UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 7, 2005
CALPINE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation)
Commission file number: 001-12079
I.R.S. Employer Identification No. 77-0212977
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
(Address of principal executive offices and telephone number)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On July 7, 2005, we, along with our subsidiaries, Calpine Gas Holdings LLC
and Calpine Fuels Corporation (collectively, the "Sellers"), entered into a
Purchase and Sale Agreement with Rosetta Resources Inc. ("Rosetta"), the buyer,
pursuant to which we sold all of our remaining domestic oil and gas exploration
and production properties and assets (the "Domestic Oil and Gas Properties" or
"oil and gas") for approximately $1.05 billion, subject to adjustments, less
transaction fees and expenses of approximately $61.6 million, and subject to the
reduction described below. In addition, we expect to incur $3.9 million of costs
related to leased facility space, which includes a non-cash charge of $2.7
million for the write-off of leasehold improvements. This also includes future
cash charges related to the present value of $1.2 million in excess lease costs
over expected sublease income. A copy of the Purchase and Sale Agreement is
filed herewith under Item 9.01(c) as Exhibit 10.1. Prior to the closing of the
sale on July 7, 2005, Rosetta was a wholly owned subsidiary of ours. Following
the consummation of the sale, we no longer have any ownership interest in
Rosetta. To fund the closing, Rosetta sold $725.0 million of its common stock to
qualified institutional buyers and foreign investors in a private offering
pursuant to Rule 144A and Regulation S under the Securities Act.
The cash purchase price of the Domestic Oil and Gas Properties was reduced
by approximately $75 million to reflect the value of certain oil and gas
properties for which we were unable to obtain consents to assignment prior to
closing (the "Non-Consent Properties). We will cooperate with Rosetta to use
commercially reasonable efforts to obtain consents to assignment of the
Non-Consent Properties and will transfer to Rosetta, and Rosetta will pay us
for, any of the Non-Consent Properties for which such consents are obtained
during the six-month period following closing of the sale. Until such consents
are obtained and the Non-Consent Properties are transferred to Rosetta, we will
retain title to the Non-Consent Properties, and Rosetta will manage, operate and
market production from the Non-Consent Properties. While we expect that all or
substantially all of such Non-Consent Properties will be transferred to Rosetta,
in the event that we do not obtain such consents during the six-month period as
to any Non-Consent Properties, those Non-Consent Properties will not be
transferred and Rosetta will manage, operate and market production from them for
us for a two year period.
We sold the Domestic Oil and Gas Properties subject to certain warranties
and representations that are customary in transactions of this type. In
addition, we and the Sellers have agreed to indemnify Rosetta for any loss it
may suffer as a result of (i) all taxes related to the Domestic Oil and Gas
Properties for periods prior to the closing date, (ii) our failure to pay
certain liabilities retained under the Purchase and Sale Agreement, (iii) our
continuing business operations that are not related to the Domestic Oil and Gas
Properties, and (iv) any breach of certain representations and warranties
contained in the Purchase and Sale Agreement. We will record an additional
liability of 1% of the gross sales proceeds as an allowance for indemnification
and exit liabilities.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
As disclosed in Item 1.01 of this 8-K, on July 7, 2005, we and the Sellers
entered into and closed a Purchase and Sale Agreement with Rosetta, the buyer,
pursuant to which we sold our Domestic Oil and Gas Properties. Please see Item
1.01 for a description of the sale and certain post-closing obligations.
ITEM 2.05 COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
This disclosure updates and amends the estimates that were previously
provided in the Form 8-K dated June 28, 2005 and filed on July 5, 2005.
On June 28, 2005, we agreed to sell all of our domestic oil and gas
exploration and production assets for $1.05 billion, less transaction fees and
expenses. We incorporate by reference in this Item 2.05 our disclosure in the
press release filed as Exhibit 99.1 to the above referenced 8-K. In connection
with the sale we estimate that we will incur approximately $65.5 million in
costs. This includes various transaction fees and expenses of $61.6 million
including investment banking, lending, legal, tax consulting and accounting
costs. All of these transaction fees and expenses will be paid in cash. The
transaction fees will be paid from the proceeds of the sale. In addition, we
expect to incur $3.9 million of costs related to leased facility space, which
includes a non-cash charge of $2.7 million for the write-off of leasehold
improvements. This also includes future cash charges related to the present
value of $1.2 million in excess lease costs over expected sublease income. We
will record an additional liability of 1% of the gross sales proceeds as an
allowance for indemnification and exit liabilities.
ITEM 8.01 OTHER EVENTS
On July 7, 2005, the Registrant issued the press release attached hereto as
Exhibit 99.1
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
Not Applicable
(b) Pro Forma Financial Information.
As disclosed in Item 1.01 of this 8-K, on July 7, 2005, we and the Sellers
entered into and closed a Purchase and Sale Agreement with Rosetta, the buyer,
pursuant to which we sold our Domestic Oil and Gas Properties. Please see Item
1.01 for a description of the sale and certain post-closing obligations. In
addition, on or around July 26, 2005, we expect to close the pending disposition
of Saltend Cogeneration Company Limited ("SCCL") and Calpine UK Operations
Limited ("UK OpCo" or "Saltend"). The pro forma financial information below
gives effect to the sale of our Domestic Oil and Gas Properties and the pending
disposition of SCCL and UK OpCo, both of which we expect to be accounted for as
discontinued operations in accordance with Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144").
The unaudited Pro Forma Consolidated Condensed Statements of Operations are
presented for the three months ended March 31, 2005 and the years ended December
31, 2004, 2003 and 2002 and present the Registrant's operations as if the
transactions described above had occurred at January 1, 2002. An unaudited Pro
Forma Consolidated Condensed Balance Sheet as of March 31, 2005, is also
presented. The unaudited Pro Forma Consolidated Condensed Balance Sheet presents
the property sales described above, as if they had occurred at March 31, 2005.
The unaudited Pro Forma Consolidated Condensed Financial Statements should
be read in conjunction with the Registrant's Financial Statements and related
Notes included in the Registrant's Report on Form 10-Q for the quarter ended
March 31, 2005 and the Report on Form 10-K for the year ended December 31, 2004
filed with the Securities and Exchange Commission.
Calpine Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Balance Sheet
March 31, 2005
(In thousands, except for per share amounts and unaudited)
Pro Forma
After
Oil and Gas Oil and Gas Saltend Final
Actual Adjustments Adjustments Adjustments Pro Forma
(1) (2)
----------- ----------- ----------- ----------- -----------
Assets:
Current assets
Cash and cash equivalents.................................. $ 812,612 $ 757,155 $ 1,569,767 $ (38,542) $ 1,531,225
Accounts receivable, net................................... 1,034,141 -- 1,034,141 (51,295) 982,846
Margin deposits and other prepaid expense.................. 461,097 -- 461,097 (19,762) 441,335
Inventories................................................ 148,770 -- 148,770 (5,374) 143,396
Restricted cash............................................ 513,753 -- 513,753 -- 513,753
Current derivative assets.................................. 472,643 -- 472,643 -- 472,643
Current assets held for sale............................... -- -- -- 114,973 114,973
Other current assets....................................... 169,068 74,073 243,141 -- 243,141
----------- ----------- ----------- ------------ -----------
Total current assets......................................... $ 3,612,084 $ 831,228 4,443,312 $ -- $ 4,443,312
----------- ----------- ----------- ----------- -----------
Restricted cash, net of current portion.................... 194,476 -- 194,476 -- 194,476
Notes receivable, net of current portion................... 200,443 -- 200,443 -- 200,443
Project development costs.................................. 152,407 -- 152,407 -- 152,407
Unconsolidated investments................................. 387,639 -- 387,639 -- 387,639
Deferred financing costs................................... 423,122 (3,362) 419,760 -- 419,760
Prepaid lease, net of current portion...................... 431,600 -- 431,600 (12,930) 418,670
Property, plant and equipment, net......................... 20,712,038 (611,458) 20,100,580 (1,056,269) 19,044,311
Goodwill................................................... 45,160 -- 45,160 -- 45,160
Other intangible assets, net............................... 72,009 -- 72,009 (4,544) 67,465
Long-term derivative assets................................ 658,440 -- 658,440 -- 658,440
Long-term assets held for sale............................. -- -- -- 1,077,263 1,077,263
Other assets............................................... 690,049 -- 690,049 (3,520) 686,529
----------- ----------- ----------- ----------- -----------
Total assets................................................. $27,579,467 $ 216,408 27,795,875 $ -- $27,795,875
=========== =========== =========== =========== ===========
Liabilities and stockholders' equity:
Current liabilities
Accounts payable........................................... 945,578 -- 945,578 (42,127) 903,451
Accrued payroll and related expense........................ 65,555 -- 65,555 (291) 65,264
Accrued interest payable................................... 396,175 (6,764) 389,411 -- 389,411
Income taxes payable....................................... 79,163 -- 79,163 -- 79,163
Notes payable and borrowings under lines of credit,
current portion.......................................... 209,652 -- 209,652 -- 209,652
Preferred interests, current portion(3).................... 268,794 -- 268,794 -- 268,794
Capital lease obligation, current portion.................. 5,780 -- 5,780 -- 5,780
CCFC I financing, current portion.......................... 3,208 -- 3,208 -- 3,208
Construction/project financing, current portion............ 100,773 -- 100,773 -- 100,773
Senior notes and term loans, current portion............... 922,489 -- 922,489 -- 922,489
Current derivative liabilities............................. 626,125 -- 626,125 (43,291) 582,834
Current liabilities held for sale.......................... -- -- -- 93,169 93,169
Other current liabilities.................................. 287,940 10,963 298,903 (7,460) 291,443
----------- ----------- ----------- ----------- -----------
Total current liabilities.................................... $ 3,911,232 $ 4,199 $ 3,915,431 $ -- $ 3,915,431
----------- ----------- ----------- ----------- -----------
Notes payable and borrowings under lines of credit,
net of current portion.................................... 682,429 -- 682,429 -- 682,429
Convertible debentures payable to Calpine Capital
Trust III................................................. 517,500 -- 517,500 -- 517,500
Preferred interests, net of current portion(4)............. 493,396 -- 493,396 -- 493,396
Capital lease obligation, net of current portion........... 281,756 -- 281,756 -- 281,756
CCFC I financing, net of current portion................... 782,020 -- 782,020 -- 782,020
CalGen/CCFC II financing................................... 2,395,795 -- 2,395,795 -- 2,395,795
Construction/project financing, net of current portion..... 2,003,443 -- 2,003,443 -- 2,003,443
Convertible Senior Notes Due 2006.......................... 1,311 -- 1,311 -- 1,311
Convertible Notes Due 2014................................. 623,429 -- 623,429 -- 623,429
Convertible Senior Notes Due 2023.......................... 633,775 -- 633,775 -- 633,775
Senior notes and term loans, net of current portion........ 8,218,408 (138,895) 8,079,513 -- 8,079,513
Deferred income taxes, net of current portion.............. 925,365 138,388 1,063,753 (51,725) 1,012,028
Deferred revenue........................................... 116,041 -- 116,041 -- 116,041
Long-term derivative liabilities........................... 903,824 -- 903,824 (13,006) 890,818
Long-term liabilities held for sale........................ -- -- -- 82,611 82,611
Other liabilities.......................................... 351,389 (8,278) 343,111 (17,880) 325,231
----------- ----------- ----------- ----------- -----------
Total liabilities............................................ $22,841,113 $ (4,586) $22,836,527 $ -- $22,836,527
----------- ----------- ----------- ----------- -----------
Minority Interests......................................... 388,499 -- 388,499 -- 388,499
----------- ----------- ----------- ----------- -----------
Stockholders' equity
Preferred stock, $.001 par value per share; authorized
10,000,000 shares; none issued and outstanding in 2005.... -- -- -- -- --
Common stock, $.001 par value per share; authorized
2,000,000,000 shares; issued and outstanding 538,017,458
shares in 2005............................................ 538 -- 538 -- 538
Additional paid-in capital................................. 3,159,385 -- 3,159,385 -- 3,159,385
Additional paid-in capital, loaned shares.................. 258,100 -- 258,100 -- 258,100
Additional paid-in capital, returnable shares.............. (258,100) -- (258,100) -- (258,100)
Retained earnings.......................................... 1,157,317 220,994 1,378,311 -- 1,378,311
Accumulated other comprehensive income..................... 32,615 -- 32,615 -- 32,615
----------- ----------- ----------- ----------- -----------
Total stockholders' equity................................... $ 4,349,855 $ 220,994 $ 4,570,849 $ -- $ 4,570,849
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity................... $27,579,467 $ 216,408 $27,795,875 $ -- $27,795,875
=========== =========== =========== =========== ===========
- ------------
<FN>
(1) The Pro Forma Consolidated Condensed Balance Sheet reflects the disposition
of our Domestic Oil and Gas Properties at March 31, 2005. Proceeds from the
sale are expected to be $1.05 billion before approximately $11.6 million of
additional holdbacks and adjustments for operations from the transaction
date in accordance with the terms of the Purchase and Sale Agreement and
also before approximately $61.6 million of estimated transaction fees and
expenses. See Item 2.05 above for a discussion of other costs.
Additionally, as indicated in Item 1.01 approximately $75 million of the
purchase price was withheld for non-consent properties, and the withheld
amount is included in other current assets adjustments. Further, $145.7
million of the cash proceeds are assumed to be used to purchase, $138.9
million of principal amount (and pay $6.8 million of accrued interest
expense) of the outstanding First Priority Senior Secured Notes due 2014.
The anticipated gain of $221.0 million, after consideration of the
foregoing items, contingencies, excess office space write-off and taxes is
shown as an adjustment to retained earnings.
(2) The Pro Forma Consolidated Condensed Balance Sheet reflects the pending
disposition of SCCL and UK OpCo at March 31, 2005. The balances of SCCL and
UK OpCo as of March 31, 2005 have been reclassified as "held for sale" on
the Pro Forma Consolidated Condensed Balance Sheet. Gross proceeds from the
sale are expected to be (Pound)490 million plus an adjustment for working
capital which was estimated to be US$19 million as of May 28, 2005, the
date the Share Sale and Purchase Agreement was entered into. Actual sales
proceeds in U.S. dollars may fluctuate due to exchange rate variances and
changes in working capital prior to the close of the sale, which is
expected to occur on or around July 26, 2005. Various transaction fees are
estimated to be approximately $9 million. Sales proceeds are not reflected
in the Pro Forma Consolidated Condensed Balance Sheet.
(3) Includes $260 million of Redeemable Preferred Shares due July 30, 2005. The
offerings of the $260 million Redeemable Preferred Shares due July 30, 2005
and the two-year, $360 million Redeemable Preferred Shares will be redeemed
using the proceeds of the sale of SCCL and UK OpCo, which is currently
anticipated to close on July 26, 2005. Remaining proceeds from the sale
will be used as permitted by our existing bond indentures.
(4) Includes $360 million of two-year Redeemable Preferred Shares. The
offerings of the two-year, $360 million Redeemable Preferred Shares and the
$260 million Redeemable Preferred Shares due July 30, 2005 will be redeemed
using the proceeds of the sale of SCCL and UK OpCo as described in Note 3.
</FN>
Calpine Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Statement of Operations
For the Three Months Ended March 31, 2005
(In thousands, except for per share amounts)
Pro Forma
After
Oil and Gas Oil and Gas Saltend Final
Actual Adjustments Adjustments Adjustments Pro Forma
(1)(6) (2)(6)
----------- ----------- ----------- ----------- -----------
Revenue:
Electric generation and marketing revenue
Electricity and steam revenue ............................. $ 1,403,549 $ -- $ 1,403,549 $ (125,270) $ 1,278,279
Transmission sales revenue ................................ 3,744 -- 3,744 -- 3,744
Sales of purchased power for hedging and optimization ..... 356,130 -- 356,130 (8,720) 347,410
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing revenue .......... 1,763,423 -- 1,763,423 (133,990) 1,629,433
Oil and gas production and marketing revenue
Oil and gas sales ......................................... 10,820 (10,759) 61 -- 61
Sales of purchased gas for hedging and optimization ....... 420,296 -- 420,296 -- 420,296
----------- ----------- ----------- ----------- -----------
Total oil and gas production and marketing revenue ....... 431,116 (10,759) 420,357 -- 420,357
Mark-to-market activities, net .............................. (3,531) -- (3,531) -- (3,531)
Other revenue ............................................... 21,670 -- 21,670 (484) 21,186
----------- ----------- ----------- ----------- -----------
Total revenue ............................................... 2,212,678 (10,759) 2,201,919 (134,474) 2,067,445
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Electric generation and marketing expense
Plant operating expense ................................... 195,626 -- 195,626 (13,377) 182,249
Transmission purchase expense ............................. 23,510 -- 23,510 (2,636) 20,874
Royalty expense ........................................... 10,329 -- 10,329 -- 10,329
Purchased power expenses for hedging and optimization ..... 288,787 -- 288,787 (7,592) 281,195
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing expense .......... 518,252 -- 518,252 (23,605) 494,647
Oil and gas operating and marketing expense
Oil and gas operating expense ............................. 13,000 (11,199) 1,801 -- 1,801
Purchased gas expense for hedging and optimization ........ 413,259 -- 413,259 -- 413,259
----------- ----------- ----------- ----------- -----------
Total oil and gas operating and marketing expense ........ 426,259 (11,199) 415,060 -- 415,060
Fuel expense ................................................ 921,349 39,776 961,125 (66,817) 894,308
Depreciation, depletion and amortization expense ............ 143,228 (15,124) 128,104 (7,398) 120,706
Operating lease expense ..................................... 24,777 -- 24,777 -- 24,777
Other cost of revenue ....................................... 38,171 -- 38,171 -- 38,171
----------- ----------- ----------- ----------- -----------
Total cost of revenue ....................................... 2,072,036 13,453 2,085,489 (97,820) 1,987,669
----------- ----------- ----------- ----------- -----------
Gross Profit ................................................ 140,642 (24,212) 116,430 (36,654) 79,776
(Income) loss from unconsolidated investments ............... (6,064) 72 (5,992) -- (5,992)
Equipment cancellation and impairment cost .................. (73) -- (73) -- (73)
Project development expense ................................. 8,720 -- 8,720 -- 8,720
Research and development expense ............................ 7,034 -- 7,034 -- 7,034
Sales, general and administrative expense ................... 57,137 (3,351) 53,786 (723) 53,063
----------- ----------- ----------- ----------- -----------
Income (loss) from operations ............................... 73,888 (20,933) 52,955 (35,931) 17,024
Interest expense ............................................ 348,937 (4,631) 344,306 (14,602) 329,704
Interest (income) ........................................... (14,331) 5 (14,326) 340 (13,986)
Minority interest expense ................................... 10,614 -- 10,614 -- 10,614
(Income) from repurchase of various issuances of debt ....... (21,772) -- (21,772) -- (21,772)
Other expense (income), net ................................. 3,980 184 4,164 (9,122) (4,958)
----------- ----------- ----------- ----------- -----------
Income (Loss) before provision or benefit for income taxes... (253,540) (16,491) (270,031) (12,547) (282,578)
Provision (Benefit) for income taxes(3)(4)................... (84,809) (6,260) (91,069) (3,764) (94,833)
----------- ----------- ----------- ----------- -----------
Income (Loss) from continuing operations(5) ................. $ (168,731) $ (10,231) $ (178,962) $ (8,783) $ (187,745)
=========== =========== =========== =========== ===========
Basic and diluted loss per common share:
Weighted average shares of common stock outstanding ....... 447,599 447,599
Loss from continuing operations(5) ........................ (0.38) (0.42)
- ------------
<FN>
(1) The Pro Forma Consolidated Condensed Statement of Operations assumes that
our Domestic Oil and Gas Properties were sold by Calpine on January 1,
2002. The results of these assets have been removed from the Pro Forma
Consolidated Condensed Statement of Operations. The gain associated with
the sales transaction is not included within the Pro Forma Consolidated
Condensed Statement of Operations. See Note 1 to the Pro Forma Consolidated
Condensed Balance Sheet for a further description of the accounting for the
transaction.
