deliver to Saga Petroleum a
written report detailing proposed changes to the Final Settlement
Statement by that date shall be deemed an acceptance by Buyer of
the Final Settlement Statement as submitted by Saga Petroleum.
The parties shall agree with respect to the changes proposed by
Buyer, if any, no later than 30 days after receipt of Saga
Petroleum's proposed Final Settlement Statement. The date upon
which such agreement is reached or upon which the Final Purchase
Price is established shall be herein called the "Final Settlement
Date." If the Final Assets Purchase Price is more than the
Assets Closing Amount, Buyer shall pay Saga Petroleum the amount
of such difference. If the Final Assets Purchase Price is less
than the Assets Closing Amount, Saga Petroleum shall pay to
Buyer the amount of such difference; provided Saga Petroleum may
pay the share fraction (as defined below) of such amount in the
form of the common stock of Buyer, each share of which shall be
deemed to have a value of $5.00 per share (adjusted for any stock
splits, stock dividends and the like after the date of this
Agreement). The "share fraction" shall be a fraction whose
numerator is the Share Portion of the Purchase Price (before
giving effect to the adjustments pursuant to this Section 13.1)
and whose denominator is an amount equal to the Assets Closing
Amount plus the LLC Closing Amount. If the Final LLC Purchase
Price is more than the LLC Closing Amount Buyer shall pay Morse
(for the benefit of Morse and the Morse Family Trust) and Farmer
the amount of such difference. If the Final LLC Purchase Price
is less than the LLC Closing Amount, Morse and Farmer shall pay
to Buyer the amount of such difference. In either event, payment
shall be made by wire transfer in immediately available funds.
Payment by Buyer or Saga Petroleum or Morse and Farmer, as the
case may be, shall be within five days of the Final Settlement
Date. The same approval process shall apply to the updated
Balance Sheet, if any, and any adjustments requiring additional
payment by either Buyer or Morse and Farmer shall also be made in
the same manner and on the same schedule as the Final LLC
Purchase Price.
(b) Dispute Resolution. If the parties are unable to
resolve a dispute as to the Final Assets Purchase Price or Final
LLC Purchase Price by 30 days after Buyer's receipt of Saga
Petroleum's proposed Final Settlement Statement, the parties
shall submit the dispute to binding arbitration to be conducted
in accordance with the following procedures by the accounting
firm of Arthur Andersen (the "Accountants"). No later than
30 days after initiating the arbitration procedure, the
Accountants shall conduct a hearing, at which time the parties
shall present such evidence and witnesses as they may choose,
with or without counsel. Adherence to formal rules of evidence
shall not be required, but the arbitrator shall consider any
evidence and testimony that it determines to be relevant, in
accordance with procedures that it determines to be appropriate.
The arbitrator shall render its written decision specifically
establishing the Final Assets Purchase Price or Final LLC
Purchase Price, as the case may be, within 30 days after the
hearing. A decision may be filed in any court of competent
jurisdiction and may be enforced by any party as a final judgment
of such court. Without the consent of Sellers and Buyer, the
arbitration shall not determine any issues other than adjustments
to be made pursuant to Sections 2.3, 2.4 and 13.1; all other
disputes shall be handled pursuant to the provisions of Sections
4.4 and 15.18.
13.2 Records. Saga Petroleum may retain copies of the
Records and Saga Petroleum shall have the right to review and
copy the Records during standard business hours upon reasonable
notice for so long as Buyer retains the Records. Buyer agrees
that the Records will be maintained in compliance with all
applicable laws governing document retention. Buyer will not
destroy or otherwise dispose of Records for a period of ten years
after Closing, unless Buyer first gives Saga Petroleum reasonable
notice and an opportunity to copy the Records to be destroyed.
13.3 Purchase Price Allocation - Form 8594. Saga Petroleum
and Buyer shall cooperate in the preparation of Internal Revenue
Service Form 8594, pursuant to Temporary Treasury Regulation
Section 1.1060-1T to report the allocation of the Assets Purchase
Price among the Assets. To the extent required by Code Section
1060 and any regulations promulgated thereunder, any such
allocations shall be consistent with the Assets Purchase Price
allocation as set forth in Schedule 2.2.