(2) The Pro Forma Consolidated Condensed Statement of Operations assumes that
SCCL and UK OpCo were sold by Calpine on January 1, 2002. The results of
SCCL and UK OpCo have been removed from the Pro Forma Consolidated
Condensed Statement of Operations. The anticipated gain/loss associated
with the sales transaction is not included within the Pro Forma
Consolidated Condensed Statement of Operations.
(3) The Oil and Gas Pro Forma adjustments in the Pro Forma Consolidated
Condensed Statement of Operations are tax effected at a rate of 38%, which
represents Calpine's statutory tax rate in the United States for those
assets. Actual adjustments to Calpine's Consolidated Financial Statements
to reflect this disposition may reflect a different effective tax rate.
(4) The Saltend Pro Forma adjustments in the Pro Forma Consolidated Condensed
Statement of Operations are tax effected at a rate of 30%, which represents
Calpine's statutory tax rate in the United Kingdom. Actual adjustments to
Calpine's Consolidated Financial Statements to reflect this disposition may
reflect a different effective tax rate.
(5) Represents income before discontinued operations and cumulative effect of a
change in accounting principle.
(6) The Pro Forma adjustments in the Unaudited Pro Forma Consolidated Condensed
Statement of Operations include certain sales, general and administrative
expenses allocated to SCCL and UK OpCo and to our Domestic Oil and Gas
Properties based on a proportion of base wages. Accordingly, these expenses
have been included within the SCCL and UK OpCo and our Domestic Oil and Gas
Properties income figures to determine the Pro Forma totals. For the three
months ended March 31, 2005, these expenses totaled $0.6 million and $0.7
million for SCCL and UK OpCo and our Domestic Oil and Gas Properties and
production assets, respectively. The Pro Forma adjustments also include
interest expense that we expect to allocate to discontinued operations in
accordance with Emerging Issues Task Force ("EITF") Issue No. 87-24,
"Allocation of Interest to Discontinued Operations" ("EITF Issue No.
87-24"). We include interest expense on debt which is required to be repaid
as a result of a disposal transaction in discontinued operations.
Additionally, other interest expense that cannot be attributed to other
operations of Calpine is allocated based on the ratio of net assets to be
sold less debt that is required to be paid as a result of the disposal
transaction to the sum of total net assets of Calpine plus the consolidated
debt of Calpine, excluding (a) debt of the discontinued operation that will
be assumed by the buyer, (b) known debt that will be paid as a result of
the disposal transaction and (c) debt that can be directly attributed to
other operations of Calpine. For the three months ended March 31, 2005, the
interest expense allocated within the Unaudited Pro Forma Consolidated
Condensed Statement of Operations is $12.5 million and $4.9 million for
SCCL and UK OpCo and our Domestic Oil and Gas Properties, respectively.
</FN>
Calpine Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Statement of Operations
Year Ended December 31, 2004
(In thousands, except for per share amounts)
Pro Forma
After
Oil and Gas Oil and Gas Saltend Final
Actual Adjustments Adjustments Adjustments Pro Forma
(1)(6) (2)(6)
----------- ----------- ----------- ----------- -----------
Revenue:
Electric generation and marketing revenue
Electricity and steam revenue ............................. $ 5,683,063 $ -- $ 5,683,063 $ (385,244) $ 5,297,819
Transmission sales revenue ................................ 20,003 -- 20,003 -- 20,003
Sales of purchased power for hedging and optimization ..... 1,651,767 -- 1,651,767 (3,775) 1,647,992
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing revenue .......... 7,354,833 -- 7,354,833 (389,019) 6,965,814
Oil and gas production and marketing revenue
Oil and gas sales ......................................... 63,153 (59,007) 4,146 -- 4,146
Sales of purchased gas for hedging and optimization ....... 1,728,301 -- 1,728,301 -- 1,728,301
----------- ----------- ----------- ----------- -----------
Total oil and gas production and marketing revenue ....... 1,791,454 (59,007) 1,732,447 -- 1,732,447
Mark-to-market activities, net .............................. 13,532 -- 13,532 (127) 13,405
Other revenue ............................................... 70,069 -- 70,069 (880) 69,189
----------- ----------- ----------- ----------- -----------
Total revenue ............................................... 9,229,888 (59,007) 9,170,881 (390,026) 8,780,855
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Electric generation and marketing expense
Plant operating expense ................................... 795,975 -- 795,975 (50,271) 745,704
Transmission purchase expense ............................. 85,514 -- 85,514 (10,697) 74,817
Royalty expense ........................................... 28,673 -- 28,673 -- 28,673
Purchased power expenses for hedging and optimization ..... 1,487,020 -- 1,487,020 (4,758) 1,482,262
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing expense .......... 2,397,182 -- 2,397,182 (65,726) 2,331,456
Oil and gas operating and marketing expense
Oil and gas operating expense ............................. 56,843 (48,261) 8,582 -- 8,582
Purchased gas expense for hedging and optimization ........ 1,716,714 -- 1,716,714 -- 1,716,714
----------- ----------- ----------- ----------- -----------
Total oil and gas operating and marketing expense ........ 1,773,557 (48,261) 1,725,296 -- 1,725,296
Fuel expense ................................................ 3,731,108 190,143 3,921,251 (228,279) 3,692,972
Depreciation, depletion and amortization expense ............ 574,200 (81,590) 492,610 (28,862) 463,748
Oil and gas impairment ...................................... 202,120 (202,120) -- -- --
Operating lease expense ..................................... 105,886 -- 105,886 -- 105,886
Other cost of revenue ....................................... 90,742 -- 90,742 -- 90,742
----------- ----------- ----------- ----------- -----------
Total cost of revenue ....................................... 8,874,795 (141,828) 8,732,967 (322,867) 8,410,100
----------- ----------- ----------- ----------- -----------
Gross Profit ................................................ 355,093 82,821 437,914 (67,159) 370,755
(Income) loss from unconsolidated investments ............... 13,525 563 14,088 -- 14,088
Equipment cancellation and impairment cost .................. 42,374 -- 42,374 -- 42,374
Long-term service agreement cancellation charge ............. 11,334 -- 11,334 -- 11,334
Project development expense ................................. 24,409 -- 24,409 -- 24,409
Research and development expense ............................ 18,396 -- 18,396 -- 18,396
Sales, general and administrative expense ................... 239,347 (17,220) 222,127 (1,870) 220,257
----------- ----------- ----------- ----------- -----------
Income (loss) from operations ............................... 5,708 99,478 105,186 (65,289) 39,897
Interest expense ............................................ 1,140,802 (29,335) 1,111,467 (16,200) 1,095,267
Interest (income) ........................................... (56,412) 2,009 (54,403) 1,598 (52,805)
Minority interest expense ................................... 34,735 -- 34,735 -- 34,735
(Income) from repurchase of various issuances of debt ....... (246,949) -- (246,949) -- (246,949)
Other expense (income), net ................................. (149,093) 3,276 (145,817) 24,520 (121,297)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision or (benefit) for
income taxes ............................................... (717,375) 123,528 (593,847) (75,207) (669,054)
Provision (benefit) for income taxes(3)(4)................... (276,549) 47,057 (229,492) (22,562) (252,054)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations(5) ................. $ (440,826) $ 76,471 $ (364,355) $ (52,645) $ (417,000)
=========== =========== =========== =========== ===========
Basic and diluted loss per common share:
Weighted average shares of common stock outstanding........ 430,775 430,775
Loss from continuing operations(5)......................... (1.02) (0.97)
- ------------
<FN>
(1) The Pro Forma Consolidated Condensed Statement of Operations assumes that
our Domestic Oil and Gas Properties were sold by Calpine on January 1,
2002. The results of these assets have been removed from the Pro Forma
Consolidated Condensed Statement of Operations. The gain associated with
the sales transaction is not included within the Pro Forma Consolidated
Condensed Statement of Operations.
(2) The Pro Forma Consolidated Condensed Statement of Operations assumes that
SCCL and UK OpCo were sold by Calpine on January 1, 2002. The results of
SCCL and UK OpCo have been removed from the Pro Forma Consolidated
Condensed Statement of Operations. The anticipated gain/loss associated
with the sales transaction is not included within the Pro Forma
Consolidated Condensed Statement of Operations.
(3) The Oil and Gas Pro Forma adjustments in the Pro Forma Consolidated
Condensed Statement of Operations are tax effected at a rate of 38%, which
represents Calpine's statutory tax rate in the United States for those
assets. Actual adjustments to Calpine's Consolidated Financial Statements
to reflect this disposition may reflect a different effective tax rate.
(4) The Saltend Pro Forma adjustments in the Pro Forma Consolidated Condensed
Statement of Operations are tax effected at a rate of 30%, which represents
Calpine's statutory tax rate in the United Kingdom. Actual adjustments to
Calpine's Consolidated Financial Statements to reflect this disposition may
reflect a different effective tax rate.
(5) Represents income before discontinued operations and cumulative effect of a
change in accounting principle.
(6) The Pro Forma adjustments in the Unaudited Pro Forma Consolidated Condensed
Statement of Operations include certain sales, general and administrative
expenses allocated to SCCL and UK OpCo and to our Domestic Oil and Gas
Properties based on a proportion of base wages. Accordingly, these expenses
have been included within the SCCL and UK OpCo and our Domestic Oil and Gas
Properties income figures to determine the Pro Forma totals. For the year
ended December 31, 2004, these expenses totaled $1.7 million and $2.9
million for SCCL and UK OpCo and our Domestic Oil and Gas Properties and
production assets, respectively. The Pro Forma adjustments also include
interest expense that we expect to allocate to discontinued operations in
accordance with Emerging Issues Task Force ("EITF") Issue No. 87-24,
"Allocation of Interest to Discontinued Operations" ("EITF Issue No.
87-24"). We include interest expense on debt which is required to be repaid
as a result of a disposal transaction in discontinued operations.
Additionally, other interest expense that cannot be attributed to other
operations of Calpine is allocated based on the ratio of net assets to be
sold less debt that is required to be paid as a result of the disposal
transaction to the sum of total net assets of Calpine plus the consolidated
debt of Calpine, excluding (a) debt of the discontinued operation that will
be assumed by the buyer, (b) known debt that will be paid as a result of
the disposal transaction and (c) debt that can be directly attributed to
other operations of Calpine. For the year ended December 31, 2004, the
interest expense allocated within the Unaudited Pro Forma Consolidated
Condensed Statement of Operations is $14.6 million and $12.4 million for
SCCL and UK OpCo and our Domestic Oil and Gas Properties, respectively.
</FN>
Calpine Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Statement of Operations
Year Ended December 31, 2003
(In thousands, except for per share amounts)
Pro Forma
After
Oil and Gas Oil and Gas Saltend Final
Actual Adjustments Adjustments Adjustments Pro Forma
(1)(6) (2)(6)
----------- ----------- ----------- ----------- -----------
Revenue:
Electric generation and marketing revenue
Electricity and steam revenue ............................. $ 4,680,397 $ -- $ 4,680,397 $ (286,936) $ 4,393,461
Transmission sales revenue ................................ 15,347 -- 15,347 -- 15,347
Sales of purchased power for hedging and optimization ..... 2,714,187 -- 2,714,187 (1,896) 2,712,291
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing revenue .......... 7,409,931 -- 7,409,931 (288,832) 7,121,099
Oil and gas production and marketing revenue
Oil and gas sales .......................................... 59,156 (56,757) 2,399 -- 2,399
Sales of purchased gas for hedging and optimization ....... 1,320,902 -- 1,320,902 -- 1,320,902
----------- ----------- ----------- ----------- -----------
Total oil and gas production and marketing revenue ....... 1,380,058 (56,757) 1,323,301 -- 1,323,301
Mark-to-market activities, net .............................. (26,439) -- (26,439) -- (26,439)
Other revenue ............................................... 107,483 -- 107,483 (1,246) 106,237
----------- ----------- ----------- ----------- -----------
Total revenue ............................................... 8,871,033 (56,757) 8,814,276 (290,078) 8,524,198
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Electric generation and marketing expense
Plant operating expense ................................... 663,045 (3) 663,042 (46,607) 616,435
Transmission purchase expense ............................. 46,455 -- 46,455 (11,765) 34,690
Royalty expense ........................................... 24,932 -- 24,932 -- 24,932
Purchased power expenses for hedging and optimization ..... 2,690,069 -- 2,690,069 (6,781) 2,683,288
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing expense .......... 3,424,501 (3) 3,424,498 (65,153) 3,359,345
Oil and gas operating and marketing expense
Oil and gas operating expense ............................. 75,453 (55,461) 19,992 -- 19,992
Purchased gas expense for hedging and optimization ........ 1,279,568 -- 1,279,568 -- 1,279,568
----------- ----------- ----------- ----------- -----------
Total oil and gas operating and marketing expense ........ 1,355,021 (55,461) 1,299,560 -- 1,299,560
Fuel expense ................................................ 2,665,620 222,871 2,888,491 (185,696) 2,702,795
Depreciation, depletion and amortization expense ............ 504,383 (72,766) 431,617 (31,511) 400,106
Oil and gas impairment ...................................... 2,931 (2,931) -- -- --
Operating lease expense ..................................... 112,070 -- 112,070 -- 112,070
Other cost of revenue ....................................... 42,270 -- 42,270 26 42,296
----------- ----------- ----------- ----------- -----------
Total cost of revenue ....................................... 8,106,796 91,710 8,198,506 (282,334) 7,916,172
----------- ----------- ----------- ----------- -----------
Gross Profit ................................................ 764,237 (148,467) 615,770 (7,744) 608,026
(Income) loss from unconsolidated investments ............... (75,804) 81 (75,723) -- (75,723)
Equipment cancellation and impairment cost .................. 64,384 -- 64,384 -- 64,384
Long-term service agreement cancellation charge ............. 16,355 -- 16,355 -- 16,355
Project development expense ................................. 21,803 (573) 21,230 -- 21,230
Research and development expense ............................ 10,630 -- 10,630 -- 10,630
Sales, general and administrative expense ................... 216,471 (14,930) 201,541 (2,225) 199,316
----------- ----------- ----------- ----------- -----------
Income from operations ...................................... 510,398 (133,045) 377,353 (5,519) 371,834
Interest expense ............................................ 706,307 (25,181) 681,126 (7,206) 673,920
Distributions on trust preferred securities ................. 46,610 -- 46,610 -- 46,610
Interest (income) ........................................... (39,716) 2,277 (37,439) 425 (37,014)
Minority interest expense ................................... 27,330 -- 27,330 -- 27,330
(Income) from repurchase of various issuances of debt ....... (278,612) -- (278,612) -- (278,612)
Other expense (income), net ................................. (46,126) 1,063 (45,063) (925) (45,988)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision or benefit for income taxes .. 94,605 (111,204) (16,599) 2,187 (14,412)
Provision (benefit) for income taxes(3)(4)................... 8,495 (42,331) (33,836) 656 (33,180)
----------- ----------- ----------- ----------- -----------
Income from continuing operations(5) ........................ $ 86,110 $ (68,873) $ 17,237 $ 1,531 $ 18,768
=========== =========== =========== =========== ===========
Basic earnings per common share:
Weighted average shares of common stock outstanding ....... 390,772 390,772
Income from continuing operations(5) ...................... 0.22 0.05
Diluted earnings per common share:
Weighted average shares of common stock outstanding
before dilutive effect of certain convertible
securities (5)............................................ 396,219 396,219
Income from continuing operations(5)....................... 0.22 0.05
- ------------
<FN>
(1) The Pro Forma Consolidated Condensed Statement of Operations assumes that
our Domestic Oil and Gas Properties were sold by Calpine on January 1,
2002. The results of these assets have been removed from the Pro Forma
Consolidated Condensed Statement of Operations. The gain associated with
the sales transaction is not included within the Pro Forma Consolidated
Condensed Statement of Operations.
(2) The Pro Forma Consolidated Condensed Statement of Operations assumes that
SCCL and UK OpCo were sold by Calpine on January 1, 2002. The results of
SCCL and UK OpCo have been removed from the Pro Forma Consolidated
Condensed Statement of Operations. The anticipated gain/loss associated
with the sales transaction is not included within the Pro Forma
Consolidated Condensed Statement of Operations.
(3) The Oil and Gas Pro Forma adjustments in the Pro Forma Consolidated
Condensed Statement of Operations are tax effected at a rate of 38%, which
represents Calpine's statutory tax rate in the United States for those
assets. Actual adjustments to Calpine's Consolidated Financial Statements
to reflect this disposition may reflect a different effective tax rate.
(4) The Saltend Pro Forma adjustments in the Pro Forma Consolidated Condensed
Statement of Operations are tax effected at a rate of 30%, which represents
Calpine's statutory tax rate in the United Kingdom. Actual adjustments to
Calpine's Consolidated Financial Statements to reflect this disposition may
reflect a different effective tax rate.
(5) Represents income before discontinued operations and cumulative effect of a
change in accounting principle.
(6) The Pro Forma adjustments in the Unaudited Pro Forma Consolidated Condensed
Statement of Operations include certain sales, general and administrative
expenses allocated to SCCL and UK OpCo and to our Domestic Oil and Gas
Properties based on a proportion of base wages. Accordingly, these expenses
have been included within the SCCL and UK OpCo and our Domestic Oil and Gas
Properties income figures to determine the Pro Forma totals. For the year
ended December 31, 2003, these expenses totaled $2.1 million and $3.3
million for SCCL and UK OpCo and our Domestic Oil and Gas Properties and
production assets, respectively. The Pro Forma adjustments also include
interest expense that we expect to allocate to discontinued operations in
accordance with Emerging Issues Task Force ("EITF") Issue No. 87-24,
"Allocation of Interest to Discontinued Operations" ("EITF Issue No.
87-24"). We include interest expense on debt which is required to be repaid
as a result of a disposal transaction in discontinued operations.
Additionally, other interest expense that cannot be attributed to other
operations of Calpine is allocated based on the ratio of net assets to be
sold less debt that is required to be paid as a result of the disposal
transaction to the sum of total net assets of Calpine plus the consolidated
debt of Calpine, excluding (a) debt of the discontinued operation that will
be assumed by the buyer, (b) known debt that will be paid as a result
of the disposal transaction and (c) debt that can be directly attributed to
other operations of Calpine. For the year ended December 31, 2003, the
interest expense allocated within the Unaudited Pro Forma Consolidated
Condensed Statement of Operations is $7.2 million and $7.3 million for SCCL
and UK OpCo and our Domestic Oil and Gas Properties, respectively.
</FN>
Calpine Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Statement of Operations
Year Ended December 31, 2002
(In thousands, except for per share amounts)
Pro Forma
After
Oil and Gas Oil and Gas Saltend Final
Actual Adjustments Adjustments Adjustments Pro Forma
(1)(6) (2)(6)
----------- ----------- ----------- ----------- -----------
Revenue:
Electric generation and marketing revenue
Electricity and steam revenue ............................... $ 3,237,510 $ -- $ 3,237,510 $ (205,779) $ 3,031,731
Sales of purchased power for hedging and optimization ..... 3,145,991 -- 3,145,991 (2) 3,145,989
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing revenue .......... 6,383,501 -- 6,383,501 (205,781) 6,177,720
Oil and gas production and marketing revenue
Oil and gas sales ......................................... 63,514 (36,464) 27,050 -- 27,050
Sales of purchased gas for hedging and optimization ....... 870,466 -- 870,466 1 870,467
----------- ----------- ----------- ----------- -----------
Total oil and gas production and marketing revenue ....... 933,980 (36,464) 897,516 1 897,517
Mark-to-market activities, net .............................. 21,485 -- 21,485 -- 21,485
Other revenue ............................................... 10,787 -- 10,787 (104) 10,683
----------- ----------- ----------- ----------- -----------
Total revenue ............................................... 7,349,753 (36,464) 7,313,289 (205,884) 7,107,405
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Electric generation and marketing expense
Plant operating expense ................................... 522,906 -- 522,906 (39,740) 483,166
Transmission purchase expense ............................. 25,486 -- 25,486 (10,179) 15,307
Royalty expense ........................................... 17,615 -- 17,615 -- 17,615
Purchased power expenses for hedging and optimization ..... 2,618,445 -- 2,618,445 -- 2,618,445
----------- ----------- ----------- ----------- -----------
Total electric generation and marketing expense .......... 3,184,452 -- 3,184,452 (49,919) 3,134,533
----------- ----------- ----------- ----------- -----------
Oil and gas operating and marketing expense
Oil and gas operating expense ............................. 69,840 (43,315) 26,525 -- 26,525
Purchased gas expense for hedging and optimization ........ 821,065 -- 821,065 -- 821,065
----------- ----------- ----------- ----------- -----------
Total oil and gas operating and marketing expense ........ 890,905 (43,315) 847,590 -- 847,590
Fuel expense ................................................ 1,792,323 126,520 1,918,843 (161,048) 1,757,795
Depreciation, depletion and amortization expense ............ 398,889 (66,744) 332,145 (32,082) 300,063
Oil and gas impairment ...................................... 3,399 (3,399) -- -- --
Operating lease expense ..................................... 111,022 -- 111,022 -- 111,022
Other cost of revenue ....................................... 7,279 -- 7,279 -- 7,279
----------- ----------- ----------- ----------- -----------
Total cost of revenue ....................................... 6,388,269 13,062 6,401,331 (243,049) 6,158,282
----------- ----------- ----------- ----------- -----------
Gross Profit ................................................ 961,484 (49,526) 911,958 37,165 949,123
(Income) loss from unconsolidated investments ............... (16,552) -- (16,552) -- (16,552)
Equipment cancellation and impairment cost .................. 404,737 -- 404,737 -- 404,737
Project development expense ................................. 66,981 (1,778) 65,203 -- 65,203
Research and development expense ............................ 9,986 -- 9,986 -- 9,986
Sales, general and administrative expense ................... 186,056 (14,759) 171,297 (2,047) 169,250
----------- ----------- ----------- ----------- -----------
Income from operations ...................................... 310,276 (32,989) 277,287 39,212 316,499
Interest expense ............................................ 402,677 (27,478) 375,199 (5,372) 369,827
Distributions on trust preferred securities ................. 62,632 -- 62,632 -- 62,632
Interest (income) ........................................... (43,086) 244 (42,842) 654 (42,188)
Minority interest expense ................................... 2,716 -- 2,716 -- 2,716
(Income) from repurchase of various issuances of debt ....... (118,020) -- (118,020) -- (118,020)
Other expense (income), net ................................. (34,200) 195 (34,005) (2,130) (36,135)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision or benefit for income taxes .. 37,557 (5,950) 31,607 46,060 77,667
Provision (benefit) for income taxes(3)(4) .................. 10,835 (2,403) 8,432 13,829 22,261
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations(5) ................. $ 26,722 $ (3,547) $ 23,175 $ 32,231 $ 55,406
=========== =========== =========== =========== ===========
Basic earnings per common share:
Weighted average shares of common stock outstanding ....... 354,822 354,822
Income from continuing operations(5) ...................... 0.07 0.16
Diluted earnings per common share:
Weighted average shares of common stock outstanding
before dilutive effect of certain convertible
securities (5)............................................ 362,533 362,533
Income from continuing operations(5) ...................... 0.07 0.15
- ------------
<FN>
(1) The Pro Forma Consolidated Condensed Statement of Operations assumes that
our Domestic Oil and Gas Properties were sold by Calpine on January 1,
2002. The results of these assets have been removed from the Pro Forma
Consolidated Condensed Statement of Operations. The gain associated with
the sales transaction is not included within the Pro Forma Consolidated
Condensed Statement of Operations.
(2) The Pro Forma Consolidated Condensed Statement of Operations assumes that
SCCL and UK OpCo were sold by Calpine on January 1, 2002. The results of
SCCL and UK OpCo have been removed from the Pro Forma Consolidated
Condensed Statement of Operations. The anticipated gain/loss associated
with the sales transaction is not included within the Pro Forma
Consolidated Condensed Statement of Operations.
(3) The Oil and Gas Pro Forma adjustments in the Pro Forma Consolidated
Condensed Statement of Operations are tax effected at a rate of 38%, which
represents Calpine's statutory tax rate in the United States for those
assets. Actual adjustments to Calpine's Consolidated Financial Statements
to reflect this disposition may reflect a different effective tax rate.
(4) The Saltend Pro Forma adjustments in the Pro Forma Consolidated Condensed
Statement of Operations are tax effected at a rate of 30%, which represents
Calpine's statutory tax rate in the United Kingdom. Actual adjustments to
Calpine's Consolidated Financial Statements to reflect this disposition may
reflect a different effective tax rate.
(5) Represents income before discontinued operations and cumulative effect of a
change in accounting principle.
(6) The Pro Forma adjustments in the Unaudited Pro Forma Consolidated Condensed
Statement of Operations include certain sales, general and administrative
expenses allocated to SCCL and UK OpCo and to our Domestic Oil and Gas
Properties based on a proportion of base wages. Accordingly, these expenses
have been included within the SCCL and UK OpCo and our Domestic Oil and Gas
Properties income figures to determine the Pro Forma totals. For the year
ended December 31, 2002, these expenses totaled $2.0 million and $3.8
million for SCCL and UK OpCo and our Domestic Oil and Gas Properties and
production assets, respectively. The Pro Forma adjustments also include
interest expense that we expect to allocate to discontinued operations in
accordance with Emerging Issues Task Force ("EITF") Issue No. 87-24,
"Allocation of Interest to Discontinued Operations" ("EITF Issue No.
87-24"). We include interest expense on debt which is required to be repaid
as a result of a disposal transaction in discontinued operations.
Additionally, other interest expense that cannot be attributed to other
operations of Calpine is allocated based on the ratio of net assets to be
sold less debt that is required to be paid as a result of the disposal
transaction to the sum of total net assets of Calpine plus the consolidated
debt of Calpine, excluding (a) debt of the discontinued operation that will
be assumed by the buyer, (b) known debt that will be paid as a result of
the disposal transaction and (c) debt that can be directly attributed to
other operations of Calpine. For the year ended December 31, 2002, the
interest expense allocated within the Unaudited Pro Forma Consolidated
Condensed Statement of Operations is $5.2 million and $3.5 million for SCCL
and UK OpCo and our Domestic Oil and Gas Properties, respectively.
</FN>
(c) Exhibits.
10.1 Purchase and Sale Agreement dated July 7, 2005 by and among Calpine
Gas Holdings LLC, Calpine Fuels Corporation, Calpine Corporation,
Rosetta Resources Inc., and the other Subject Companies identified
therein.
99.1 Press Release dated July 7, 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CALPINE CORPORATION
By: /s/ Charles B. Clark, Jr.
------------------------------------
Charles B. Clark, Jr.
Senior Vice President and Controller
Chief Accounting Officer
Date: July 13, 2005
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit
------ -------
10.1 Purchase and Sale Agreement dated July 7, 2005 by
by and among Calpine Gas Holdings LLC, Calpine Fuels
Corporation, Calpine Corporation, Rosetta Resources
Inc., and the other Subject Companies identified
therein.
99.1 Press Release dated July 7, 2005
EXHIBIT 10.1.
------------------------------------------------------------
PURCHASE AND SALE AGREEMENT
------------------------------------------------------------
CALPINE GAS HOLDINGS LLC,
a Delaware limited liability company
and
CALPINE FUELS CORPORATION,
a California corporation
As Sellers,
CALPINE CORPORATION,
a Delaware corporation,
As Parent of Sellers,
ROSETTA RESOURCES INC.,
a Delaware corporation
As Buyer,
and
certain parties identified herein as the Subject Companies
-------------------------------------------------------
July 7, 2005
-------------------------------------------------------
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
-----------------
ARTICLE 1 DEFINITIONS..........................................................1
ARTICLE 2 SALE AND PURCHASE OF SUBJECT EQUITY.................................12
2.1 Purchase and Sale.................................................12
2.2 Sellers' Retained Liabilities.....................................12
2.3 Preferential Rights and Consents..................................13
2.4 Governmental Bonds................................................14
ARTICLE 3 PURCHASE PRICE......................................................14
3.1 Purchase Price....................................................14
3.2 Allocated Value...................................................14
ARTICLE 4 ADJUSTMENTS TO PURCHASE PRICE.......................................15
4.1 Increases in Purchase Price.......................................15
4.2 Decreases in Purchase Price.......................................15
4.3 Schedule of Purchase Price Adjustments at Closing.................16
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF CALPINE AND SELLERS...............16
5.1 Organization......................................................16
5.2 Authority.........................................................16
5.3 No Conflict.......................................................16
5.4 Enforceability....................................................17
5.5 Contracts.........................................................17
5.6 Litigation and Claims.............................................17
5.7 Financial Statements..............................................17
5.8 No Liabilities....................................................18
5.9 Subject Equity....................................................18
5.10 Notices...........................................................18
5.11 Imbalances........................................................18
5.12 Current Commitments and AFEs......................................18
5.13 Property Operation and Personal Property..........................19
5.14 Take-or-Pay.......................................................19
5.15 Tax Partnerships..................................................19
5.16 Solvency..........................................................19
5.17 Environmental Condition...........................................19
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER.............................19
6.1 Organization......................................................19
6.2 Authority.........................................................20
6.3 No Conflicts......................................................20
6.4 Enforceability....................................................20
6.5 No Further Distribution...........................................20
i
6.6 Finder's Fees.....................................................20
ARTICLE 7 COVENANTS OF SELLER.................................................20
7.1 Conduct of Business Pending Closing...............................20
7.2 Tax Matters.......................................................21
7.3 Satisfaction of Conditions........................................21
ARTICLE 8 COVENANTS OF BUYER..................................................21
8.1 Satisfaction of Conditions........................................21
ARTICLE 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER...................21
9.1 Representations and Warranties....................................21
9.2 Covenants.........................................................22
9.3 No Litigation.....................................................22
9.4 Consents..........................................................22
ARTICLE 10 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER...................22
10.1 Representations and Warranties....................................22
10.2 Covenants.........................................................22
10.3 No Litigation.....................................................22
10.4 Consents..........................................................22
10.5 Release of Liens..................................................22
10.6 FIRPTA Certificate................................................22
ARTICLE 11 ENVIRONMENTAL MATTERS..............................................23
11.1 Presence of Wastes, NORM, Hazardous Substances and Asbestos.......23
ARTICLE 12 TAX MATTERS........................................................23
12.1 Tax Indemnification...............................................23
12.2 Apportionment of Taxes............................................23
12.3 Payment of Taxes..................................................24
12.4 Resolution of Disagreements Between Buyer and Sellers.............24
12.5 Cooperation.......................................................24
ARTICLE 13 SUSPENSE FUNDS HELD BY SELLER......................................24
13.1 Suspense Funds Held By Seller.....................................24
ARTICLE 14 CLOSING............................................................25
14.1 The Closing.......................................................25
14.2 Closing Statement.................................................25
14.3 Closing Deliveries................................................25
ARTICLE 15 POST-CLOSING ADJUSTMENTS...........................................26
15.1 Final Settlement Statement........................................26
15.2 Arbitration.......................................................26
15.3 Payment of Final Purchase Price...................................26
ii
ARTICLE 16 INDEMNIFICATION; RELEASES; ALLOCATION OF RISK......................27
16.1 Calpine and Sellers' Indemnity....................................27
16.2 Survival of Representations and Warranties........................28
16.3 Buyer's Indemnity.................................................28
16.4 Assumption by Buyer...............................................29
16.5 Limitations of Warranties.........................................29
16.6 Release of Pre-Closing Claims.....................................31
16.7 Gas Balancing.....................................................33
16.8 Acknowledgement by the Parties....................................33
ARTICLE 17 RISK OF LOSS.......................................................34
17.1 Casualty Loss.....................................................34
17.2 Buyer's Risk of Loss..............................................34
ARTICLE 18 TERMINATION AND REMEDIES...........................................34
18.1 Termination.......................................................34
18.2 Effect of Termination.............................................34
ARTICLE 19 ADDITIONAL COVENANTS...............................................35
19.1 Further Assurances................................................35
19.2 Transfer of Records...............................................35
19.3 Use of Sellers' Name..............................................35
19.4 Expenses, Fees and Taxes..........................................36
19.5 Public Announcements..............................................36
19.6 Confidentiality...................................................36
19.7 Cooperation on Legal Matters; Preservation of Legal Privileges....37
ARTICLE 20 ARBITRATION........................................................38
20.1 Arbitrators, Timing, Discovery, Finality of Determination.........38
20.2 Confidentiality of Arbitration....................................38
ARTICLE 21 MISCELLANEOUS......................................................38
21.1 Notice............................................................38
21.2 Governing Law.....................................................40
21.3 Assignment........................................................40
21.4 Entire Agreement..................................................40
21.5 Amendment; Waiver.................................................40
21.6 Severability......................................................40
21.7 Construction......................................................41
21.8 Headings..........................................................41
21.9 Counterparts......................................................41
iii
EXHIBITS
- --------
Exhibit A - Subject Companies
Exhibit B - Leases
Exhibit B-1 - Non-Consent Leases
Exhibit C - Wells; Net Revenue Interests
Exhibit C-1 - Non-Consent Wells; Net Revenue Interests
Exhibit C-2 - Description of Rio Vista Gathering System Included in the
Properties
Exhibit D - Allocated Values
Exhibit E - Form of Employee and Employee Benefits Matters Agreement
Exhibit F - Form of Transition Services Agreement
Exhibit G - Form of Assignment
Exhibit H - Form of Joint Defense Agreement
iv
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made and entered
into on July 7, 2005, by and among Calpine Gas Holdings LLC, a Delaware limited
liability company ("Calpine Gas"), Calpine Fuels Corporation, a California
corporation ("Calpine Fuels" and, collectively with Calpine Gas "Sellers" and
each a "Seller"), Calpine Corporation, a Delaware corporation and parent of
Sellers ("Calpine"), Rosetta Resources Inc., a Delaware corporation ("Buyer"),
and each of the signatories hereto that are identified as "Subject Companies"
(such Subject Companies, together with Sellers, Calpine, and Buyer, are referred
to herein as the "Parties").
RECITALS
WHEREAS, Sellers wish to sell, and Buyer wishes to acquire, certain of the
Sellers' wholly owned subsidiaries that will own and operate substantially all
of the assets used in the oil and gas exploration and production business of
Calpine and its subsidiaries; and
WHEREAS, immediately prior to the sale of the subsidiaries, Calpine, which
is the parent of the Sellers, will contribute or be subject to an agreement to
contribute to certain of those subsidiaries all domestic oil and gas exploration
and production properties and assets owned by it; and
WHEREAS, simultaneously with the consummation of the transactions
contemplated herein, the Parties will enter into certain agreements for the
transition of the business of the subsidiaries to Buyer.
NOW, THEREFORE, in exchange for the mutual promises set forth herein, and
other good and valuable consideration, the sufficiency of which is herein
acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
"Adverse Environmental Condition" means any contamination or condition
exceeding regulatory limits and not otherwise permitted or authorized by Permit
or law, resulting from any discharge, release, production, storage, treatment,
seepage, escape, leakage, emission, emptying, leaching or any other activities
on, in or from any Property, or the migration or transportation from other lands
to any Property, of any wastes, pollutants, contaminants, hazardous materials or
other materials or substances subject to regulation relating to the protection
of the environment that require Remediation based upon the condition at the
Effective Date pursuant to any current federal, state or local laws or statutes,
including the Environmental Laws.
"AFEs" is defined in Section 5.12.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing, being understood and agreed that with
respect to a corporation or other entity, control means direct or indirect
ownership of more than fifty percent (50%) of the voting stock or securities of
such corporation or other entity. No member of the Calpine Group is an Affiliate
of a member of the Buyer Group, and no member of the Buyer Group is an Affiliate
of any member of the Calpine Group.
"Agreement" is defined in the preamble.
"Ancillary Agreements" means the Transfer Agreement, the Transition
Services Agreement, the Employee Matters Agreement, and each other agreement
specifically named in this Agreement and entered into by and among any member of
the Calpine Group and any member of Buyer Group in connection with the closing
of the transactions set forth in this Agreement.
"Annual Financial Statements" is defined in Section 5.7.
"Applicable Laws" means any applicable law, order, ordinance, rule,
regulation, Permit, judgment or decree of any Governmental Body, including the
common or civil law of any Governmental Body, including those relating to
occupational safety and health, consumer product safety, environmental laws,
securities laws, zoning laws or regulations, employee benefits, employment and
employment practices.
"Assignments" is defined in Section 14.3.2.
"Burdens" means royalties (including both lessor royalties and
nonparticipating royalty interests), overriding royalties, production payments,
and other similar obligations payable out of production.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banks in San Jose, California or Houston, Texas, are
generally authorized or obligated, by law or executive order, to close.
"Buyer" is defined in the preamble.
"Buyer Business" means the oil and gas exploration and production business
of the Subject Companies that relates to the Properties, but shall not include
the business of any member of the Calpine Group that relates to any properties
or assets transferred by such Person prior to the date of this Agreement or any
of the Non-Consent Properties until transferred to a member of the Buyer Group.
"Buyer Group" means, whether existing now or in the future, Buyer, its
Subsidiaries (including the Subject Companies), its Affiliates, and their
respective employees, officers, directors, agents and representatives.
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"Buyer Liabilities" means (without duplication): (i) any and all
Liabilities that are expressly contemplated in this Agreement or any Ancillary
Agreement to be assumed by any member of the Buyer Group; (ii) all agreements
and Liabilities of any member of the Buyer Group under this Agreement or any of
the Ancillary Agreements subject to the applicable limitations and restrictions
herein; (iii) all Liabilities (other than Taxes), arising out of or resulting
from the ownership or operation of the Properties, whenever arising, whether
before or after the Effective Date, including (a) accidents or injuries
associated with the Wells, the casings, and all other leasehold equipment in and
on the Wells, gathering lines, pipelines, tanks and all other personal property
and fixtures used on or in connection with the Properties, (b) any and all
Proceedings described on Schedule 5.6 except for those Proceedings set forth on
Schedule 2.2 and included Sellers' Retained Liabilities, (c) the condition of
the Properties including all Adverse Environmental Conditions, including any
such conditions arising out of or relating to any discharge, release,
production, storage, treatment or any activities on or in the Properties, or the
migration or transportation from any other lands to the Properties (specifically
excluding transportation and disposal by Sellers from the Properties to offsite
locations prior to Closing), whether before or after the Effective Date, of
materials or substances that are at present, or become in the future, subject to
regulation under Applicable Laws or regulations, whether such Applicable Laws
now exist or are hereafter enacted, and (d) all Plugging and Abandonment
obligations or liabilities; and (iv) all Liabilities of the Subject Companies
reflected as such in the Financial Statements. Notwithstanding the foregoing,
the Buyer Liabilities shall not include the Sellers' Retained Liabilities.
"Buyer's Suspense Account" is defined in Article 13.
"Calpine" is defined in the preamble.
"Calpine Business" means any business of the Calpine Group, other than the
Buyer Business.
"Calpine Fuels" is defined in the preamble.
"Calpine Gas" is defined in the preamble.
"Calpine Group" means, whether existing now or in the future, Calpine, its
Subsidiaries (including the Sellers, but excluding the Buyer and the Subject
Companies), its Affiliates, and their respective employees, officers, directors,
agents and representatives.
"Casualty Loss" is defined in Section 17.1.
"Claim" means any Loss relating to or arising out of any Proceeding.
"Closing" is defined in Section 14.1.
"Closing Date" is defined in Section 14.1.
"CNGLP" means Calpine Natural Gas L.P., a Delaware limited partnership.
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"Code" means the Internal Revenue Code of 1986.
"Confidential Information" is defined in Section 19.6.
"CPR" is defined in Article 20.
"Cured Non-Consent Properties" is defined in Section 2.3.4.
"Easements" means Calpine's, any of Sellers' or any of the Subject
Companies non-exclusive rights to the use and occupancy of the surface,
including, without limitation, tenements, appurtenances, surface leases,
easements, Permits, licenses, franchises, servitudes and rights-of-way in any
way appertaining, belonging, affixed or incidental to or used in connection with
the ownership or operation of the Leases, whether recorded or unrecorded.
"Effective Date" means 7:00 a.m., CDT on May 1, 2005.
"Employee Matters Agreement" means the Employee and Employee Benefits
Matters Agreement to be entered into by and among Calpine, Sellers, Calpine
Administrative Services Company, Inc. and Buyer in the form of Exhibit E.