13.4 Insurance. If any of Saga LLC's current liability
insurance policies contain "claims made" provisions that, if
canceled or not renewed after Closing, could expose Saga
Petroleum or Saga SWD to liability for claims arising from
occurrences that happened prior to Closing and that, if such
policies had been continued or renewed would otherwise be
insured, then Buyer agrees to take all steps necessary after
Closing either (i) to preserve the existing level of insurance
coverage for such potential claims for at least the length of
time available under the "Extended Reporting Periods" or similar
periods in the various policies currently carried by Saga
Petroleum or Saga SWD as the case may be, or (ii) maintain other
insurance policies acceptable to Sellers which cover the
liabilities covered by the policies described in clause "(i)."
13.5 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Buyer and Morse, Morse
Family Trust and Farmer for certain tax matters relating to Saga
LLC following the Closing Date. Morse, Farmer and Buyer agree
that there will be a closing of the books, at Saga LLC's cost, of
Saga LLC as of the LLC Effective Time, that short year returns
shall be filed for Saga LLC for the period ending on such date,
and the LLC Purchase Price shall be adjusted upward in the Final
Settlement Statement for all federal, state and local taxes paid
or payable by Morse, Morse Family Trust and Farmer attributable
to the net taxable income of Saga LLC attributable to the LLC
Assets for the period from the LLC Effective Time to the Closing
Date.
13.6 Further Assurances. From time to time after Closing,
Sellers and Buyer shall each execute, acknowledge and deliver to
the other such further instruments and take such other action as
may be reasonably requested in order to accomplish more
effectively the purposes of the transactions contemplated by this
Agreement.
ARTICLE XIV
INDEMNIFICATION
This Article XIV addresses assumption, retention and
indemnification for matters other than Environmental Matters,
which are handled exclusively in Article V except to the extent
parts of Article XIV are expressly incorporated into Article V.
14.1 Buyer's Assumption of Liabilities and Indemnification of
Sellers. If Closing occurs, except for the limited matters
covered by Saga Petroleum's indemnification of Buyer under
Section 14.2, Buyer shall be deemed to have assumed all risk,
liability, obligation and Losses in connection with, and Buyer
agrees to defend, indemnify and save and hold harmless the
Indemnified Seller Parties, their successors and assigns, forever
from and against all Losses which arise from or in connection
with, the following whether arising or attributable to periods
before or after the Effective Time: (i) ownership or operation of
the Assets, the Saga LLC Interests or the LLC Assets, (ii)
control or management of Saga LLC or the Assets or LLC Assets,
(iii) the Contracts, (iv) the Existing Claims and Litigation, (v)
the breach by Buyer of any of its representations or warranties
set forth in Article VII, and (vi) any other matter for which
Buyer has agreed in this Agreement to indemnify Sellers.
(a) "Losses" shall mean any loss, cost, expense,
liability, obligation, damage, demands, suits, sanctions of every
kind and character including reasonable fees and expenses of
attorneys, technical experts and expert witnesses reasonably
incident to matters indemnified against; excluding any special,
consequential, punitive or exemplary damages except to the extent
recovered against the indemnified persons by a third-party
claimant.
(b) Release. Buyer and Saga LLC shall be deemed to
have released the Indemnified Seller Parties, and their
predecessors, successors and assigns, at the Closing from any and
all Losses for which Buyer has agreed to indemnify the
Indemnified Seller Parties hereunder. In addition, Saga LLC
shall be deemed to have released the Seller Indemnified Parties
from any and all claims and causes of action of any kind, whether
known or unknown, that it may have against them as of the Closing
or at any time thereafter.