"Environmental Condition" means any condition existing prior to the
Effective Date, and only to the extent in existence on the Effective Date with
respect to the air, land, soil, surface, subsurface strata, surface water,
ground water, or sediments which causes a Property to be subject to remediation
under, or not in compliance with an Environmental Law, a Lease or Material
Contract, but excluding the conditions associated with, or included in the
definition of, Plugging and Abandonment.
"Environmental Law" means any existing Applicable Law relating to pollution
or the protection of the environment, health or safety including, laws relating
to air, water, land and the generation, storage, treatment, transportation,
handling, release or disposal of waste materials including the Clean Air Act,
the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, the Hazardous and Solid Waste Amendments Act of
1984, the Toxic Substance Control Act, and the Occupational Safety and Health
Act, but shall not include any Applicable Law associated with Plugging and
Abandonment.
"Equity Interests" means, with respect to an entity, the limited liability
company interests, limited partnership interests, partnership interests, or
capital shares (as the case may be) of such entity.
"Excluded Properties" means the Calpine Business and the following:
(a) all (i) trade credits, accounts receivable, notes receivables and other
receivables attributable to the interests of Calpine, Sellers or their
Affiliates in the Properties with respect to any period of time prior to the
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Effective Date and (ii) deposits, cash, checks in process of collection, cash
equivalents and funds attributable to the interests of Calpine, Sellers or their
Affiliates in the Properties with respect to any period of time prior to the
Effective Date;
(b) all claims and causes of action of Calpine, Sellers or their Affiliates
(i) arising from acts, omissions or events, or damage to or destruction of
property occurring prior to the Effective Date to the extent related to any of
Sellers' Retained Liabilities or any of indemnification obligations of Calpine
or Sellers under this Agreement or (ii) affecting any of the excluded properties
set forth in this definition;
(c) subject to the provisions of Section 16.7, all Hydrocarbons produced
from or attributable to the Properties with respect to all periods prior to the
Effective Date;
(d) claims of Calpine, Sellers or any of their Affiliates for refunds of or
loss carry forwards with respect to (i) Taxes attributable to any period prior
to the Closing Date; (ii) Taxes attributable to any of the excluded properties
as set forth in this definition; or (iii) any Tax credits accruing to the
Properties prior to the Closing Date;
(e) all amounts due or payable to Calpine, Sellers or their Affiliates as
adjustments or refunds under any contracts affecting the Properties, with
respect to any period prior to the Effective Date including, without limitation,
amounts recoverable from audits under operating agreements;
(f) all amounts due or payable to Calpine, Sellers or their Affiliates as
adjustments to insurance premiums related to the Properties with respect to any
period prior to the Effective Date;
(g) all proceeds, benefits, income or revenues accruing (and any security
or other deposits made) with respect to (i) the Properties prior to the
Effective Date; or (ii) any of the excluded properties as set forth in this
definition;
(h) all geological or geophysical information and data of Calpine, Sellers
or their Affiliates, whether proprietary to such Persons or licensed from Third
Parties, but only to the extent that the transfer thereof is prohibited by law
or third-party agreement and the necessary consents to transfer are not obtained
before Closing or cannot be obtained in accordance with the provisions in the
Transition Agreement;
(i) the non-exclusive right reserved unto the Calpine, Seller and their
Affiliates to use the Easements;
(j) all the intellectual property of Calpine, Sellers or their Affiliates,
including but not limited to computer software, patents, trade secrets,
copyrights, names, marks, and logos related to the Calpine Business;
(k) originals of all files relating to Sellers' Retained Liabilities,
Proceedings set forth on Schedule 2.2 and copies (but not the originals) of all
files described in Section 19.2);
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(l) all rights of ingress, egress and surface use retained by Calpine,
Seller or their Affiliates in connection with its ownership and operation of CPN
Pipeline Company and its assets; and
(m) all of the rights, titles, interests and estates of Calpine or Sellers
in and to (x) the percentage of Non-Consent Properties and related Wells
described in Exhibit B-1 and C-1 and (y) to the extent the same are situated
upon, used or held for use in connection with the Non-Consent Properties and
related Wells, the properties, rights, titles, interests and estates of Calpine
and Sellers described or referred to in items (a) through (g) of the definition
of "Properties", but only until such time as such Non-Consent Properties are
transferred to Buyer.
"Final Settlement Statement" is defined in Section 15.1.
"Financial Statements" is defined in Section 5.7.
"GAAP" means United States generally accepted accounting principles.
"Governmental Body" means any federal, state, tribal, county, municipal, or
other federal, state or local governmental authority or judicial or regulatory
agency, board, body, department, bureau, commission, instrumentality, court,
tribunal or quasi-governmental authority in any jurisdiction (domestic or
foreign) having jurisdiction over the Subject Companies, the Properties or any
Person who is a party to any of the transactions contemplated in this Agreement.
"Group" means either of the Calpine Group and Buyer Group, as the context
requires.
"Hydrocarbons" means crude oil, natural gas, casinghead gas, condensate,
distillate, sulphur, natural gas liquids, plant products and other liquid or
gaseous hydrocarbons (including carbon dioxide), and all other minerals of every
kind and character which may be covered by or included in the Properties.
"Indemnified Claims" is defined in Section 19.7.1.
"Indemnitee" is defined in Section 19.7.1.
"Indemnitor" is defined in Section 19.7.1.
"Interim Financial Statements" is defined in Section 5.7.
"Liability" means, with respect to any Person, any liability or obligation
of such Person of any kind, character or description, whether known or unknown,
absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated
or unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise, and
whether or not the same is required to be accrued on the financial statements of
such Person.
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"Lien" means any pledge, lien, mortgage, charge, encumbrance, security
interest or other adverse claim.
"Loss" means all damages, losses, Liabilities, obligations, payments,
amounts paid in settlement, fines, penalties, costs (including reasonable fees
and expenses of attorneys, accountants and other professional advisors, as well
as experts, and other costs of investigation, preparation and litigation in
connection with any pleading, claim, demand or other action) of any kind or
nature whatsoever, whether known or unknown, contingent or vested, or matured or
unmatured.
"Material Contracts" is defined in Section 5.5.
"Net Revenue Interest" means the interests of the Subject Companies in and
to all Hydrocarbons produced, saved and sold from any Well described in Exhibit
C, after giving effect to all Burdens and Liens other than Liens to be released
in Schedule 1; but excluding that portion of the net revenue interest for those
Wells set forth in the column entitled "Non-Consent" on Exhibit C-1.
"Non-Consent Properties" is defined in Section 2.3.2.
"NORM" means naturally occurring radioactive material.
"Parties" is defined in the preamble.
"Permit" means a material license, authorization, permit, variance and
similar right or interest from Governmental Bodies.
"Permitted Encumbrances" means:
(a) Burdens if the cumulative effect thereof does not operate to reduce the
Net Revenue Interest in a Well described in Exhibit C below the Net Revenue
Interest for such Well set forth in Exhibit C or operate to increase the Subject
Companies' Working Interest in a Well described in Exhibit C to more than the
Working Interest for such Well set forth in Exhibit C (unless there is a
corresponding increase in the Net Revenue Interest);
(b) Division orders and sales contracts terminable without penalty upon no
more than thirty (30) days notice to the purchaser;
(c) Required third-party consents to assignment and similar agreements with
respect to which waivers or consents (i) are obtained from the appropriate
parties or (ii) are routinely obtained after transfer pursuant to transactions
of this nature, including preferential rights to purchase;
(d) Materialman's, mechanic's, repairman's, employee's, contractor's,
operator's, Tax and other similar Liens or charges arising in the ordinary
course of business for obligations (i) that are not delinquent or that will be
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paid and discharged in the ordinary course of business or (ii) if delinquent,
that are being contested in good faith in the ordinary course of business;
(e) All rights to consent by, required notices to, filings with, or other
actions by any Governmental Body in connection with the sale or conveyance of
oil and gas leases or interests therein if they are routinely obtained
subsequent to the sale or conveyance;
(f) Easements, rights-of-way, servitudes, Permits, surface leases and other
rights in respect of surface or pipeline operations that do not materially
interfere with oil and gas operations to be conducted on any Well or Lease;
(g) All (i) operating agreements, unit agreements, unit operating
agreements, pooling agreements and pooling designations affecting the Properties
that are contained in Calpine's, Sellers' or the Subject Companies' files or
(ii) compulsory or commissioner's pooling or units; provided that the effect of
any such documents will not reduce the Subject Companies' interest with respect
to oil and gas produced from any Well below the Net Revenue Interest set forth
in Exhibit C, or increase the Subject Companies' Working Interest in such Well
to more than the Working Interest set forth in Exhibit C for such Well (unless
there is a corresponding increase in the Net Revenue Interest);
(h) Conventional rights of reassignment prior to release or surrender
requiring notice to the holders of the rights;
(i) All rights reserved to or vested in any Governmental Body to control or
regulate any of the Properties in any manner, and all Applicable Laws;
(j) The terms and conditions of the Leases, and of all agreements that are
contained in Calpine's, Sellers' or the Subject Companies' files or that are
recorded in the public records of the appropriate jurisdiction and which do not
reduce the Subject Companies' interest with respect to oil and gas produced from
any Well below the Net Revenue Interest set forth in Exhibit C for such Well, or
increase the Subject Companies' Working Interest in such Well to more than the
Working Interest set forth in Exhibit C for such Well (unless there is a
corresponding increase in the Net Revenue Interest);
(k) All other Liens, contracts, agreements, instruments, obligations,
defects and irregularities affecting the Properties which individually or in the
aggregate are not such as to interfere materially with the operation, value or
use of any of the Properties, could not reasonably be expected to prevent or
delay Buyer from receiving the proceeds of production from any Well and which do
not reduce the Subject Companies' interest with respect to Hydrocarbons produced
from any Well below the Net Revenue Interest set forth in Exhibit C for such
Well, or increase the Subject Companies' Working Interest in such Well to more
than the Working Interest set forth in Exhibit C for such Well (unless there is
a corresponding increase in the Net Revenue Interest);
(l) All Liens as set forth on Schedule 1 which will be released or
terminated concurrently with the closing of the transactions contemplated
herein; and
(m) Preferential rights to purchase as described in Section 2.3.2.
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"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, estate,
unincorporated organization, other business entity or any Governmental Body.
"Plugging and Abandonment" means all plugging, replugging, abandonment,
removal, disposal or restoration associated with the Properties, including all
plugging and abandonment, removal, surface restoration, site clearance and
disposal of the wells, structures and personal property located on or associated
with the Properties, the removal or capping and burying of all associated
flowlines, the restoration of the surface in accordance with Applicable Laws or
the terms and conditions of the applicable Leases, site clearance, as required
by Applicable Laws, and any disposal of related waste materials, including NORM
and asbestos, and shall include such Wells, structures, and personal property
associated with any of the Properties, whether drilled or placed on a Lease
prior to, at, or after the Closing Date.
"Preferential Rights Properties" is defined in Section 2.3.2.
"Preliminary Purchase Price" is defined in Section 14.2.
"Privilege" is defined in Section 19.7.2.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"Property" or "Properties" means, collectively, all of the Subject
Companies' right, title and interest in the following:
(a) the oil, gas and other mineral leases and mineral fee, wellbore
interests and other interests and estates and the lands and premises covered or
affected thereby which are described on Exhibit B but excluding all or any
undivided interests in and to the leases, leasehold interests or other interests
(or any portion thereof) identified therein as "Non-Consent Properties" as set
forth on Exhibit B-1 (collectively called the "Leases") or which Leases are
otherwise referred to herein;
(b) (i) the properties pooled or unitized with any of the Leases; (ii) all
unitization, communitization, pooling agreements and declarations of pooled
units and the units created thereby (including, without limitation, all units
created under orders, regulations, rules or other official acts of any
Governmental Body having jurisdiction and any units created solely among working
interest owners pursuant to operating agreements or otherwise) which may affect
all or any portion of the Leases including, without limitation, those units
which may be described or referred to on Exhibit B; and (iii) all operating
agreements, production sales or other contracts, farmout agreements, farm-in
agreements, area of mutual interest agreements, equipment leases and other
agreements which relate to the Leases or interests in the Leases described or
referred to herein or on Exhibit B or to the production, sale, purchase,
exchange, processing, handling, storage, transporting or marketing of the
Hydrocarbons from or attributable to the Leases;
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(c) all Hydrocarbons which may be produced and saved after the Effective
Date from or attributable to the Subject Companies' interests in the Leases, the
lands pooled or unitized therewith, including all saleable oil in tanks and all
rents, issues, profits, proceeds, products, revenues and other income from or
attributable to the Leases and the lands pooled or unitized therewith;
(d) all tenements, hereditaments, appurtenances and properties in anywise
appertaining, belonging, affixed or incidental to the Leases, rights, titles,
interests and estates described or referred to in paragraphs (a) and (b) above,
including any and all property, real or personal, situated upon, used or held
for use in connection with the operating, working or development of any of such
Leases or the lands pooled or unitized therewith including any and all oil
wells, gas wells, injection wells or other wells (collectively, such wells are
referred to herein as "Wells" and are more fully described on Exhibit C, but
excluding that portion of the net revenue and working interest for those Wells
set forth in the column entitled "Non-Consent" on Exhibit C-1), buildings,
structures, field separators, liquid extraction plants, plant compressors,
pumps, pumping units, pipelines, sales and flow lines, gathering systems
including the gathering system described on Exhibit C-2, field gathering
systems, salt water disposal facilities, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing tubing
and rods, surface leases, rights-of-way, easements, servitudes, licenses and
other surface and subsurface rights situated upon, used or held for use solely
in connection of the operating, working or development of any of such Leases or
the lands pooled or unitized therewith, together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing properties;
(e) interests of every nature in and to the Leases rights, titles,
interests and estates and every part and parcel thereof, including the Leases or
any other rights, titles, interests and estates as the same may be enlarged by
the discharge of any payments out of production or by the removal of any charges
or Permitted Encumbrances to which any of the Lease rights, titles, interests or
estates are subject, or otherwise; together with any and all renewals and
extensions of any of the Lease rights, titles, interests or estates; all
contracts and agreements supplemental to or amendatory of or in substitution for
the contracts and agreements described or mentioned above;
(f) all improvements, tools, parts and equipment used in connection with,
all or any part of the Property described in this or any other clause of this
definition; and
(g) to the extent transferable without material restriction or payment of a
transfer or licensing fee, all Records.
Notwithstanding anything to the contrary herein or otherwise, the
Properties do not include, and Calpine and Sellers do hereby EXCEPT and EXCLUDE
therefrom and do hereby RETAIN and RESERVE unto themselves, their successors and
assigns, the Excluded Properties.
"Purchase Price" is defined in Section 3.1.
"Records" mean all of Calpine's and Sellers' Lease files, abstracts and
title opinions, division order files, production records, well files, accounting
records (but not including general financial accounting or tax accounting
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records), and other similar files and records which directly relate to the
Properties, including geological and geophysical data other than those which
Calpine or Sellers consider to be proprietary or confidential to it or which
Calpine or Sellers cannot provide to a member of the Buyer Group without, in
Calpine's or Sellers' opinion, breaching, or incurring a material risk of a
breach of, agreements with other parties, or waiving, or incurring a material
risk of waiving, legal privilege.
"Remediation" or "Remediate" means affirmative actions or remedial work
taken to remove or otherwise remedy an Environmental Condition, including any
survey, site assessment, audit, investigation, inspection, sampling, analysis,
removal, excavation, pump and treat, cleanup, disposal, storage, handling or
treatment, excluding those actions associated with Plugging and Abandonment.
"Rules" is defined in Article 20.
"Sellers" is defined in the preamble.
"Sellers' Actual Knowledge" means the actual knowledge of B.A. Bill
Berilgen (Executive Vice President of Calpine and President-Calpine Fuels),
Charles F. Chambers (Vice President of CNGLP), Roxy Blu (Director of Land of
CNGLP), Michael Rosinski (Chief Financial Officer of CNGLP), Ed Seeman (Director
Reservoir Engineering of CNGLP), Denise Bednorz (Controller of CNGLP), or Bert
Bates (Director of EH&S of CNGLP).
"Sellers' Retained Liabilities" is defined in Section 2.2.
"Straddle Period" is defined in Section 12.1.
"Subject Companies" means, collectively, all of the entities listed on
Exhibit A; and "Subject Company" means any one of them.
"Subject Equity" means, collectively, all of the Equity Interests of each
of Rosetta Resources California, LLC, Rosetta Resources Offshore, LLC, Rosetta
Resources Rockies, LLC, Rosetta Resources Texas GP, LLC, Rosetta Resources Texas
LP, LLC, Calpine Natural Gas GP, LLC, and Calpine Natural Gas Holdings, LLC.
A "Subsidiary" of any Person means any corporation or other organization
whether incorporated or unincorporated of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Taxes" means any and all fees (including documentation, license,
recording, filing and registration fees), taxes (including income, production,
gross receipts, ad valorem, value added, windfall profit tax, environmental tax,
turnover, sales, use, personal property (tangible and intangible), stamp,
leasing, lease, user, leasing use, excise, franchise, transfer, heating value,
fuel, excess profits, occupational, interest equalization, lifting, oil, gas, or
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mineral production or severance, and other taxes), levies, imposts, duties,
charges or withholdings of any nature whatsoever, imposed by any Governmental
Body or taxing authority thereof, domestic or foreign, together with any and all
penalties, fines, additions to tax and interest thereon, whether such tax shall
be existing or hereafter adopted.
"Third Party" means a Person other than a Party or an Affiliate of a Party.
"Transfer Agreement" means that certain Transfer and Assumption Agreement
dated, July 7, 2005 by and among Calpine and the Subject Companies pursuant to
which the Properties owned by Calpine will be conveyed to the Subject Companies.
"Transition Services Agreement" means the Transition Services Agreement in
the form of Exhibit F.
"Working Interest" means, with respect to the Wells, units or Leases set
forth in Exhibit C, the interest of the Subject Companies therein, without
regard to any valid Burdens or Liens which is burdened with the obligation to
bear and pay costs of operations; but excluding that portion of the working
interest for those Wells set forth in the column entitled "Non-Consent" on
Exhibit C-1 for those Wells.
ARTICLE 2
SALE AND PURCHASE OF SUBJECT EQUITY
2.1 Purchase and Sale. Subject to the terms and conditions herein set
forth, Sellers agree to sell, assign, convey and deliver to Buyer, and Buyer
agrees to purchase and acquire from Sellers at the Closing all of Sellers'
right, title and interest in and to the Subject Equity.
2.2 Sellers' Retained Liabilities. Subject to the terms and conditions
herein set forth, the following Liabilities (collectively, the "Sellers'
Retained Liabilities") shall remain the sole responsibility of and shall be
retained, paid, performed and discharged solely by Calpine and Sellers (and with
regard to CNGLP, Calpine Natural Gas GP, LLC and Calpine Natural Gas Holdings,
LLC, Calpine and Sellers shall assume, perform and discharge the following
Liabilities and any Liabilities of the Calpine Business for which any of CNGLP,
Calpine Natural Gas GP, LLC or Calpine Natural Gas Holdings, LLC could have any
obligation to pay or perform) at and after the Closing:
2.2.1 any Liability for additional payments of severance taxes,
royalties, overriding royalties or other similar Burdens relating to the sales
to Sellers or any of their Affiliates of Hydrocarbons produced from the
Properties prior to the Closing Date;
2.2.2 any Liabilities expressly retained by Calpine, Sellers or any of
their Affiliates pursuant to the Employee Matters Agreement;
2.2.3 any Liability for Taxes of Calpine, Sellers, or any of their
Affiliates (i) attributable to all taxable periods ending on or before the
Closing Date, (ii) for the portion of any taxable period that includes but does
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not end on the Closing Date, or (iii) that may be imposed on any member of Buyer
Group under section 1.1502-6 of the Treasury regulations promulgated under the
Code or any analogous provision of state or local law or regulation as a result
of the affiliation of Buyer or its Affiliates with Calpine or Sellers; and
2.2.4 any Liability arising out of any Proceeding set forth on
Schedule 2.2.