14.2 Saga Petroleum Limited Indemnification of Buyer.
(a) Subject to the limitations set forth in Section
14.2(b), Saga Petroleum agrees to defend, indemnify and save and
hold harmless Buyer, Saga LLC, and their respective officers,
directors, shareholders, employees, members and managers (the
"Indemnified Buyer Parties"), their successors and assigns, from
and against all Losses which arise from or in connection with the
following: (i) Taxes attributable to the Saga Ownership Period,
as allocated and pursuant to the procedures provided in Article
IX, (ii) the Existing Claims and Litigation, (iii) royalty
obligations on production during the Saga Ownership Period, (iv)
personal injury claims attributable to acts, omissions or events
occurring during the Saga Ownership Period attributable to the
Assets and LLC Assets and attributable, in accordance with GAAP,
to the Saga Ownership Period, (v) amounts billed under applicable
operating agreements for operating costs and expenses, and (vi)
claims by Sellers' trade creditors for services and supplies
furnished to Sellers and attributable, in accordance with GAAP,
to the Saga Ownership Period. "Saga Ownership Period" shall mean
the period prior to the Effective Time that Saga Petroleum owned
the affected Asset or the period prior to the Effective Time that
Saga LLC owned the affected LLC Asset, as the case may be.
(b) Saga Petroleum's obligations under Section 14.2(a)
shall be limited as follows:
(i) such indemnification shall not cover any
Environmental Matter, whether arising before or after the
Effective Time; (ii) the indemnifications provided in Sections
14.2(a)(iii), (iv), (v) and (vi) shall only cover matters noticed
by Buyer to Saga Petroleum within one year after the Closing
Date; (iii) Saga Petroleum shall have no liability for the first
$250,000 in claims in the aggregate under Sections 14.2(a)(iii)
and (iv), which amount shall be a deductible borne by Buyer; (iv)
Saga Petroleum's total aggregate liability for all claims made
under Sections 14.2(a)(iii), (iv), (v), and (vi), after giving
effect to the deductible in Section 14.2(b)(iii), if applicable,
shall be limited to $750,000. The limitations set forth in
clauses "(ii)," "(iii)" and "(iv") shall not apply to the
indemnifications provided in Sections 14.2(a)(i)and (ii).
14.3 THE INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT
SHALL BE WITHOUT REGARD TO THE INDEMNIFIED PERSON'S SOLE, JOINT
OR CONCURRENT NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY OR
OTHER FAULT.
14.4 THE PARTIES AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LAW TO BE OPERATIVE, THE DISCLAIMERS OF WARRANTIES
CONTAINED IN THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE
PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER. WITHOUT
LIMITATION OF THE GENERALITY OF THE IMMEDIATELY PRECEDING
SENTENCE, SELLERS EXPRESSLY DISCLAIM AND NEGATE AS TO ALL
PERSONAL PROPERTY, FIXTURES AND EQUIPMENT, (I) ANY IMPLIED OR
EXPRESS WARRANTY OF MERCHANTABILITY; (II) ANY IMPLIED OR EXPRESS
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE; (III) ANY IMPLIED
OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS; (IV) ANY RIGHTS OF BUYER UNDER APPLICABLE STATUTES TO
CLAIM DIMINUTION OF CONSIDERATION; AND (V) ANY CLAIM BY BUYER FOR
DAMAGES BECAUSE OF DEFECTS IN ANY PERSONAL PROPERTY INCLUDED
WITHIN THE ASSETS OR LLC ASSETS, WHETHER KNOWN OR UNKNOWN, IT
BEING EXPRESSLY UNDERSTOOD BY BUYER THAT PERSONAL PROPERTY
FIXTURES AND EQUIPMENT INCLUDED WITHIN THE ASSETS AND THE LLC
ASSETS ARE BEING CONVEYED TO BUYER "AS IS," "WHERE IS," WITH ALL
FAULTS, AND IN THE PRESENT CONDITION AND STATE OF REPAIR.
14.5 TO THE EXTENT APPLICABLE TO THE ASSETS OR ANY PORTION
THEREOF, BUYER HEREBY WAIVES THE PROVISIONS OF THE TEXAS
DECEPTIVE TRADE PRACTICES ACT, CHAPTER 17, SUBCHAPTER E, SECTIONS
17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION 17.555, WHICH
IS NOT WAIVED), TEX. BUS. & COM. CODE. IN ORDER TO EVIDENCE ITS
ABILITY TO GRANT SUCH WAIVER, BUYER HEREBY REPRESENTS AND
WARRANTS TO SELLERS THAT IT (I) IS IN THE BUSINESS OF SEEKING OR
ACQUIRING, BY PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL
OR BUSINESS USE; (II) IS REPRESENTED BY LEGAL COUNSEL; (III) HAS
KNOWLEDGE AND EXPERIENCE IN FINANCIAL, BUSINESS AND OIL AND GAS
MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF THE
TRANSACTIONS CONTEMPLATED HEREBY; (IV) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION; AND (V) THAT THIS WAIVER IS A
MATERIAL AND INTEGRAL PART OF THIS AGREEMENT AND THE
CONSIDERATION THEREOF.
14.6 Procedure. The indemnifications contained in Sections
14.1 and 14.2 shall be implemented as follows:
(a) Claim Notice. The party seeking indemnification
under the terms of this Agreement ("Indemnified Party") shall
submit a written "Claim Notice" to the other party ("Indemnifying
Party") which, to be effective, must state: (i) the amount of
each payment claimed by an Indemnified Party to be owing, to the
extent then quantifiable, (ii) the basis for such claim, with
supporting documentation (iii) a list identifying to the extent
reasonably possible each separate item of Loss for which payment
is so claimed. The amount claimed shall be paid by such
Indemnifying Party as and to, and only to, the extent required
herein within 30 days after receipt of the Claim Notice or after
the amount of such payment has been finally established,
whichever last occurs.
(b) Information. Within 60 days after notification to
an Indemnified Party with respect to any claim or legal action or
other matter that may result in a Loss for which indemnification
may be sought under this Article XIV, but in any event in time
sufficient for the Indemnifying Party to contest any action,
claim, proceeding or other matter that has become the subject of
proceedings before any court or tribunal, such Indemnified Party
shall give written notice of such claim, legal action or other
matter to the Indemnifying Party and, at the request of such
Indemnifying Party, shall furnish the Indemnifying Party or its
counsel with copies of all pleadings and other information with
respect to such claim, legal action or other matter and shall, at
the election of the Indemnifying Party made within 60 days after
receipt of such notice, permit the Indemnifying Party to assume
control of such claim, legal action or other matter (to the
extent only that such claim, legal action or other matter relates
to a Loss for which the Indemnifying Party is liable), including
the determination of all appropriate actions, the negotiation of
settlements on behalf of the Indemnified Party, and the conduct
of litigation through attorneys of the Indemnifying Party's
choice; provided, however, that no such settlement can result in
any liability or cost to the Indemnified Party (or, if Buyer is
the Indemnified Party, to the Company) for which it is not
entitled to be indemnified hereunder, or subject the Indemnified
Party to any declaratory, injunctive or other equitable relief or
to regulatory sanctions or restrictions, without its consent. If
the Indemnifying Party elects to assume control: (i) any expense
incurred by the Indemnified Party thereafter for investigation or
defense of the matter shall be borne by the Indemnified Party,
and (ii) the Indemnified Party shall give all reasonable
information and assistance, other than pecuniary, that the
Indemnifying Party shall deem necessary to the proper defense of
such claim, legal action, or other matter. In the absence of
such an election, the Indemnified Party will use reasonable
efforts to defend, at the Indemnifying Party's expense, any
claim, legal action or other matter to which the Indemnifying
Party's indemnification under this Article XIV applies until the
Indemnifying Party assumes such defense, and, if the Indemnifying
Party fails to assume such defense within the time period
provided above, settle the same in the Indemnified Party's
reasonable discretion at the Indemnifying Party's expense.
(c) Dispute. If the existence of a valid claim or
amount to be paid by an Indemnifying Party is in dispute, the
parties agree to submit determination of the existence of a valid
claim or the amount to be paid pursuant to the Claim Notice to
binding arbitration in Denver, Colorado such arbitration to be
conducted as set forth in Section 15.18.