2.3 Preferential Rights and Consents.
2.3.1 In connection with the transfers of certain of the Properties to
the Subject Companies, Calpine and Sellers have requested (in accordance with
the documents creating such rights and/or requirements) all consents to
assignment (or waivers to such consents) that, to Sellers' Actual Knowledge, are
necessary in order for Calpine to consummate the transfer of the Properties to
the Subject Companies pursuant to the Transfer Agreement. The Parties agree to
use commercially reasonable efforts to obtain such consents or waivers (but
Calpine and Sellers shall have no obligation to assure that such waivers or
consents are obtained). On or before the Closing, Sellers will, or will cause
the appropriate member of the Calpine Group to, give notice to all Persons who
hold preferential rights to purchase any of the Properties in accordance with
the documents creating such rights and/or requirements.
2.3.2 Notwithstanding that Calpine and Sellers may not be able to
obtain waivers of the preferential rights to purchase or consents to assignment
which are necessary in order to convey the Properties to the Subject Companies,
the Parties shall proceed with Closing. Prior to the Closing and in accordance
with the Transfer Agreement, Calpine and Sellers (i) will assign to the Subject
Companies the Properties, including any Properties that are subject to
preferential rights to purchase ("Preferential Right Properties"), for the
Purchase Price set forth herein, and (ii) retain all rights to any of the
Properties that are subject to consents that are not received before the Closing
("Non-Consent Properties"). The Purchase Price shall be reduced by the allocated
value of Non-Consent Properties as set forth in Exhibit D (with a corresponding
adjustment of any of the items in Section 4.1 or 4.2 that relate to the
Non-Consent Properties). The Preferential Right Properties were transferred to
the Subject Companies subject to the applicable preferential rights to purchase.
2.3.3 From and after the Closing, Calpine shall continue to hold title
to the Non-Consent Properties subject to the provisions of this Section 2.3.
Buyer (directly or indirectly through one of the Subject Companies; for the
purposes of this Section 2.3, Buyer shall also include the Subject Companies
following the Closing) shall manage, operate and market production from the
Non-Consent Properties pursuant to the applicable provisions of the Transition
Services Agreement. Buyer, with the cooperation of Calpine and Sellers, shall
continue for a six (6) month period immediately following the Closing to use
commercially reasonable efforts to obtain any waivers of the preferential rights
relating to the Preferential Right Properties and consents to the assignment of
the Non-Consent Properties, provided that the Parties shall have no obligation
to pay any amount to obtain such consent or waivers.
2.3.4 If during the six (6) month period after the Closing Date, the
Parties are able to obtain consents to transfer any Non-Consent Properties (such
Properties are referred to herein as the "Cured Non-Consent Properties"), then
such Properties shall be transferred to Buyer (or the Subject Company designated
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by it) in accordance with the provisions of this Section 2.3.4. Promptly at the
end of each month during such six (6) month period after the Closing Date (but
not more than five (5) days thereafter), Calpine shall transfer to Buyer (or the
Subject Company designated by it), and Buyer shall purchase from the
transferring party, any Cured Non-Consent Properties for which the consent to
assign was obtained during the preceding month. The purchase price for the Cured
Non-Consent Properties shall be the allocated value of such properties as set
forth in Exhibit D, with a corresponding adjustment of any of the items in
Section 4.1 or 4.2 that relate to the Cured Non-Consent Properties through the
date of the transfer to Buyer (or the Subject Company designated by it). The
purchase price for the Cured Non-Consent Properties shall be paid by Buyer in
immediately available funds. The purchase of the Cured Non-Consent Properties
shall be on the same terms and subject to the same provisions of this Agreement
(other than the purchase price determined in accordance with this Section 2.3.4)
as applicable to the Properties that were conveyed pursuant to the Transfer
Agreement. Any Non-Consent Properties for which consents have not been obtained
during the six (6) month period after the Closing shall remain with Calpine and
shall no longer be subject to this Agreement.
2.3.5 If any rights to purchase any of Preferential Right Properties
are exercised and consummated following the Closing Date, Buyer (or the Subject
Company designated by it) shall be entitled to retain all of the amounts paid
therefor and shall have all obligations and Liability relating to the transfer
thereof to the purchasing party, including any Liability relating to the
allocation of the Purchase Price to the Preferential Right Properties.
2.4 Governmental Bonds. Attached hereto as Schedule 2.4 is a list of all
bonds placed by Calpine and CNGLP with a Governmental Body for the ownership and
operation of the Properties. At or prior to the Closing, Buyer shall deliver to
Calpine and Sellers evidence reasonably satisfactory to Calpine and Sellers that
a member of the Buyer Group has posted bonds or other security with each
applicable Governmental Body to own and, where appropriate, operate the
Properties in accordance with the requirements of such Governmental Body. Where
such bonds or other security are placed in the name of CNGLP and will not be
replaced at Closing, Buyer agrees that the Purchase Price shall be increased in
the aggregate amount of such bonds or other security to the extent that Calpine
or CNGLP has paid any amounts in connection therewith. Buyer shall indemnify,
defend and hold harmless Calpine, Sellers and their Affiliates for any Liability
that is assessed against any bond or other security listed on Schedule 2.4, or
for the taking or conversion thereof, that occurs on or after the Closing.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price. The total purchase price to be paid by Buyer to Sellers
for the Subject Equity shall be One Billion Six Million Five Hundred Thousand
Dollars ($1,006,500,000) (the "Purchase Price"), subject to any applicable
adjustments as provided in this Agreement, including Article 4.
3.2 Allocated Value. Sellers and Buyer agree and stipulate that the
Allocated Values set forth for the Properties in Exhibit D have been established
solely for use in calculating adjustments to the Purchase Price as provided
herein, such schedule of Allocated Values being solely for the convenience of
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the Parties. Sellers and Buyer do not intend that such schedule of Allocated
Values be treated or interpreted to constitute an allocation of the Purchase
Price among the Properties for federal or state income tax purposes.
ARTICLE 4
ADJUSTMENTS TO PURCHASE PRICE
The Purchase Price shall be adjusted as follows:
4.1 Increases in Purchase Price. The Purchase Price shall be increased by
an amount equal to the sum of the following amounts:
4.1.1 The amount of costs and expenses (other than administrative
overhead addressed by the fixed charge below) actually paid or to be paid by any
of Calpine, Sellers, the Subject Companies or their Affiliates related to
owning, operating, producing and maintaining the Properties from the Effective
Date to the Closing Date, including capital expenditures, plus a fixed overhead
charge of $0.48/Mcfe per month, which shall be in lieu of any per-well COPAS
administrative charges on wells operated by any of Calpine, Sellers, the Subject
Companies, or their Affiliates;
4.1.2 The amount of all prepaid expenses, including all Taxes based
upon or measured by ownership, relating to the Properties, paid by any of
Calpine, Sellers, the Subject Companies or their Affiliates and attributable to
periods of time after the Effective Date;
4.1.3 The amount of all upward adjustments to the Purchase Price
provided for in this Agreement;
4.1.4 The value of (a) all oil and other Hydrocarbons in pipelines or
in tanks above the pipeline sales connection, in each case at the Effective Date
that is credited to the Properties and not sold by any of Calpine, Sellers, the
Subject Companies or their Affiliates prior to Closing, (b) all unsold inventory
of gas plant products attributable to the Properties at the Effective Date and
not sold by any of Calpine, Sellers, the Subject Companies or their Affiliates
prior to Closing, each such value to be the market or, if applicable, the
contract price in effect as of the Effective Date, less any applicable Taxes and
Burdens and (c) all gas imbalance volumes owed to any of Calpine, Sellers, the
Subject Companies or their Affiliates by a Third Party as of the Effective Date
as estimated on Schedule 5.11, multiplied by $3.00 per Mcf; and
4.1.5 Any other amount provided for in this Agreement as an increase
in the Purchase Price.
4.2 Decreases in Purchase Price. The Purchase Price shall be decreased by
an amount equal to the sum of the following amounts:
4.2.1 The amount of all proceeds paid or to be paid to any of Calpine,
Sellers, the Subject Companies or their Affiliates, including proceeds from the
sale of production, net of all applicable Taxes and Burdens paid or to be paid
by any of Calpine, Sellers, the Subject Companies or their Affiliates,
attributable to the Properties for periods of time after the Effective Date;
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4.2.2 An amount equal to all Taxes based upon or measured by
ownership, relating to the Properties that are unpaid as of the Closing Date and
attributable to periods of time prior to the Effective Date;
4.2.3 The value of all gas imbalance volumes owed by any of Calpine,
Sellers, the Subject Companies or their Affiliates to a Third Party as of the
Effective Date as estimated on Schedule 5.11, multiplied by $3.00 per Mcf; and
4.2.4 Any other amount provided for in this Agreement (including under
Section 2.3.3) as a decrease in the Purchase Price.
4.3 Schedule of Purchase Price Adjustments at Closing. Attached hereto as
Schedule 4.3 is an estimate of the Purchase Price and related adjustments as of
the Closing Date that is based upon the adjustments in Sections 4.1 and 4.2.
Reference is made to Article 15 for post-closing adjustments to be made for any
modification to such adjustments for actual amounts received after closing.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CALPINE AND SELLERS
Calpine and each of the Sellers represent and warrant, jointly and
severally, to Buyer as to themselves and as to each of the Subject Companies,
that each of the statements made in this Article 5 are true and correct as of
the date of this Agreement and will be true and correct as of the Closing Date.
5.1 Organization. Calpine is a Delaware corporation validly existing and in
good standing under the laws of the State of Delaware. Calpine Gas is a limited
liability company validly existing and in good standing under the laws of the
State of Delaware. Calpine Fuels is a corporation validly existing and in good
standing under the laws of the State of California. Each of the Subject
Companies is validly existing and in good standing under the laws of the State
of Delaware. Sellers and each of the Subject Companies are in good standing and
duly qualified to do business in each other jurisdiction in which the conduct of
its business or ownership or leasing of its properties makes such qualification
or registration necessary.
5.2 Authority. Calpine and each Seller has full power to enter into and
perform its obligations under this Agreement and has taken all proper corporate
action to authorize entering into this Agreement and performing its obligations
hereunder.
5.3 No Conflict. Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated herein, nor the compliance
with the terms hereof will (a) (i) result in any default under any material
agreement or instrument relating to the Calpine Business to which Calpine or any
Seller is a party (including its governing documents) or by which any of its or
its Affiliate's assets or properties is bound or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation relating to the Calpine Business
to which Calpine or any Seller or to any of its or its Affiliate's assets or
properties; or (b) to Sellers' Actual Knowledge, (i) result in any default under
any material agreement or instrument relating to the Buyer Business to which
Calpine or any Seller is a party or by which any of its or its Affiliate's
16
Properties is bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation relating to the Buyer Business which is applicable
to Calpine or any Seller or to any of its or its Affiliate's assets or
properties; other than requirements to obtain (x) those consents to assignment
or waivers of preferential rights to purchase from third parties set forth in
Schedule 5.3 and (y) approvals from any Governmental Body customarily obtained
post-closing.
5.4 Enforceability. This Agreement has been duly executed and delivered on
behalf of Calpine and each Seller and constitutes the legal, valid and binding
obligation of each such Persons, enforceable in accordance with its terms,
except as limited by bankruptcy or other similar laws applicable generally to
creditors' rights and as limited by general equitable principles.
5.5 Contracts. To Sellers' Actual Knowledge, Schedule 5.5 describes (a) all
area of mutual interest agreements (other than area of mutual interest
provisions of customary joint operating agreements), all purchase or sale
agreements (other than with respect to production of Hydrocarbons and the
disposition of field equipment in the ordinary course of business), partnership
(other than tax partnerships), joint venture and/or exploration or development
program agreements relating to Wells and Leases or otherwise included in the
Properties, (b) all of the production sales, marketing and processing agreements
relating to the Wells and Leases, other than such agreements which are
terminable by any of Calpine, Sellers or the Subject Companies without penalty
on ninety (90) or fewer days' notice, and (c) any contracts or agreements (other
than contracts for utility services) burdening the Properties which could
reasonably be expected to obligate the Subject Companies to expend in excess of
$1,000,000 in any calendar year ((a) - (c) collectively, the "Material
Contracts"). To Sellers' Actual Knowledge, (x) none of Calpine, Sellers or the
Subject Companies has received written notice of its default in any material
respect under any of the Material Contracts, the Leases or the Easements; (y)
the Material Contracts and the Leases are in full force and effect; and (z) none
of Calpine, Sellers or the Subject Companies is in default in any material
respect thereunder or under any Easement.
5.6 Litigation and Claims. Except as set forth on Schedule 5.6, no
Proceeding is pending or, to Sellers' Actual Knowledge, threatened with respect
to Calpine, Sellers or any Subject Company that could reasonably be expected to
materially and adversely affect the Subject Companies or the ownership,
operation or value of the Properties or the Buyer Business, or which would
materially adversely affect the ability of Calpine or Sellers to consummate the
transactions contemplated herein.
5.7 Financial Statements. Calpine and Sellers have delivered to Buyer
accurate and complete copies of (i) the audited combined balance sheets of the
Domestic Oil & Gas Properties of Calpine and its Affiliates as of December 31,
2003 and 2004, the related audited combined statements of income, equity, and
cash flows/changes in financial position for each of the years then ended and
the notes thereto (the "Annual Financial Statements"); and (ii) the unaudited
combined balance sheets of the Domestic Oil & Gas Properties of Calpine and its
Affiliates as of March 31, 2005, and the related unaudited combined statements
of income, equity, cash flows/changes in financial position for the three-month
period then ended and the notes thereto (the "Interim Financial Statements";
and, collectively with the Annual Financial Statements, the "Financial
Statements"). The Financial Statements (i) represent actual bona fide
17
transactions, (ii) have been prepared from the books and records of Calpine,
Sellers and the Subject Companies in conformity with GAAP applied on a basis
consistent with preceding years throughout the periods involved, and (iii)
accurately, completely, and fairly present the combined financial position of
the assets of the domestic oil and gas exploration and production business of
Calpine and its Affiliates as of the respective dates thereof and their combined
results of operations and cash flows/changes in financial position for the
periods then ended as if such companies were stand alone entities, except that
the Interim Financial Statements are subject to normal year-end adjustments,
which are not reasonably expected to be material in the aggregate.
5.8 No Liabilities. The Subject Companies have no existing, or to Sellers'
Actual Knowledge, threatened material Liability other than Liabilities (i)
incurred in the ordinary course of the Buyer Business since March 31, 2005; (ii)
that are less than $1,000,000 individually; (iii) disclosed in the Financial
Statements or (iv) disclosed herein or in the Schedules hereto.
5.9 Subject Equity. Sellers are the sole, record and beneficial owners of
the Subject Equity, and upon delivery of the Assignments to Buyer, Sellers shall
transfer good and marketable title to the Subject Equity, free and clear of all
Liens. There are no rights, subscriptions, warrants, options, conversion rights
or agreements of any kind outstanding to purchase or otherwise acquire any
interest in the Subject Equity, and there are no authorized, outstanding or
existing proxies, voting trusts, equity holder agreements or other agreements or
understandings with respect to the voting of the Subject Equity. None of Calpine
or Sellers nor any agent acting on their behalf has offered any of the Subject
Equity for sale to any party which offer remains outstanding on the date hereof.
5.10 Notices. Except as set forth in Schedule 5.10, to Sellers' Actual
Knowledge, (a) Calpine's and the Subject Companies' operation of the Properties
is not the subject of any pending regulatory Proceedings and (b) none of
Calpine, Sellers and Subject Companies has received written notice, which has
not heretofore been complied with, of any violation of Applicable Law issued
with respect to any of the Properties.
5.11 Imbalances. To Sellers' Actual Knowledge, except as set forth on
Schedule 5.11, there are no gas or other Hydrocarbon production, pipeline,
transportation or processing imbalances existing as of the dates set forth in
Schedule 5.11 with respect to any of the Properties, other than those that do
not exceed $5,000 individually or relate to transactions occurring less than 30
days before the date of this Agreement.
5.12 Current Commitments and AFEs. Schedule 5.12 contains a complete and
accurate list as of the date of this Agreement of (i) all pending authorizations
for expenditures ("AFEs") which commit any of Calpine, Sellers or the Subject
Companies in excess of $250,000 to drill or rework Wells or for capital
expenditures pursuant to any of the Contracts that have been proposed by any
person on or after the Effective Date, whether or not accepted by Calpine,
Sellers, the Subject Companies, or any Third Party, and (ii) all AFEs and oral
or written commitments in excess of $250,000 to drill or rework Wells or for
other capital expenditures pursuant to any of the Contracts for which all of the
activities anticipated in such AFEs or commitments have not been completed by
the date of this Agreement.
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5.13 Property Operation and Personal Property. To Sellers' Actual
Knowledge, the Wells have been drilled, completed, operated, developed and
produced in material compliance with all Applicable Laws (other than those
relating to environmental matters, which are dealt with in Section 5.17) and all
necessary Permits (other than those relating to environmental matters, which are
dealt with in Section 5.17) which are material to the ownership, use or
operation of the Properties have been obtained and are in force. To Sellers'
Actual Knowledge, the equipment and fixtures located on the Properties
constitutes the equipment and fixtures reasonably necessary for the operations
of the Properties for the production of the Hydrocarbons. To the Sellers' Actual
Knowledge, such equipment and fixtures currently in service are in good repair
and operating condition and are suitable for the purposes for which such
equipment and fixtures are employed.
5.14 Take-or-Pay. To Sellers' Actual Knowledge, except as set forth on
Exhibit C, no Subject Company is obligated, under a take-or-pay or similar
arrangement, or by virtue of an election to non-consent, or not participate in a
past or current operation on the Properties pursuant to the applicable operating
agreement, to produce Hydrocarbons, or allow Hydrocarbons to be produced,
without receiving full payments at the time of delivery in an amount that
corresponds to the Net Revenue Interest in the Hydrocarbons attributable to any
Well described in Exhibit C.
5.15 Tax Partnerships. Except as disclosed on Schedule 5.15, none of the
Properties is subject to or burdened by any partnership, joint venture or other
arrangement that is treated as a partnership for federal and applicable state
income tax purposes.
5.16 Solvency. Calpine and Sellers are not insolvent, nor will Calpine or
Sellers be rendered insolvent by the occurrence of the transactions contemplated
in this Agreement, as such terms are used or defined in applicable state and
federal fraudulent conveyance or transfer laws.
5.17 Environmental Condition. Except as set forth on Schedule 5.17, to
Sellers' Actual Knowledge, there are no pending written claims, actions or
Proceedings by any Third Party or Governmental Body caused by or arising out of
any Environmental Condition pending with regard to the ownership or operation of
the Properties and there are no Environmental Conditions presently under
Remediation with respect to the Properties.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Calpine and Sellers that each of the
statements made in this Article 6 are true and correct as of the date of this
Agreement and will be true and correct as of the Closing Date.
6.1 Organization. Buyer is a corporation validly existing and in good
standing under the laws of the State of Delaware. Buyer is in good standing and
duly qualified to do business in each other jurisdiction in which the conduct of
its business or ownership or leasing of its properties makes such qualification
or registration necessary.
19
6.2 Authority. Buyer has full power to enter into and perform its
obligations under this Agreement and has taken all proper corporate action to
authorize entering into this Agreement and performing its obligations hereunder.
6.3 No Conflicts. Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated herein, nor the compliance
with the terms hereof will result in any default under any material agreement or
instrument to which Buyer is a party (including its governing documents), or
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Buyer or any of its properties.
6.4 Enforceability. This Agreement has been duly executed and delivered on
behalf of Buyer and constitutes the legal, valid and binding obligation of
Buyer, enforceable in accordance with its terms, except as limited by bankruptcy
or other similar laws applicable generally to creditor's rights and as limited
by general equitable principles.
6.5 No Further Distribution. Buyer is acquiring the Subject Equity for its
own account and not with a view to, or for offer of resale in connection with, a
distribution thereof, within the meaning of the Securities Act of 1933, 15
U.S.C. ss. 77a et seq., and any other Applicable Laws pertaining to the
distribution of securities, except in compliance with the applicable securities
laws.
6.6 Finder's Fees. Except for fees payable to Friedman, Billings, Ramsey &
Co., Inc., Buyer has not incurred any liability, contingent or otherwise, for
brokers' or finders' fees in respect to this transaction for which any Seller
shall have any responsibility whatsoever.