14.7 No Insurance or Subrogation. The indemnifications
provided in this Article XIV shall not be construed as a form of
insurance. Each of Buyer and Sellers hereby waives for itself,
its successors or assigns, including, without limitation, any
insurers, any rights to subrogation for Losses for which it is
respectively liable and, if required by applicable policies,
shall obtain waiver of such subrogation from their respective
insurers.
14.8 Reservation as to Non-Parties. Nothing herein is
intended to limit or otherwise waive any recourse Buyer may have
against any person other than the Seller Indemnified Parties, or
which Sellers may have against any person other than Buyer, for
any obligations or liabilities which may be incurred with respect
to the Assets, the Saga LLC Interests or the LLC Assets.
ARTICLE XV
MISCELLANEOUS
15.1 Schedules and Exhibits. The Schedules and Exhibits
referred to in this Agreement are hereby incorporated in this
Agreement by reference and constitute a part of this Agreement.
15.2 Expenses. Except as otherwise specifically provided,
all fees, costs and expenses incurred by Buyer or Sellers in
negotiating this Agreement or in consummating the transactions
contemplated by this Agreement shall be paid by the party
incurring the same, including, without limitation, engineering,
land, title, legal and accounting fees, costs and expenses.
15.3 Notices. All notices and communications required or
permitted under this Agreement shall be in writing and addressed
as set forth below. Any communication or delivery hereunder
shall be deemed to have been duly made and the receiving party
charged with notice (i) if personally delivered, when received,
(ii) if sent by telecopy or facsimile transmission, when received
(iii) if mailed, five business days after mailing, certified
mail, return receipt requested, or (iv) if sent by overnight
courier, one day after sending. All notices shall be addressed
as follows:
If to Sellers:
Saga Petroleum Corp.
415 West Wall Street, Suite 1900
Midland, Texas 79701
Attention: J. Charles Farmer
Fax: 915-684-0829
With copy to:
Saga Petroleum Corp.
410-17th Street, Suite 1150
Denver, Colorado
Attention: Brent J. Morse
Fax: 303-592-1013
If to Buyer:
Delta Petroleum Corporation
555 - 17th Street, Suite 3310
Denver, Colorado 80202
Attention: Roger A. Parker
Fax: (303) 298-8251
Any party may, by written notice so delivered to the other
parties, change the address or individual to which delivery shall
thereafter be made.
15.4 Amendments. Except for waivers specifically provided
for in this Agreement, this Agreement may not be amended nor any
rights hereunder waived except by an instrument in writing signed
by the party to be charged with such amendment or waiver and
delivered by such party to the party claiming the benefit of such
amendment or waiver.
15.5 Assignment. Neither Buyer nor Sellers shall assign all
or any portion of their respective rights or delegate all or any
portion of their respective duties hereunder without the other
parties prior written consent; provided, however, Sellers'
consent to such an assignment by Buyer shall not be unreasonably
withheld if Buyer proposes to assign up to an undivided 75% of
its rights and interests under this Agreement in the aggregate to
up to four assignees, each such assignee shall execute a written
assumption in form and substance satisfactory to Sellers of the
assigned percentage of all of Buyer's obligations and liabilities
under this Agreement, Delta Petroleum Corporation shall remain
liable for all obligations of the Buyer under this Agreement
following such assignment, Sellers shall not be required to
accept any stock in any assignee as part of the Share Portion of
the Purchase Price, and until the completion of the post-closing
adjustments pursuant to Article XIII Sellers shall be required to
deal only with Buyer under this Agreement and Buyer shall be
authorized to act for each such assignee.
15.6 Announcements. Saga Petroleum and Buyer shall consult
with each other with regard to all press releases and other
announcements issued after the date of execution of this
Agreement and prior to the Closing Date concerning this Agreement
or the transactions contemplated hereby and, except as may be
required by applicable laws or the applicable rules and
regulations of any governmental agency or stock exchange, neither
Buyer nor Sellers shall issue any such press release or other
publicity without the prior written consent of the other party,
which consent shall not be unreasonably withheld.
15.7 Headings. The headings of the Articles and Sections of
this Agreement are for guidance and convenience of reference only
and shall not limit or otherwise affect any of the terms or
provisions of this Agreement.
15.8 Counterparts. This Agreement may be executed by Buyer
and Saga Petroleum in any number of counterparts, each of which
shall be deemed an original instrument, but all of which together
shall constitute but one and the same instrument.
15.9 References. References made in this Agreement,
including use of a pronoun, shall be deemed to include where
applicable, masculine, feminine, singular or plural, individuals
or entities. As used in this Agreement, "person" shall mean any
natural person, corporation, partnership, trust, limited
liability company, court, agency, government, board, commission,
estate or other entity or authority.
15.10 Governing Law. This Agreement and the
transactions contemplated hereby and any arbitration or dispute
resolution conducted pursuant hereto shall be construed in
accordance with, and governed by, the laws of the State of
Colorado.
15.11 Entire Agreement. This Agreement constitutes the
entire understanding among the parties, their respective
partners, members, managers, shareholders, officers, directors
and employees with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter,
including without limitation that letter agreement dated July 20,
2000, as amended, granting Buyer the option to purchase the
Assets and the Saga LLC Interests, provided, however, Sellers
shall be entitled to retain the Option Shares (as defined
therein) whether or not the Closing occurs or Sellers retain the
Deposit, the parties acknowledge that the Option Shares are not
part of the Deposit, and the provisions of paragraphs 1 and 7 of
such letter shall survive and shall be enforceable by Sellers.
15.12 Best Knowledge and Reasonable and Good Faith
Efforts. The knowledge or best knowledge of a party, or similar
phrases, shall mean for purposes of this Agreement, the actual,
conscious knowledge of the party at the time the assertion
regarding knowledge is made. If the party is a corporation or
other entity other than a natural person, such actual, conscious
knowledge must be on the part of the person having supervising
management authority over the matters to which such knowledge
pertains. Any claim based on the existence of a party's
knowledge must establish the existence of such knowledge by clear
and convincing documentary evidence. Reasonable or good faith
efforts as used in this Agreement does not include the obligation
to pay consideration.
15.13 Binding Effect. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto, and
their respective successors and assigns.
15.14 Survival. The representations and warranties
contained in Articles VI and VII of this Agreement shall survive
the Closing for a period of one year; provided that each party's
sole and exclusive remedy for breach thereof shall be under its
indemnification rights under Article XIV, subject to all of the
limitations set forth therein.
15.15 Closing Conditions. If the Closing occurs, all
conditions of Closing shall be deemed to have been satisfied or
waived.
15.16 No Third-Party Beneficiaries. This Agreement is
intended only to benefit the parties hereto and their respective
permitted successors and assigns.
15.17 Waiver of Compliance with Bulk Transfer Laws.
Buyer waives compliance with any applicable bulk transfer laws
relating to the transactions contemplated by this Agreement.
15.18. Mediation. If a dispute arises out of or in
connection with this Agreement, and if the dispute cannot be
settled through negotiation, the parties agree first to try in
good faith to settle the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration
Association before resorting to arbitration under this Section
15.18.
15.19 Disclaimer of Representations and Warranties.
Except as expressly set forth in this Agreement, the parties
hereto each disclaim all liability and responsibility for any
other representation, warranty, statements or communications
(orally or in writing) to any other party (including, but not
limited to, any information contained in any opinion, information
or advice that may have been provided to any such party by any
partner, officer, member, trustee, beneficiary, stockholder,
director, employee, agent, consultant, member, representative or
contractor of such disclaiming party or its affiliates or any
engineer or engineering firm, or other agent, consultant or
representative) wherever and however made, including, but not
limited to, those made in any data room and any supplements or
amendments thereto or during any negotiations. Without limiting
the generality of the foregoing, none of the parties makes any
representation or warranty as to (a) the amount, value, quality
or deliverability of petroleum, natural gas or other reserves
attributable to the Assets, (b) any geological, engineering or
other interpretations of economic valuation, or (c) predictions
as to when any event will or will not occur or is likely to
occur.