ARTICLE 7
COVENANTS OF SELLER
7.1 Conduct of Business Pending Closing. From the date hereof to the
Closing Date, except as provided herein or in Article 7 of the Transfer
Agreement, as required by any obligation, agreement, Lease, contract, or
instrument referred to on any Exhibit or Schedule or as otherwise consented to
in writing by Buyer, Calpine and each Seller shall, or shall cause its
respective Subject Companies, to:
7.1.1 Not (a) act in any manner with respect to the Properties other
than in the normal, usual and customary manner, consistent with prior practice;
(b) dispose of, encumber or relinquish any of the Properties (other than any
relinquishment resulting from the expiration of any Lease or Material Contract
in accordance with its terms); (c) waive, compromise or settle any material
right or claim with respect to any of the Properties; or (d) except with respect
to those matters identified in Schedule 5.12, propose capital or workover
expenditures with respect to the Properties in excess of $1,000,000 (net to
Calpine's, Sellers' or the Subject Companies' interest), except when required by
an emergency when there shall have been insufficient time to obtain advance
consent (provided, that Calpine or Sellers will promptly notify Buyer of any
such emergency expenditures);
7.1.2 Cooperate with Buyer in the notification of any Governmental
Body of the transactions contemplated herein and cooperate with Buyer in
obtaining the issuance by each such authority of such Permits as may be
20
necessary for Buyer to own and operate the Subject Companies and their
respective Properties following the Closing;
7.1.3 Use commercially reasonable efforts, when necessary in Buyer's
opinion, to seek appointment of one of the Subject Companies designated by Buyer
as the successor operator to Calpine or Sellers with respect to all Properties
currently operated by Calpine or Sellers;
7.1.4 Until Closing, maintain all insurance with respect to the
Subject Companies and the Properties currently in force with approximately the
same coverages and limits as are in effect at the date hereof; and
7.1.5 Obtain the resignation, or terminate the positions, of those
officers, directors, and managers of the Subject Companies as requested by Buyer
in writing prior to the Closing.
7.2 Tax Matters. No extension of time to assess any Tax or settle any Tax
claim relating to or in any way affecting the Properties may be requested or
granted after the date of this Agreement without the prior written consent of
Buyer. No election with respect to Taxes relating to or in any way affecting the
Properties may be made or changed by Calpine or Sellers after the date of this
Agreement without the prior written consent of Buyer.
7.3 Satisfaction of Conditions. Calpine and Sellers will use commercially
reasonable efforts to consummate, make effective and comply with all of the
terms of this Agreement (including satisfaction, but not waiver, of the Closing
conditions for which they are responsible or otherwise in control).
ARTICLE 8
COVENANTS OF BUYER
8.1 Satisfaction of Conditions. Buyer will use commercially reasonable
efforts to consummate, make effective and comply with all of the terms of this
Agreement (including satisfaction, but not waiver, of the Closing conditions for
which it is responsible or otherwise in control).
ARTICLE 9
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligations of Calpine and Sellers to be performed at or after the
Closing are subject to the fulfillment (or waiver by Calpine and Sellers in
their sole discretion), before or at the Closing, of each of the following
conditions:
9.1 Representations and Warranties. The representations and warranties by
Buyer set forth in Article 6 and each of the Ancillary Agreements shall be true
and correct in all material respects at and as of the Closing as though made at
and as of the Closing.
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9.2 Covenants. Buyer shall have performed and complied with in all material
respects all covenants and agreements required to be performed and satisfied by
it pursuant to this Agreement and each of the Ancillary Agreements at or prior
to Closing.
9.3 No Litigation. There shall be no Proceeding pending or threatened to
restrain or prohibit the consummation of the transactions contemplated in this
Agreement.
9.4 Consents. All consents and approvals required to be obtained before
Closing shall have been obtained or shall have expired without being exercised
and have therefore been waived, except for those consents and approvals which
are customarily obtained after closing of transactions similar to those
contemplated herein and those relating to the Properties that have been excluded
from the transfers to the Subject Companies in accordance with Section 2.3.2.
ARTICLE 10
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer to be performed at or after the Closing are
subject to the fulfillment (or waiver by Buyer in its sole discretion), before
or at the Closing, of each of the following conditions:
10.1 Representations and Warranties. The representations and warranties of
Calpine and Sellers set forth in Article 5 and each of the Ancillary Agreements
shall be true and correct in all material respects at and as of the Closing as
though made at and as of the Closing; provided, however, that in no event shall
the failure to obtain a consent or waiver on Schedule 5.3 (to the extent
addressed in Section 2.3) or the existence of an Adverse Environmental Condition
cause a representation or warranty to be untrue or incorrect.
10.2 Covenants. Calpine and Sellers shall have performed and complied with
in all material respects all covenants and agreements required to be performed
and satisfied by them pursuant to this Agreement and each of the Ancillary
Agreements at or prior to Closing.
10.3 No Litigation. There shall be no Proceeding pending or threatened to
restrain or prohibit the consummation of the transactions contemplated in this
Agreement.
10.4 Consents. All consents and approvals required to be obtained before
Closing shall have been obtained or shall have expired without being exercised
and have therefore been waived, except for those consents and approvals which
are customarily obtained after closing of transactions similar to those
contemplated herein and those relating to the Properties that have been excluded
from the transfers to the Subject Companies in accordance with Section 2.3.2.
10.5 Release of Liens. All Liens of record burdening the Properties (other
than Permitted Encumbrances) shall be released at or before Closing and Calpine
and Sellers shall have made arrangements reasonably acceptable to Buyer for the
payment and release of all Liens described on Schedule 1.
10.6 FIRPTA Certificate. Each Seller shall have delivered to Buyer a
non-foreign certificate required by Section 1445 of the Code to avoid
withholding on any portion of the Purchase Price.
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ARTICLE 11
ENVIRONMENTAL MATTERS
11.1 Presence of Wastes, NORM, Hazardous Substances and Asbestos. BUYER
ACKNOWLEDGES THAT THE PROPERTIES HAVE BEEN USED TO EXPLORE FOR, DEVELOP AND
PRODUCE HYDROCARBONS, AND THAT SPILLS OF WASTES, CRUDE OIL, PRODUCED WATER,
HAZARDOUS SUBSTANCES AND OTHER MATERIALS MAY HAVE OCCURRED THEREON.
ADDITIONALLY, THE PROPERTIES, INCLUDING PRODUCTION EQUIPMENT, MAY CONTAIN
ASBESTOS, HAZARDOUS SUBSTANCES OR NORM. NORM MAY AFFIX OR ATTACH ITSELF TO THE
INSIDE OF WELLS, MATERIALS AND EQUIPMENT AS SCALE OR IN OTHER FORMS, AND
NORM-CONTAINING MATERIAL MAY HAVE BEEN BURIED OR OTHERWISE DISPOSED OF ON THE
PROPERTIES. A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THE PROPERTIES BY
REASON THEREOF. SPECIAL PROCEDURES MAY BE REQUIRED FOR REMEDIATION, REMOVING,
TRANSPORTING AND DISPOSING OF ASBESTOS, NORM, HAZARDOUS SUBSTANCES AND OTHER
MATERIALS FROM THE PROPERTY. With respect to the Properties owned by the Subject
Companies at the Closing and all Properties that may be subsequently transferred
pursuant to Section 2.3, Buyer assumes all liability for the assessment,
Remediation, removal, transportation and disposal of these materials and
associated activities in accordance with the applicable rules, regulations and
requirements of any Governmental Body. Buyer understands that the Properties
were conveyed to the Subject Companies by Calpine or Sellers on an "as is, where
is" basis, and Buyer waives, and shall cause the Subject Companies to waive, all
claims against the Sellers for the condition of the Properties, including any
Adverse Environmental Condition relating to the Properties.
ARTICLE 12
TAX MATTERS
12.1 Tax Indemnification. Calpine and Sellers shall indemnify, defend and
hold harmless Buyer from and against (i) any Liability for Taxes of Calpine,
Sellers or their Affiliates in respect of all taxable periods ending on or
before the Closing Date, (ii) any Liability for Taxes of Calpine, Sellers or
their Affiliates for the portion of any taxable period that includes but does
not end on the Closing Date (the "Straddle Period"), and (iii) any Liability
that may be imposed on any member of Buyer Group under section 1.1502-6 of the
Treasury regulations promulgated under the Code or any analogous provision of
state or local law or regulation as a result of the affiliation of Buyer or its
Affiliates with Calpine or Sellers.
12.2 Apportionment of Taxes. All Straddle Period Taxes imposed on or with
respect to the Properties shall be prorated between Calpine and Sellers, on the
one hand, and Buyer, on the other hand, as of the Closing Date, based on the
number of days in the calendar year before and after the Closing Date. Calpine
and Sellers shall be responsible for those days up to and including the Closing
Date, and Buyer shall be responsible for those days after the Closing Date.
Where Taxes have not been assessed and are not yet payable as of the Closing
Date, the Parties shall estimate the Taxes as of the Closing Date (based upon
the prior year's Taxes) and prorate the estimated Taxes accordingly. When the
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actual amount of Taxes is known by the Parties, the Parties shall prorate the
actual amount of Taxes to correct any erroneous payment based on the earlier
proration of estimated Taxes.
12.3 Payment of Taxes. Subject to the representations and warranties of
Calpine and Sellers contained herein, any Tax in respect of any Tax period
beginning after the Closing Date and that portion of any Straddle Period
beginning after the Closing Date shall be the responsibility of Buyer.
12.4 Resolution of Disagreements Between Buyer and Sellers. If Buyer, on
the one hand, and Calpine or Sellers, on the other hand, disagree as to the
amount of Taxes for which each is liable under this Agreement, Buyer, Calpine
and Sellers shall promptly consult each other in an effort to resolve such
dispute. If any such point of disagreement cannot be resolved within sixty (60)
days of the initial date of consultation, Buyer, Calpine and Sellers shall
within ten (10) days after such sixty (60) day period jointly select a
nationally recognized independent public accounting firm which has not, except
pursuant to this Agreement, performed any services for Buyer, Calpine, Sellers
or their respective Affiliates, to act as an arbitrator to resolve, within sixty
(60) days after their selection, all points of disagreement concerning Tax
matters with respect to this Agreement and presented to such accounting firm at
the time of its selection. If no nationally recognized independent public
accounting firm meets the aforementioned standard, the Parties nonetheless shall
attempt to agree on an accounting or law firm that is satisfactory to all of
them. If Buyer, Calpine and Sellers cannot agree on the selection of an
accounting or law firm within such ten (10) day period, within five (5) Business
Days after such ten (10) day period, the Parties shall select an eligible
nationally recognized accounting firm by lot.
12.5 Cooperation.
12.5.1 Buyer shall promptly inform Calpine and Sellers if any taxing
authority asserts a claim, makes an assessment, or otherwise disputes the amount
of Taxes of any member of the Buyer Group for which any member of the Calpine
Group is or may be liable under this Agreement. Calpine and Sellers shall
conduct, and Buyer shall have the right to reasonably cooperate in, the defense
of any Claim or Proceeding pertaining to Taxes for which indemnity may be sought
against any member of the Calpine Group. In the event of any Claim or Proceeding
relating to Taxes, Buyer, Calpine and Sellers shall cooperate in such matters in
the same manner as other legal matters in accordance with Section 19.7.
12.5.2 Buyer, Calpine and Sellers agree, upon request, to use, or
cause to be used, commercially reasonable efforts to obtain any certificate or
other document from any Governmental Body or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including but not limited to, with respect to the transactions contemplated
hereby).
ARTICLE 13
SUSPENSE FUNDS HELD BY SELLER
13.1 Suspense Funds Held By Seller. BUYER HAS PRIOR TO THE DATE OF THIS
AGREEMENT OBTAINED A LIST OF ALL PROCEEDS FROM PRODUCTION ATTRIBUTABLE TO THE
PROPERTIES THAT ARE CURRENTLY HELD IN SUSPENSE WHICH ARE OWING TO THIRD PARTY
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OWNERS OF ROYALTY, OVERRIDING ROYALTY, WORKING OR OTHER INTERESTS IN RESPECT OF
PAST PRODUCTION OF OIL, GAS OR OTHER HYDROCARBONS ATTRIBUTABLE TO THE
PROPERTIES. AT THE CLOSING, THE SUBJECT COMPANIES SHALL HAVE CONTROL OF ALL SUCH
SUSPENDED PROCEEDS ("BUYER'S SUSPENSE ACCOUNTS"). UPON CLOSING, BUYER AND THE
SUBJECT COMPANIES SHALL ADMINISTER ALL SUCH ACCOUNTS AND ASSUME ALL PAYMENT
OBLIGATIONS RELATING TO THE SUSPENSE FUNDS IN ACCORDANCE WITH ALL APPLICABLE
LAWS AND SHALL BE LIABLE FOR THE PAYMENT THEREOF TO THE PROPER PARTIES.
ARTICLE 14
CLOSING
14.1 The Closing. The closing of the purchase and sale of the Subject
Equity pursuant to this Agreement ("Closing") shall be held at the offices of
Thompson & Knight LLP, 333 Clay St., Suite 3300, Houston, Texas at 10:00 a.m. on
July 7, 2005 or such date as may be mutually agreed by the Parties (the "Closing
Date"), provided that the Closing shall not occur until the closing of the
transactions contemplated in the Transfer Agreement.
14.2 Closing Statement. Sellers shall provide Buyer with a closing
statement reflecting its good faith estimation of the Purchase Price and
allocations between the Sellers, as adjusted pursuant to Article 4 (the
"Preliminary Purchase Price"), prior to the Closing.
14.3 Closing Deliveries. At Closing the following events shall occur, each
event under the control of a Party hereto being a condition precedent to the
events under the control of the other Party, and each event being deemed to have
occurred simultaneously with the other events:
14.3.1 Buyer shall deliver via wire transfer to an account specified
by Sellers, in immediately available funds, the Preliminary Purchase Price;
14.3.2 Each of Sellers shall execute, acknowledge, and deliver to
Buyer, and Buyer shall accept by execution, an Assignment of Membership
Interest, or Assignment of Partnership Interest, as applicable, of all the
right, title, and interest of that Seller in and to the Membership Interest or
Partnership Interest of that Seller substantially in the form of Exhibit G
(collectively, the "Assignments");
14.3.3 The Parties shall execute and deliver the Transition Services
Agreement;
14.3.4 Calpine and Buyer shall execute and deliver the Employee
Matters Agreement;
14.3.5 Calpine and Sellers shall have obtain and deliver the releases
of Liens described in Section 10.5; and
14.3.6 Each Party shall execute, acknowledge and deliver, or shall
cause to be executed, acknowledged, and delivered, division orders, transfer
orders or letters in lieu thereof directing all purchasers of production from
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the Properties to make payment of proceeds attributable to such production
occurring on or after the Effective Date to Buyer or the Subject Companies, or
designated by Buyer.
ARTICLE 15
POST-CLOSING ADJUSTMENTS
15.1 Final Settlement Statement. After the Closing Date, Buyer shall
prepare, in accordance with this Agreement, a statement ("Final Settlement
Statement"), a copy of which shall be delivered to Calpine and Sellers no later
than ninety (90) days after the Closing Date, setting forth each adjustment to
the Purchase Price necessary to determine the Purchase Price and showing the
calculation of such adjustments in accordance with Article 4. Calpine and
Sellers shall have thirty (30) days after receipt of the Final Settlement
Statement to review such statement and to provide written notice to Buyer of
Calpine's or Sellers' objection to any item on the statement. In reviewing the
Final Settlement Statement, Calpine and Sellers will have the right to
communicate with, and to review the work papers, schedules, memoranda and other
documents Buyer has prepared or reviewed in creating the Final Settlement
Statement and thereafter will have access to all relevant books and records, all
to the extent Calpine or Sellers reasonably require to complete their review of
the Final Settlement Statement. Sellers' notice shall clearly identify the
item(s) objected to and the reasons and support for the objection(s). If Calpine
or Sellers do not provide written objection(s) within the thirty (30) day
period, the Final Settlement Statement shall be deemed correct and shall not be
subject to further adjustment. If Calpine or Sellers provide written
objection(s) within the thirty (30) day period, the Final Settlement Statement
shall be deemed correct with respect to the items not objected to. Buyer,
Calpine and Sellers shall meet to negotiate and resolve the objections within
thirty (30) days of Buyer's receipt of Calpine's or Sellers' objections. If the
Parties agree on all objections, the adjusted Final Settlement Statement shall
be deemed correct and shall not be subject to further adjustment. Any items not
agreed to at the end of the thirty (30) day period may, upon any Party's written
request, be resolved by arbitration in accordance with Section 15.2.
15.2 Arbitration. If the Parties cannot agree upon the Final Settlement
Statement, the dispute shall be promptly submitted to a mutually agreeable
third-party accountant, which shall act as an arbitrator and promptly decide all
points of disagreement with respect to the Final Settlement Statement. The
decision of such arbitrator on all such points shall be final and binding upon
the Parties and shall be enforceable against any Party in any court of competent
jurisdiction. The costs and expenses of the such arbitrator shall be borne fifty
percent (50%) by Sellers and fifty percent (50%) by Buyer.
15.3 Payment of Final Purchase Price. If the Purchase Price shown on the
Final Settlement Statement is more than the Preliminary Purchase Price, Buyer
shall pay such difference to Sellers in immediately available funds within five
(5) Business Days after the Final Settlement Statement has been agreed by the
Parties or decided by the arbitrator, as applicable. If the Purchase Price shown
on the Final Settlement Statement is less than the Preliminary Purchase Price,
Calpine shall cause Sellers to pay such difference to Buyer in immediately
available funds within five (5) Business Days after the Final Settlement
Statement has been agreed by the Parties or decided by the arbitrator, as
applicable.
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ARTICLE 16
INDEMNIFICATION; RELEASES; ALLOCATION OF RISK
16.1 Calpine and Sellers' Indemnity.
16.1.1 After Closing and subject to the provisions of this Section
16.1, Calpine and each Seller shall jointly and severally indemnify, defend, and
hold harmless each member of the Buyer Group from and against any and all Losses
suffered by such member of the Buyer Group arising from or relating to (without
duplication):
16.1.1.1 the failure of any member of the Calpine Group to pay,
perform or otherwise promptly discharge any of the Sellers' Retained Liabilities
in accordance with their respective terms;
16.1.1.2 ownership or operation of the Calpine Business or any
Liability of any member of the Calpine Group, other than the Buyer's
Liabilities;
16.1.1.3 any breach (subject to any applicable limitations or
rights to cure that are set forth in this Agreement or the Ancillary Agreements)
by any member of the Calpine Group of any provision of this Agreement or any
Ancillary Agreement; and
16.1.1.4 any untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, with respect to information that relates to
any member of the Calpine Group but not related to Buyer's Business, the
Properties or the Non-Consent Properties, and that is provided by any member of
the Calpine Group to Buyer for inclusion in any offering documents, prospectus
or registration statement used by Buyer in connection with raising the funds
necessary to consummate the transactions pursuant to this Agreement or any
subsequent sale of the equity issued by Buyer in connection therewith.
SUCH INDEMNIFICATION BY CALPINE AND SELLERS SHALL INCLUDE ANY LOSSES ARISING IN
WHOLE OR IN PART FROM THE SOLE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF
ANY MEMBER OF THE BUYER GROUP. WITH REGARD TO SELLERS' RETAINED LIABILITIES AND
OWNERSHIP OR OPERATION OF THE CALPINE BUSINESS (OTHER THAN BUYER LIABILITIES),
CALPINE AND EACH SELLER HEREIN RELEASES EACH MEMBER OF THE BUYER GROUP FROM AND
AGAINST ANY AND ALL CLAIMS FOR CONTRIBUTION UNDER CERCLA AND/OR ANY OTHER
PRESENT OR FUTURE ENVIRONMENTAL LAW.
16.1.2 Notwithstanding the above, no member of the Buyer Group shall
have any right to bring any claim for indemnification pursuant to this Section
16.1, and neither Calpine nor any of Sellers shall have any obligation to make
any payment as indemnification hereunder:
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16.1.2.1 with regard to any Losses covered by Section 16.1.1,
unless the amount to be recovered with respect to any individual item or group
of related items of Loss is reasonably expected to exceed $50,000 (provided that
any Losses relating to matters under Section 16.1.1.3 or 16.1.1.4 that cannot be
recovered because of this restriction shall be considered in the determination
of the amount in Section 16.1.2.2);
16.1.2.2 with regard to any Losses covered by Section 16.1.1.3 or
16.1.1.4, until such time as the Losses relating thereto shall exceed, in the
aggregate, $10,000,000; and
16.1.2.3 with regard to any Losses covered by Section 16.1.1.3 or
16.1.1.4, in no event shall Calpine or any of Sellers be liable for any amounts
hereunder once asserted and paid Losses paid by Calpine and Sellers (either
collectively or individually) aggregate $100,000,000.
16.2 Survival of Representations and Warranties. Notwithstanding anything
to the contrary contained herein, the representations, warranties made by
Calpine, Sellers and Buyer in this Agreement shall not survive the Closing Date
and shall not be actionable thereafter, except:
16.2.1 the representations of Calpine and Sellers in Section 5.9
(Subject Equity) shall survive until 30 days after the date on which the
statutes of limitation applicable to such matters expire and shall not be
actionable thereafter;
16.2.2 the representations of Calpine and Sellers in Section 5.15 (Tax
Partnerships) shall survive until 30 days after the date on which the statutes
of limitation applicable to such matters expire and shall not be actionable
thereafter; and
16.2.3 the representations and warranties of Calpine and Sellers in
Sections 5.1 (Organization), 5.2 (Authority), and 5.4 (Enforceability) shall
survive for one year following the Closing Date and shall not be actionable
thereafter;
16.2.4 the representations and warranties of Calpine and Sellers in
Sections 5.3 (No Conflict) and 5.16 (Solvency) shall survive for two years
following the Closing Date and shall not be actionable thereafter;
16.2.5 the representations and warranties of Buyer in Sections 6.1
(Organization), 6.2 (Authority), and 6.4 (Enforceability) shall survive for one
year following the Closing Date and shall not be actionable thereafter; and
16.2.6 the representations and warranties of Buyer in Section 6.3 (No
Conflict) shall survive for two years following the Closing Date and shall not
be actionable thereafter.
16.3 Buyer's Indemnity.
16.3.1 Except to the extent of Sellers' Retained Liabilities, after
Closing, Buyer shall indemnify, defend and hold harmless each member of the
Calpine Group from and against any and all Losses suffered by such member of the
Calpine Group arising from or relating to (without duplication):
16.3.1.1 the failure of any member of the Buyer Group or any
other Person to pay, perform or otherwise promptly discharge any Buyer
Liabilities in accordance with their respective terms;
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16.3.1.2 the ownership or operation of the Subject Companies on
and after the Closing Date;
16.3.1.3 any breach (subject to any applicable limitations or
rights to cure that are set forth in this Agreement or the Ancillary Agreements)
by any member of the Buyer Group of any provision of this Agreement or any
Ancillary Agreement; and
16.3.1.4 any untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, with respect to all information (other than
the information specifically addressed by Section 16.1.1.4) contained in any
offering documents, prospectus or registration statement used by Buyer in
connection with raising the funds necessary to consummate the transactions
pursuant to this Agreement or any subsequent sale of the equity issued by Buyer
in connection therewith.
SUCH INDEMNIFICATION BY BUYER SHALL INCLUDE ANY LOSSES ARISING IN WHOLE OR IN
PART FROM THE SOLE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY MEMBER OF
THE CALPINE GROUP. WITH REGARD TO BUYER LIABILITIES AND OWNERSHIP OR OPERATION
OF THE BUYER BUSINESS, BUYER HEREIN RELEASES EACH MEMBER OF THE CALPINE GROUP
FROM AND AGAINST ANY AND ALL CLAIMS FOR CONTRIBUTION UNDER CERCLA AND/OR ANY
OTHER PRESENT OR FUTURE ENVIRONMENTAL LAW.
16.3.2 Notwithstanding the above, no member of the Calpine Group shall
have any right to bring any claim for indemnification pursuant to this Section
16.3, and Buyer shall not have any obligation to make any payment as
indemnification hereunder:
16.3.2.1 with regard to any Losses covered by Section 16.3.1,
unless the amount to Loss is reasonably expected to exceed $50,000 (provided
that any Losses relating to matters under Section 16.3.1.3 or 16.3.1.4 that
cannot be recovered because of this restriction shall be considered in the
determination of the amount in Section 16.3.2.2); and
16.3.2.2 with regard to any matter covered by Section 16.3.1.3 or
16.3.1.4, until such time as Losses relating thereto shall exceed, in the
aggregate, $10,000,000.
16.4 Assumption by Buyer. Except to the extent of Sellers' Retained
Liabilities, effective at Closing, Buyer herein assumes and agrees to fully and
timely pay, perform, and discharge in accordance with their terms, all the Buyer
Liabilities.
16.5 Limitations of Warranties. Notwithstanding anything in this Agreement
to the contrary herein or otherwise, Buyer understands that the Properties were
conveyed to and are held by the Subject Companies without recourse, covenant, or
warranty of any kind, express, implied, or statutory from any member of the
Calpine Group, and that no member of the Calpine Group is providing any warranty
to Buyer (and have not made any warranty to any of the Subject Companies) with
respect to the Properties, except (i) to the extent of Sellers' Retained
Liabilities and as otherwise contemplated by Section 16.1 and (ii) that Sellers
hereby warrant title to the Net Revenue Interests and Working Interests in the
Properties as set forth in Exhibit C (but excluding that portion of the net
revenue and working interest set forth on Exhibit C-1 for those wells identified
29
as "Non-Consent" on Exhibit C-1), subject to the Permitted Encumbrances, against
every Person whomsoever lawfully claiming or to claim the same or any part
thereof by, through, or under Sellers, but not otherwise. WITHOUT LIMITATION OF
THE GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE, EXCEPT TO THE EXTENT OF
SELLERS' RETAINED LIABILITIES AND AS OTHERWISE CONTEMPLATED IN SECTION 16.1, THE
PROPERTIES SHALL BE ASSIGNED OR CONVEYED AS-IS, WHERE-IS AND WITH ALL FAULTS AND
CALPINE AND SELLERS EXPRESSLY DISCLAIM AND NEGATE ANY IMPLIED OR EXPRESS
WARRANTY OF (A) MERCHANTABILITY, (B) FITNESS FOR A PARTICULAR PURPOSE, (C)
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS AND (D) FREEDOM FROM REDHIBITORY
VICES OR DEFECTS. CALPINE AND SELLERS ALSO EXPRESSLY DISCLAIM AND NEGATE ANY
IMPLIED OR EXPRESS WARRANTY AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO
THE ACCURACY OF ANY OF THE INFORMATION FURNISHED WITH RESPECT TO THE EXISTENCE
OR EXTENT OF RESERVES OR THE VALUE OF THE PROPERTIES BASED THEREON OR THE
CONDITION OR STATE OF REPAIR OF ANY OF THE PROPERTIES; THIS DISCLAIMER AND
DENIAL OF WARRANTY ALSO EXTENDS TO THE EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY AS TO THE PRICES ANY MEMBER OF THE BUYER GROUP OR ANY MEMBER OF THE
CALPINE GROUP IS OR WILL BE ENTITLED TO RECEIVE FROM PRODUCTION OF HYDROCARBONS
FROM THE PROPERTIES, IT BEING UNDERSTOOD THAT ALL RESERVE, PRICE AND VALUE
ESTIMATES UPON WHICH BUYER HAS RELIED OR IS RELYING HAVE BEEN DERIVED BY THE
INDIVIDUAL EVALUATION OF BUYER. BUYER (FOR ITSELF AND EACH MEMBER OF THE BUYER
GROUP) HEREIN WAIVES ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH
RESPECT TO THE ACCURACY, COMPLETENESS OR MATERIALITY OF THE INFORMATION,
REPORTS, PROJECTIONS, MATERIALS, RECORDS, AND DATA NOW, HERETOFORE, OR HEREAFTER
FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THE PROPERTIES OR THIS
AGREEMENT (INCLUDING ANY DESCRIPTION OF THE PROPERTIES, WORKING INTERESTS OR NET
REVENUE INTERESTS, QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY),
PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, PRICING
ASSUMPTIONS, ABILITY OR POTENTIAL FOR PRODUCTION OF HYDROCARBONS FROM THE
LEASES, ENVIRONMENTAL CONDITION OF THE PROPERTIES, OR ANY OTHER MATTERS
CONTAINED IN ANY OTHER MATERIAL FURNISHED OR MADE AVAILABLE TO BUYER BY ANY
MEMBER OF THE CALPINE GROUP OR BY THEIR AGENTS OR REPRESENTATIVES). ANY AND ALL
SUCH INFORMATION, REPORTS, PROJECTIONS, MATERIALS, RECORDS, AND DATA NOW,
HERETOFORE OR HEREAFTER FURNISHED BY ANY MEMBER OF THE CALPINE GROUP IS PROVIDED
AS A CONVENIENCE ONLY AND ANY RELIANCE ON OR USE OF SAME IS AT BUYER'S SOLE
RISK. WITH RESPECT TO THE EASEMENTS, CALPINE AND SELLERS EXPRESSLY DISCLAIM, AND
BUYER (FOR ITSELF AND EACH MEMBER OF THE BUYER GROUP) HEREIN WAIVES (BUT WITHOUT
PREJUDICE TO ANY MEMBER OF THE BUYER GROUP'S RIGHTS TO ENFORCE ANY SPECIAL
WARRANTY OF TITLE WITH RESPECT THERETO CONTAINED IN ANY ASSIGNMENT OR CONVEYANCE
RELATING TO THE PROPERTIES), ANY WARRANTIES AND REPRESENTATIONS THAT CALPINE OR
30
SELLERS OWN THE EASEMENTS; AND EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5.5,
CALPINE AND SELLERS DISCLAIM ALL WARRANTIES OR REPRESENTATIONS THAT SUCH
EASEMENTS ARE IN FORCE AND EFFECT; THAT THEY MAY BE ASSIGNED; THAT THEY ARE
CONTIGUOUS; THAT THE PIPELINES LIE WITHIN THE EASEMENTS, OR THAT THEY GRANT THE
RIGHT TO LAY, MAINTAIN, REPAIR, REPLACE, OPERATE, CONSTRUCT, OR REMOVE ANY
PIPELINES. If necessary, Buyer shall (or shall cause the respective member of
the Buyer Group to) secure its own rights and Permits to operate and maintain
any pipelines or facilities comprising a portion of the Properties on the land
of others at its own expense. Subject to the provisions of Section 2.3, if any
consents or approvals of third parties, including any Governmental Body, are
required to assign the surface leases, easements, rights-of-way, Permits, or
other agreements with respect to the pipelines or facilities and are not secured
prior to Closing, Buyer shall (or shall cause the respective member of the Buyer
Group to) secure any necessary consents to assign and approvals at its own
expense; provided, however, that Calpine and Sellers shall provide such
assistance to Buyer to secure the consents and approvals as may reasonably be
required. THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE FACE OF THIS AGREEMENT
AND THE ANCILLARY AGREEMENTS. BUYER ACKNOWLEDGES THAT THIS WAIVER IS
CONSPICUOUS.
16.6 Release of Pre-Closing Claims.
16.6.1 Except as provided in Section 16.6.3, effective as of the
Closing Date, Calpine does hereby, for itself and each other member of the
Calpine Group, and their successors and assigns, remise, release and forever
discharge each member of the Buyer Group and their successors and assigns, from
any and all Liabilities whatsoever which are known, actually or otherwise, on
the date hereof to any member of the Calpine Group (which knowledge shall not
include the knowledge, actual or otherwise, of any individual who is an employee
of any member of the Calpine Group immediately preceding the Closing Date and
who becomes an employee of any member of the Buyer Group on or within ninety
(90) days after the Closing Date), whether at law or in equity (including any
right of contribution), whether arising under any contract or agreement, by
operation of law or otherwise, existing or arising from any acts or events
occurring or failing to occur, or alleged to have occurred or to have failed to
occur, or any conditions existing or alleged to have existed on or before the
date hereof.
16.6.2 Except as provided in Section 16.6.3, effective as of the
Closing Date, Buyer does hereby, for itself and each other member of the Buyer
Group, their respective successors and assigns, remise, release and forever
discharge each member of the Calpine Group, and their respective successors and
assigns, from any and all Liabilities whatsoever which are known, actually or
otherwise, on the date hereof to any member of the Buyer Group (which knowledge
shall include the knowledge, actual or otherwise, of any individual who is an
employee of any member of the Calpine Group immediately preceding the Closing
Date and who becomes an employee of any member of the Buyer Group on or within
ninety (90) days after the Closing Date), whether at law or in equity (including
any right of contribution), whether arising under any contract or agreement, by
operation of law or otherwise, existing or arising from any acts or events
occurring or failing to occur, or alleged to have occurred or to have failed to
occur, or any conditions existing or alleged to have existed on or before the
date hereof.
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16.6.3 Nothing contained in Section 16.6.1 or 16.6.2 shall impair any
right of any Person to enforce this Agreement, any Ancillary Agreement or any
agreements, arrangements, commitments or understandings that are specified in
this Agreement or in any Ancillary Agreement. Nothing contained in Section
16.6.1 or 16.6.2 shall release any Person from:
(i) any Liability retained or assumed by, or transferred,
assigned or allocated among the members of the Calpine Group or Buyer Group
in accordance with this Agreement or any Ancillary Agreement;
(ii) any Liability for or related to the sale, lease,
construction or receipt of goods, property or services purchased, obtained
or used by a member of the Calpine Group or Buyer Group from a member of
the other group in the ordinary course of business;
(iii) any Liability that the Parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the Parties, any other member of such Party's respective
Group and their respective Affiliates (except for any member of such other
Party's Group) by third Persons, which Liability shall be governed by the
provisions of this Article 16 and, if applicable, the appropriate
provisions of the Ancillary Agreements;
(iv) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this Section
16.6; provided that the Parties agree not to bring suit or permit any
members of their respective Group to bring suit against any Party, any
other member of such Party's respective Group and their respective
Affiliates with respect to any Liability to the extent that such Person
would be released with respect to such Liability by this Section 16.6.3 but
for the provisions of this clause (iv); or
(v) any Liability resulting from the actual fraud of such Person
or its Affiliate.
16.6.4 Calpine shall not make, and shall not permit any member of the
Calpine Group to make, any claim or demand, or commence any action asserting any
claim or demand, including any claim of contribution or any indemnification,
against any member of the Buyer Group, or any other Person released pursuant to
Section 16.6.1, with respect to any Liabilities released pursuant to Section
16.6.1. Buyer shall not make, and shall not permit any member of the Buyer Group
to make, any claim or demand, or commence any action asserting any claim or
demand, including any claim of contribution or any indemnification, against any
member of the Calpine Group, or any other Person released pursuant to Section
16.6.2, with respect to any Liabilities released pursuant to Section 16.6.2.
16.6.5 Except as expressly set forth in Section 16.6.3, each Party
intends through this Section 16.6 to provide for a full and complete release and
discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur, or alleged to have occurred or to have failed to
occur, and all conditions existing or alleged to have existed on or before the
date hereof, between or among any member of the Calpine Group, on the one hand,
32
and any member of the Buyer Group, on the other hand (including any contractual
agreements or arrangements existing or alleged to exist between or among any
such members on or before the date hereof). At the reasonable request of any
other Party, each Party shall cause each member of its respective Group to
execute and deliver releases reflecting the provisions hereof
16.6.6 Buyer, Sellers and Calpine each acknowledge that they have been
advised by their legal counsel and are familiar with the provisions of
California Section 1542, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR
HER SETTLEMENT WITH DEBTOR." EACH OF BUYER, SELLERS AND CALPINE BEING AWARE
OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE
THEREUNDER AS WELL AS UNDER ANY OTHER STATUTE OR COMMON LAW PRINCIPLE OF
SIMILAR EFFECT.
Buyer's Initials Calpine's Initials
---------------- ------------------
Sellers' Initials
-----------------
-----------------
-----------------
16.7 Gas Balancing. The Parties recognize that as of the Effective Date
there are over and under imbalances with respect to gas production or processing
attributable to the Properties and herein agree that the Properties acquired by
Buyer at Closing will be conveyed at Closing specifically subject to such
imbalances, with Buyer bearing and assuming all obligations with respect to any
overproduction account or liability associated with the Properties and receiving
the benefit of and being credited with any underproduction account or credit
existing as of the Effective Date with respect to the Properties. From and after
the Closing, Buyer shall indemnify, defend and hold harmless each member of the
Calpine Group, their respective successors and assigns, and their respective
Affiliates, directors, officers, equity holders and partners, as appropriate,
from all Claims or Losses arising from such overproduction accounts and
liabilities.
16.8 Acknowledgement by the Parties. Each of the Parties by its execution
and delivery of this Agreement does hereby acknowledge and agree that (i) any
claims or Losses that it may have pursuant to the terms of the Transfer
Agreement are hereby subject to the caps, baskets and limits set forth in this
Agreement, including the provisions of this Article 16, and (ii) the sole and
exclusive remedy for any claims or Losses arising out of or relating to the
Transfer Agreement are provided for in this Agreement except for any Losses
arising from or relating to the special warranty of title contained in the
conveyance as set forth in Exhibit C to the Transfer Agreement. In the event of
any conflict between the provisions of this Agreement and the Transfer
Agreement, this Agreement shall control.
33
ARTICLE 17
RISK OF LOSS
17.1 Casualty Loss. If, after the date hereof and prior to the Closing any
material portion of the Properties owned by the Subject Companies (or
transferable thereto pursuant to the Transfer Agreement) shall be substantially
damaged or destroyed by fire or other casualty, or if any material portion of
such Properties shall be taken by condemnation or the exercise of eminent domain
(in either case, a "Casualty Loss"), Buyer shall be entitled to any applicable
insurance proceeds or condemnation awards and an adjustment to the Purchase
Price based upon the allocated value of the Property destroyed or harmed, to the
extent such loss is not covered by insurance or condemnation award.
17.2 Buyer's Risk of Loss. Except as specifically provided in Section 17.1
with respect to any Casualty Loss, Buyer shall assume all risk of loss with
respect to any change in condition of the Properties owned by Calpine, Sellers
or the Subject Companies (or transferable pursuant to the Transfer Agreement)
from the Effective Date and neither Calpine nor any Sellers shall have any
liability, as operator of the Properties or otherwise, for losses or damages
sustained with respect to the condition of the Properties or their ability to
produce Hydrocarbons.
ARTICLE 18
TERMINATION AND REMEDIES
18.1 Termination. This Agreement may be terminated as provided below.
18.1.1 The Parties may terminate this Agreement by mutual written
consent at any time prior to the Closing Date.
18.1.2 If the transactions contemplated herein do not close on or
before July 7, 2005, any Party may terminate this Agreement by delivery of
written notice to the other Parties; provided, however, that no Party may
terminate this Agreement pursuant to this Section 18.1.2 if such Party's failure
to comply with its obligations under this Agreement caused the Closing not to
occur on or before July 7, 2005.
18.1.3 Buyer may terminate this Agreement by delivery of written
notice to Calpine and Sellers at any time prior to the Closing Date if, as of
the Closing Date, Calpine or any Seller has breached any representation,
warranty or covenant in this Agreement in any material respect and Calpine or
any Seller has failed to cure such breach within a reasonable time period after
receiving written notice of such breach.
18.1.4 Calpine or Sellers may terminate this Agreement by delivery of
written notice to Buyer at any time prior to the Closing Date if Buyer has
breached any representation, warranty or covenant in this Agreement in any
material respect and Buyer has failed to cure such breach within a reasonable
time period after receiving written notice of such breach.
18.2 Effect of Termination. Each Party's right of termination under Section
18.1 is in addition to any other rights it may have under this Agreement or
34
otherwise, and the exercise of such right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 18.1, all
obligations of the Parties under this Agreement will terminate.
ARTICLE 19
ADDITIONAL COVENANTS
19.1 Further Assurances. After the Closing, the Parties shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action as may be necessary or advisable to carry
out their respective obligations under this Agreement and under any exhibit,
document, certificate or other instrument delivered pursuant hereto. Calpine and
Sellers shall use commercially reasonable efforts to cooperate with Buyer's
efforts to obtain all approvals and consents required by or necessary for the
transactions contemplated in this Agreement that are customarily obtained after
Closing. Without limiting the foregoing, the Parties shall use all commercially
reasonable efforts to cooperate with one another in the prosecution, defense
and/or settlement of the claims and litigation matters, including those matters
set forth on Schedule 5.6, which relate to or arise in connection with the oil
and gas business of any member of the Calpine Group or the Buyer Group.
19.2 Transfer of Records. Within thirty (30) days after Closing, Calpine
and each Seller shall deliver to Buyer, at Calpine or Sellers' address, or at
such other place as any of same may be kept, the originals of all Records,
except that Calpine and each Seller may retain (a) the originals of all Records
which are related to the Excluded Properties, in which case Calpine or such
Seller shall deliver duplicate copies of any such retained originals to Buyer;
and (b) the originals of all accounting Records, in which case Calpine or such
Seller shall deliver duplicate copies of any such retained originals which
relate to the Properties to Buyer; provided that Calpine and Sellers shall
deliver the originals of all Records relating to Cured Non-Consent Properties
when such properties are transferred to Buyer in accordance with Section 2.3.
For a period of four (4) years after the date of Closing, Buyer will retain the
Records delivered to it pursuant hereto and will make such Records available to
Calpine or any Seller upon reasonable notice at Buyer's headquarters at
reasonable times and during office hours. Without limiting the generality of the
foregoing, Buyer, Calpine and Sellers shall retain, until the applicable
statutes of limitations (including all extensions) have expired, copies of all
Tax returns, supporting workpapers, and other books and records or information
which may be relevant to such returns for all Tax periods or portions thereof
ending before or including the Closing Date, and shall not destroy or dispose of
such records or information without first providing the other party with a
reasonable opportunity to review and copy the same. Buyer shall notify Calpine
and each Seller in writing within thirty (30) days of the sale to a Third Party
of all or any part of the Properties which involves the transfer of any of the
Records of the name and address of the buyer(s) in any such sale. Buyer shall
require as part of any such sales transaction that such Third Party assume the
obligations imposed on Buyer in this Section 19.2.
19.3 Use of Sellers' Name. Buyer agrees that, as soon as practicable after
the Closing, but in no event more than one hundred twenty (120) days thereafter,
it will remove or cause to be removed the names and marks "Calpine Corporation,"
"Calpine Fuels Corporation," and all variations and derivatives thereof and
logos relating thereto from the Properties of which it has assumed operations,
it will cause CNGLP, Calpine Natural Gas GP, LLC and Calpine Natural Gas
Holdings, LLC to be changed to remove the name "Calpine", and will not
35
thereafter make any use whatsoever of such names, marks and logos except with
the express written consent of Calpine.
19.4 Expenses, Fees and Taxes. Calpine shall pay all fees and expenses
incident to the negotiation and preparation of this Agreement including those of
Thompson & Knight LLP and Covington & Burling and consummation of the
transactions contemplated herein; provided that Buyer shall be responsible for
the cost of all fees for the recording of transfer documents, obtaining all
bonds for the operation of the properties, and all other costs and expenses
relating to the operation of the Properties after the Effective Date.
Notwithstanding anything to the contrary herein, it is acknowledged and agreed
by and between Calpine and Sellers, on the one hand, and Buyer, on the other
hand, that the Purchase Price excludes any sales taxes in connection with the
sale of property or assets pursuant to this Agreement. If a determination is
ever made that a sales tax or other transfer tax applies, Buyer shall be liable
for such Tax as well as any applicable conveyance, transfer and recording fees,
and real estate transfer stamps or Taxes imposed on any transfer of property
pursuant to this Agreement. Buyer shall indemnify, defend, and hold harmless
Calpine and Sellers with respect to the payment of any of such Taxes, including
any interest or penalties assessed thereon. The indemnity, defense, and hold
harmless obligation contained in the preceding sentence shall survive the
Closing. To the extent permitted by Applicable Law, the Parties agree to
reasonably cooperate with each other to complete any and all exemption
certificates or other documents that exempt any of the Purchase Price from any
of such Taxes before either the Closing or the due date for such Tax.
19.5 Public Announcements. The Parties agree that prior to making any
public announcement or statement with respect to the transactions contemplated
by this Agreement, the Party desiring to make such public announcement or
statement shall consult with the other Parties hereto and endeavor in good faith
to obtain approval of the other Parties hereto to the text of a public
announcement or statement to be made solely by Sellers, on the one hand, or
Buyer, on the other, as the case may be; provided, however, if Calpine and
Sellers, on the one hand, or Buyer, on the other is required by any Applicable
Law or the rules of the New York Stock Exchange (or any other applicable
securities exchange) to make such public announcement or statement, then the
same may be made without the approval of any of the other Parties.
19.6 Confidentiality. The Parties shall hold and shall each cause their
respective affiliates, officers, employees, agents, consultants and advisors to
hold, in strict confidence and not to disclose or release without the prior
written consent of the other Party, any and all Confidential Information (as
defined herein); provided, that the Parties may disclose, or may permit
disclosure of, Confidential Information (i) to their respective auditors,
attorneys, financial advisors, bankers and other appropriate consultants and
advisors who have a need to know such information or (ii) to the extent any of
the Parties is compelled to disclose any such Confidential Information by
judicial or administrative process or, in the opinion of legal counsel, by other
requirements of Applicable Law. Notwithstanding the foregoing, if any demand or
request for disclosure of Confidential Information is made pursuant to clause
(ii) above, each of the Parties shall promptly notify the other of the existence
of such request or demand and shall provide the other a reasonable opportunity
to seek an appropriate protective order or other remedy, which the Parties will
cooperate in seeking to obtain. If such appropriate protective order or other
remedy is not obtained, the Party whose Confidential Information is required to
36
be disclosed shall furnish, or shall cause the other Parties to furnish, or
cause to be furnished, only that portion of the Confidential Information that is
legally required to be disclosed. As used in this Section 19.6, "Confidential
Information" means all proprietary, technical or operational information, data
or material of one Party that, prior to or following the Closing Date, has been
disclosed by one Party to another, in written, oral (including by recording),
electronic, or visual form to, or otherwise has come into the possession of, the
other, including pursuant to the access provisions of this Agreement (except to
the extent that such Confidential Information can be shown to have been (a) in
the public domain through no fault of such Party or (b) later lawfully acquired
from other sources by the Party to which it was furnished; provided, however, in
the case of (b) that, to the knowledge of such Party, such sources did not
provide such Confidential Information in breach of any confidentiality
obligations). "Confidential Information" shall include for Buyer's benefit, all
confidential information related to the Buyer Business and the Properties that
Sellers may transfer to Buyer pursuant to this Agreement and the Ancillary
Agreements. Notwithstanding anything to the contrary set forth herein, the
Parties shall be deemed to have satisfied their obligations hereunder with
respect to Confidential Information if they exercise the same degree of care
(but no less than a reasonable degree of care) as they take to preserve
confidentiality for their own similar information.
19.7 Cooperation on Legal Matters; Preservation of Legal Privileges.
19.7.1 The provisions of Exhibit H shall apply to any Claims
("Indemnified Claims"), whether presently or hereafter asserted, for which any
Party or Parties (collectively the "Indemnitor") is obligated to indemnify
another Party or Parties (collectively the "Indemnitee"). For purposes of the
application of the provisions of Exhibit H to the Indemnified Claims, (a) Claims
as used therein, shall mean Indemnified Claims as defined in this Section 19.7,
(b) "Indemnitor" as used therein, shall mean Indemnitor as defined in this
Section, (c) "Indemnitee", as used therein, shall mean Indemnitee as defined in
this Section, (d) "Party Representative" as used therein shall mean, as to each
Party, the person that such Party shall designate from time to time as its
representative by written notice to the other Parties, (e) "Effective Date," as
used therein, shall mean the Closing Date as defined in this Agreement and (f)
"Law firm" shall mean the reputable attorneys selected and retained by
Indemnitor to defend the Indemnified Claims. If a Proceeding is hereafter filed
or instituted in which an Indemnified Claim is asserted against a Party,
Indemnitor and Indemnitee shall, at the request of either, promptly execute a
separate Joint Defense Agreement, which is substantially in the form of Exhibit
H, to memorialize the application of this Section to such Indemnified Claim and
lawsuit.
19.7.2 The Parties recognize that the members of their respective
groups possess and will possess information and advice that has been previously
developed but is legally protected from disclosure under federal and state legal
privileges, such as the attorney-client privilege or work product exemption and
other concepts of legal protection ("Privilege"). Each Party recognizes that
they shall be jointly entitled to the Privilege with respect to such privileged
information and that each shall be entitled to maintain and use for its own
benefit all such information and advice, but both Parties shall ensure that such
information is maintained so as to protect the Privileges with respect to the
other Party's interest. To that end neither Party will knowingly waive or
compromise any Privilege associated with such information and advice without the
consent of the other Party. If privileged information is required to be
disclosed to any arbitrator or mediator in connection with a dispute between the
Parties, such disclosure shall not be deemed a waiver of Privilege with respect
37
to such information, and any Party receiving it in connection with a Proceeding
shall be informed of its nature and shall be required to safeguard and protect
it.
ARTICLE 20
ARBITRATION
The Parties expressly agree that, except as elsewhere provided in this
Agreement, any and all disputes or claims by any Party arising from or related
to this Agreement that cannot be amicably settled shall be determined solely and
exclusively by arbitration in accordance with the CPR Institute for Dispute
Resolution ("CPR") Rules for Non-Administered Arbitration ("Rules") or any
successor thereof when not in conflict with such Rules.
20.1 Arbitrators, Timing, Discovery, Finality of Determination. Disputes
arising hereunder that are not resolved within five (5) Business Days shall be
referred to each Party Representative (or other designated senior
representatives of the Parties). If the Party Representatives are unable to
solve the dispute within twenty (20) days after initial referral, the dispute
may be submitted by request of either Party to binding arbitration. Arbitration
shall take place at an appointed time and place in Houston, Texas. Calpine and
Sellers (collectively) and Buyer shall each select one impartial arbitrator, and
the two arbitrators so designated shall select a third impartial arbitrator. If
any Party shall fail to designate an arbitrator within fourteen (14) days after
arbitration is requested, or if the two arbitrators shall fail to select a third
arbitrator within thirty (30) days after arbitration is requested, then an
arbitrator shall be selected by CPR. Judgment upon an award of the majority of
the arbitrators shall be binding, it being understood and agreed that in no
event may the arbitrators award punitive damages. Discovery shall be made
pursuant to the Rules and completed within one hundred and twenty (120) days of
selection of the third arbitrator. Final hearing on the matter shall be had
within one hundred sixty-five (165) days of the selection of the third
arbitrator and a final decision (which may include the award of attorney's fees
and costs) with a written opinion stating the reasons therefor shall be rendered
within two hundred ten (210) days of said date. Should any time deadlines in
Section 20.1 conflict with those set forth in the Rules, the deadlines in
Section 20.1 shall take precedence, to the greatest extent possible. The
decision of the arbitrators, or the majority thereof, made in writing shall be
final and binding upon the parties hereto as to the questions submitted, shall
be enforceable against any Party in any court of competent jurisdiction, and
Buyer and Sellers will abide by and comply with such decision. The expenses of
arbitration, including reasonable compensation to the arbitrators, shall be
borne equally by the parties hereto.
20.2 Confidentiality of Arbitration. The arbitration process shall be kept
confidential and such conduct, statements, promises, offers, views and opinions
shall not be discoverable or admissible in any Proceeding for any purpose,
except to the extent reasonably necessary to enforce the final decision of the
arbitrators.
ARTICLE 21
MISCELLANEOUS
21.1 Notice. All notices required or permitted under this Agreement shall
be in writing and shall be delivered personally or by certified mail, postage
prepaid and return receipt requested or by telecopier as follows:
38
Sellers: Calpine Gas Holdings LLC
50 West San Fernando, Suite 500
San Jose, California 95113
Attention: John King
Telephone: (408) 794-2608
Telecopier: (408) 294-1740
Calpine Fuels Corporation
50 West San Fernando, Suite 500
San Jose, California 95113
Attention: John King
Telephone: (408) 794-2608
Telecopier: (408) 294-1740
Calpine: Calpine Corporation
50 West San Fernando, Suite 500
San Jose, California 95113
Attention: John King,
Senior Vice President-International
Telephone: (408) 794-2608
Telecopier: (408) 294-1740
with a copy (which shall not constitute notice) to:
Calpine Corporation
50 West San Fernando, Suite 500
San Jose, California 95113
Attention: Lisa M. Bodensteiner and
Nancy L. Murray
Telephone: (408) 792-1120
Telecopier: (408) 995-0505
Calpine Corporation
717 Texas, Suite 1000
Houston, Texas 77002
Attention: Nanette J. Crawford
Telephone: (713) 830-2085
Telecopier: (713) 830-8751
Buyer or any of the Subject Companies:
Rosetta Resources Inc.
717 Texas, Suite 2800
Houston, Texas 77002
Attention: B. A. (Bill) Berilgen
Telephone: (713) 335-2400
Telecopier: (713) 651-3056
39
with a copy (which shall not constitute notice) to:
Thompson & Knight LLP
333 Clay, Suite 3300
Houston, Texas 77002
Attention: Dallas Parker or Timothy T. Samson
Telephone: (713) 951-5800
Telecopier: (832) 397-8110
or to such other place within the United State of America as a Party may
designate for itself as to itself by written notice to the other. All notices
given by personal delivery or mail shall be effective on the date of actual
receipt at the appropriate address. Notices given by telecopier shall be
effective upon actual receipt if received during recipient's normal business
hours or at the beginning of the next Business Day after receipt if received
after the recipient's normal business hours. All notices by telecopier shall be
confirmed in writing on the day of transmission by either mailing by postage
prepaid certified mail with return receipt requested, or by personal delivery.
21.2 Governing Law. This Agreement and the obligations of the Parties
hereunder will be governed by and construed in accordance with the laws of the
State of Texas, without giving effect to any choice of law principles thereof.
21.3 Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective permitted successors and
assigns. Notwithstanding the preceding sentence, neither party shall assign this
Agreement or its rights hereunder without the other party's written consent,
which shall not be unreasonably withheld.
21.4 Entire Agreement. This Agreement and the Ancillary Agreements,
together with the Exhibits and Schedules hereto and thereto, and the
certificates, documents, instruments and writings that are delivered pursuant
hereto and thereto, constitutes the entire agreement and understanding of the
Parties in respect of its subject matters and supersedes all prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they relate in any way to the subject matter hereof or
the transactions contemplated herein. Except as contemplated by Article 16,
there are no Third Party beneficiaries having rights under or with respect to
this Agreement, except that any of Buyer's lenders may rely upon Calpine's
representations in Section 5.16.
21.5 Amendment; Waiver. No amendment, modification, replacement,
termination or cancellation of any provision of this Agreement will be valid,
unless the same will be in writing and signed by Buyer, Sellers and Calpine. No
waiver by any Party of any default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, may be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising because of any prior
or subsequent occurrence.
21.6 Severability. The provisions of this Agreement will be deemed
severable and the invalidity or unenforceability of any provision will not
affect the validity or enforceability of the other provisions hereof; provided,
however, that if any provision of this Agreement, as applied to any Party or to
40
any circumstance, is adjudged by a court of competent jurisdiction, arbitrator,
or mediator not to be enforceable in accordance with its terms, the Parties
agree that the court of competent jurisdiction, arbitrator, or mediator making
such determination will have the power to modify the provision in a manner
consistent with its objectives such that it is enforceable, and/or to delete
specific words or phrases, and in its reduced form, such provision will then be
enforceable and will be enforced.
21.7 Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. If an ambiguity or question of intent or
interpretation arises, this Agreement will be construed as if drafted jointly by
the Parties and no presumption or burden of proof will arise favoring or
disfavoring any Party because of the authorship of any provision of this
Agreement. Any reference to any Applicable Law will be deemed also to refer to
such law as amended and all rules and regulations promulgated thereunder, unless
the context requires otherwise. The words "include," "includes" and "including"
will be deemed to be followed by "without limitation." Pronouns in masculine,
feminine, and neuter genders will be construed to include any other gender, and
words in the singular form will be construed to include the plural and vice
versa, unless the context otherwise requires. The words "this Agreement,"
"herein," "hereof," "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof. References herein to
any Section or Article shall be references to a Section or Article of this
Agreement unless the context clearly requires otherwise.
21.8 Headings. The article and section headings contained in this Agreement
are inserted for convenience only and will not affect in any way the meaning or
interpretation of this Agreement.
21.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
[Remainder of page intentionally left blank]
41
Executed as of the date set forth above.
SELLERS:
CALPINE GAS HOLDINGS LLC
By:_________________________________________
Name: John King
Title:______________________________________
CALPINE FUELS CORPORATION
By:_________________________________________
Name: John King
Title:______________________________________
CALPINE:
CALPINE CORPORATION
By:_________________________________________
Name: John King
Title:______________________________________
BUYER:
ROSETTA RESOURCES INC.
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
42
SUBJECT COMPANIES:
ROSETTA RESOURCES CALIFORNIA, LLC
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
ROSETTA RESOURCES OFFSHORE, LLC
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
ROSETTA RESOURCES ROCKIES, LLC
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
ROSETTA RESOURCES TEXAS GP, LLC
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
ROSETTA RESOURCES TEXAS LP, LLC
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
43
ROSETTA RESOURCES TEXAS LP
By: Rosetta Resources Texas GP, LLC, its
general partner
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
CALPINE NATURAL GAS GP, LLC
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
CALPINE NATURAL GAS HOLDINGS, LLC
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
CALPINE NATURAL GAS L.P.
By: Calpine Natural Gas GP, LLC, its
general partner
By:_________________________________________
Name: B.A. (Bill) Berilgen
Title: Chairman of the Board, President and
Chief Executive Officer
44
EXHIBIT A
SUBJECT COMPANIES
Calpine Natural Gas GP, LLC
Calpine Natural Gas Holdings, LLC
Calpine Natural Gas L.P.
Rosetta Resources California, LLC
Rosetta Resources Offshore, LLC
Rosetta Resources Rockies, LLC
Rosetta Resources Texas GP, LLC
Rosetta Resources Texas LP, LLC
Rosetta Resources Texas LP
EXHIBIT 99.1
NEWS RELEASE
CONTACTS: 408-995-5115
Media Relations: Bill Highlander, Ext. 1244
Investor Relations: Karen Bunton, Ext. 1121
Calpine Completes Sale of Its Oil and Gas Properties For $1.05 Billion
(SAN JOSE, Calif.) / PR Newswire-First Call / July 7, 2005 - Calpine
Corporation [NYSE: CPN] announced today that it has completed the sale of all of
its domestic oil and gas exploration and production assets for $1.05 billion,
less approximately $60 million of estimated transaction fees and expenses. With
the completion of this transaction, Calpine expects to record, subsequent to
June 30, 2005, a gain on the sale of assets of approximately $350 million.
The domestic oil and gas properties were sold to Rosetta Resources Inc.
(Rosetta), formerly an indirect, wholly owned subsidiary of Calpine. Rosetta
recently raised $725 million through the issuance of 45,312,500 of its common
shares. Rosetta used the net proceeds from that transaction, together with $325
million of proceeds from a new credit facility, to purchase all of Calpine's
domestic oil and gas exploration and production assets. The purchase price
contemplates payment in full subject to the completion of certain post closing
requirements. With the completion of this transaction, Calpine no longer owns
any interest in Rosetta.
The Rosetta common shares were offered in a private placement under Rule
144A, have not been registered under the Securities Act of 1933, and may not be
offered or sold in the United States absent registration or an applicable
exemption from registration requirements. This news release is issued pursuant
to Rule 135c under the Securities Act and shall not constitute an offer to sell
or the solicitation of an offer to buy. Securities laws applicable to private
placements under Rule 144A limit the extent of information that can be provided
at this time.
A major power company, Calpine Corporation supplies customers and
communities with electricity from clean, efficient, natural gas-fired and
geothermal power plants. Calpine owns, leases and operates integrated systems of
plants in 21 U.S. states, three Canadian provinces and the United Kingdom.
Calpine was founded in 1984. It is included in the S&P 500 Index and is publicly
traded on the New York Stock Exchange under the symbol CPN. For more
information, visit www.calpine.com.