Executed on the dates set forth in the acknowledgments below
but effective as of the Effective Time.
BUYER:
DELTA PETROLEUM CORPORATION
By: s/Roger A. Parker
Name: Roger A. Parker
Title: President
SELLERS:
SAGA PETROLEUM CORP.
By: s/J. Charles Farmer
Name: J. Charles Farmer
Title: President
SAGA SALTWATER DISPOSAL CORP.
By: s/J. Charles Farmer
Name: J. Charles Farmer
Title: President
MORSE FAMILY SECURITY TRUST
By:
Name:
Title: Trustee
s/Brent J. Morse
Brent J. Morse
s/J. Charles Farmer
J. Charles Farmer
Saga Petroleum Limited Liability Company of Colorado is
executing this Agreement solely for the purpose of making the
covenants set forth in Section 8.1 and the first sentence of
Section 3.2 and for no other purpose:
SAGA PETROLEUM LIMITED LIABILITY
COMPANY OF COLORADO
By: s/J. Charles Farmer
Name: J. Charles Farmer
Title: Manager
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE 1
1.1 Purchase and Sale 1
1.2 Oil and Gas Assets 1
1.3 Other Assets 2
1.4 Saga LLC Assets 3
1.6 Effective Time 4
ARTICLE II PURCHASE PRICE 4
2.1 Purchase Price 4
2.2 Allocation of the Purchase Price 6
2.3 Adjustments to Assets Purchase Price 6
2.4 Adjustments to LLC Purchase Price 8
2.5 Gas Imbalance Adjustments 10
2.6 Balance Sheet 10
ARTICLE III BUYER'S INSPECTION 10
3.1 Access to Records 10
3.2 Access to Properties 11
ARTICLE IV TITLE MATTERS 11
4.1 Defensible Title 11
4.2 Purchase Price Adjustments for Defective Interests 14
4.3 Development Activities; Interest Additions 17
4.4 Dispute Resolution. 18
4.5 Preferential Purchase Rights and Consents to Assign 19
ARTICLE VENVIRONMENTAL MATTERS 21
5.1 Environmental Concerns 21
5.2 Environmental Notice. 22
5.3 Remedy for Environmental Concern 22
5.4 Limitations on Remedies for Environmental Concerns 23
5.5 Buyer's Indemnification of Sellers 24
5.6 Applicability of Other Provisions 25
5.7 Exclusive Remedy 25
ARTICLE VI SAGA PETROLEUM'S REPRESENTATIONS AND WARRANTIES 25
6.2 Morse 27
6.3 Farmer 27
ARTICLE VIIBUYER'S REPRESENTATIONS AND WARRANTIES 28
7.1 Organization and Standing 28
7.2 Power 28
7.3 Authorization and Enforceability 28
7.4 Liability for Brokers' Fees 29
7.5 Litigation 29
7.6 Securities Laws, Access to Data and Information 29
7.7 Holding Company 29
7.8 Independent Evaluation 29
ARTICLE VIII COVENANTS AND AGREEMENTS 30
8.1 Covenants and Agreements of Saga Petroleum
and Saga LLC 30
8.2 Covenants and Agreements of Buyer 32
8.3 Covenants and Agreements of the Parties 33
ARTICLE IX TAX MATTERS 33
9.1 Apportionment of Tax Liability 33
9.2 Tax Reports and Returns 34
ARTICLE XCONDITIONS TO CLOSING 34
10.1 Sellers' Conditions 34
10.2 Buyer's Conditions 35
ARTICLE XI RIGHT OF TERMINATION AND ABANDONMENT 35
11.1 Termination 35
11.2 Liabilities Upon Termination 36
ARTICLE XIICLOSING 37
12.1 Date of Closing 37
12.2 Place of Closing 37
12.3 Closing Obligations 37
ARTICLE XIII POST-CLOSING OBLIGATIONS 39
13.1 Post-Closing Adjustments 39
13.2 Records 40
13.3 Purchase Price Allocation - Form 8594 40
13.4 Insurance 41
13.5 Tax Matters 41
13.6 Further Assurances 41
ARTICLE XIV INDEMNIFICATION 41
14.1 Buyer's Assumption of Liabilities and
Indemnification of Sellers 41
14.2 Saga Petroleum Limited Indemnification of Buyer 42
14.6 Procedure 44
14.7 No Insurance or Subrogation 45
14.8 Reservation as to Non-Parties 45
ARTICLE XV MISCELLANEOUS 46
15.1 Schedules and Exhibits 46
15.2 Expenses 46
15.3 Notices 46
15.4 Amendments 47
15.5 Assignment 47
15.6 Announcements 47
15.7 Headings 47
15.8 Counterparts 47
15.9 References 47
15.10 Governing Law 48
15.11 Entire Agreement 48
15.12 Best Knowledge and Reasonable
and Good Faith Efforts 48
15.13 Binding Effect 48
15.14 Survival 48
15.15 Closing Conditions 48
15.16 No Third-Party Beneficiaries 49
15.17 Waiver of Compliance with Bulk Transfer Laws 49
15.18 Mediation 49
15.19 Disclaimer of Representations and Warranties 49
SCHEDULE 4.3(a) - 2
RESERVE SUMMARIES
September 6, 2000
Saga Petroleum Corp.
Saga Saltwater Disposal Corp.
Brent J. Morse
Morse Family Security Trust
J. Charles Farmer
410-17th Street, Suite 1150
Denver, Colorado 80202
Re: Purchase and Sale Agreement dated September 6, 2000
Gentlemen:
Reference is made to that Purchase and Sale Agreement dated
as of September 1, 2000 (the "PSA") among you and Delta Petroleum
Corporation ("Buyer"). Capitalized terms used but not defined
herein shall have the meaning specified in the PSA.
The parties agree that Buyer shall have until the close of
business on September 7, 2000 to deliver the Initial Deposit to
Sellers.
The parties have executed and delivered the PSA and intend
for the PSA to constitute a binding agreement, notwithstanding
that the parties have not had sufficient time to complete and
review all of the schedules and exhibits to the PSA. The parties
agree to use their diligent efforts to in good faith agree upon
the allocation of the total purchase price of $49,500,000 between
the Assets Purchase Price and Saga LLC Purchase Price, and upon
Schedule 2.2, on or before October 15, 2000. The parties further
agree to use their diligent, good faith efforts to prepare and
agree upon all of the other schedule and exhibits to the PSA on
or before October 31, 2000. If Buyer makes the Additional
Deposit and if the parties have not agreed upon the form and
substance of a schedules or exhibit to the PSA by November 5,
2000 (an "Uncompleted Schedule/Exhibit"), the form and substance
thereof shall be submitted to the Title Arbitrator for
determination by November 15, 2000. The Title Arbitrator shall
determine the form of substance of each Uncompleted
Schedule/Exhibit in accordance with customary industry practice
and with due regard for the Reserve Summaries and the terms of
the PSA with respect to the Uncompleted Schedule/Exhibit.
If the foregoing is acceptable to you, please so indicate by
signing this letter in the appropriate space below and returning
two copies to the undersigned.
Very truly yours,
DELTA PETROLEUM CORPORATION
By:s/Roger A. Parker
Roger A. Parker
President
ACCEPTED AND AGREED TO
this 6th day of September, 2000:
s/Brent J. Morse
Brent J. Morse
s/J. Charles Farmer
J. Charles Farmer
SAGA PETROLEUM CORP.
By:s/J. Charles Farmer
Name: J. Charles Farmer
Title: President
SAGA SALTWATER DISPOSAL CORP.
By:s/J.Charles Farmer
Name: J. Charles Farmer
Title: President
MORSE FAMILY TRUST
By:
Name:
Title:
