EXHIBIT 10.2
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MASTER TRANSACTION AGREEMENT
by
and among
Calpine Corporation,
a Delaware corporation
as "Calpine"
Calpine Merchant Services Company, Inc.,
a Delaware
corporation
as "CMSC"
and
Calpine Energy Services, L.P.,
a Delaware limited partnership
as "CES"
and
The Bear Stearns Companies Inc.,
a Delaware corporation
as "Bear Stearns"
and
CalBear Energy LP,
a Delaware limited partnership
as "CalBear"
Dated: September 7, 2005
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TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS......................................................................................2
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1.1 Defined
Terms...................................................................................2
1.2
Construction...................................................................................15
ARTICLE II. FORMATION TRANSACTIONS;
EFFECTIVE
DATE.........................................................16
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2.1
Pre-Formation
Transactions.....................................................................16
2.2 Formation
Transactions.........................................................................16
2.3 Effective
Date.................................................................................17
ARTICLE III. RELATIONSHIP OF THE
PARTIES...................................................................17
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3.1 CalBear
Business...............................................................................17
3.2
Exclusivity....................................................................................17
3.3 Certain
Restrictions on Sales by Calpine of Equity Securities and Assets of
CMSC...............18
3.4 Certain Restrictions on Sales by
Bear Stearns of Equity Securities and Assets of
CalBear.......21
3.5 No Joint
Venture or Partnership
Created........................................................24
3.6 Conflicts
of Interest;
Non-Discrimination......................................................25
3.7
Non-Solicitation of Bear Stearns
Employees.....................................................25
3.8
Non-Solicitation of Calpine
Employees..........................................................26
3.9
Confidential
Information.......................................................................27
3.10
Netting........................................................................................29
3.11
Acknowledgements...............................................................................29
3.12 CMSC Board
Representation......................................................................30
3.13 Performance of
Financial Obligations of
CalBear................................................30
3.14
[*]............................................................................................30
3.15 Fiscal Year of
CalBear.........................................................................30
3.16 Interest on
Overdue
Amounts....................................................................31
ARTICLE IV. CALPINE
GUARANTEE..............................................................................31
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4.1 Calpine
Guarantee..............................................................................31
4.2 Calpine
May Consolidate, etc., on Certain
Terms................................................32
4.3
Release........................................................................................32
ARTICLE V. BEAR STEARNS
GUARANTEE..........................................................................33
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5.1 Bear
Stearns
Guarantee.........................................................................33
5.2 Bear
Stearns May Consolidate, etc., on Certain
Terms...........................................34
5.3
Release........................................................................................34
ARTICLE VI. REGULATORY
MATTERS.............................................................................35
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6.1 Regulatory
Matters With Respect to
Calpine.....................................................35
6.2 Regulatory
Matters With Respect to Bear
Stearns................................................35
6.3 Regulatory
Matters With Respect to CalBear and
CMSC............................................35
ARTICLE VII. NOTICES, RECORDS, MEETINGS,
AUDITS AND
AVAILABILITY...........................................36
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7.1
Notices........................................................................................36
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7.2 Books and
Records..............................................................................38
7.3
Meetings.......................................................................................38
7.4
Audits.........................................................................................39
7.5
Availability of
Parties........................................................................40
ARTICLE VIII. REPRESENTATIONS AND
WARRANTIES OF THE
PARTIES................................................40
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8.1
Organization...................................................................................40
8.2
Authorization..................................................................................40
8.3 No Similar
Business............................................................................40
8.4 Accuracy
of Information
Furnished..............................................................41
ARTICLE IX. REPRESENTATIONS AND WARRANTIES
OF
CALPINE......................................................41
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9.1 Calpine
and Calpine Transaction
Parties........................................................41
9.2 No
Conflict or
Violation.......................................................................41
9.3
Sufficiency of
Assets..........................................................................41
9.4
Permits........................................................................................42
9.5
Litigation.....................................................................................42
9.6 Compliance
with
Law............................................................................42
9.7
Insurance......................................................................................42
9.8 Adequate
Capital...............................................................................43
9.9 SEC Filings; Financial
Statements..............................................................43
9.10
Regulation.....................................................................................43
9.11 Due
Consideration..............................................................................44
9.12 Operations of
CMSC.............................................................................44
9.13 Material
Contracts of
CMSC.....................................................................44
ARTICLE X. REPRESENTATIONS AND WARRANTIES
OF BEAR
STEARNS..................................................44
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10.1 Bear Stearns and
CalBear.......................................................................44
10.2 No Conflict or
Violation.......................................................................44
10.3 Sufficiency of
Assets..........................................................................45
10.4
Permits........................................................................................45
10.5
Litigation.....................................................................................45
10.6 Compliance with
Law............................................................................45
10.7
Insurance......................................................................................45
10.8 Adequate
Capital...............................................................................46
10.9 SEC Filings;
Financial
Statements..............................................................46
10.10
Regulation.....................................................................................46
10.11 Operations of
CalBear..........................................................................47
ARTICLE XI. PRE-EFFECTIVE DATE COVENANTS OF
THE
PARTIES....................................................47
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11.1 Notification of
Certain
Matters................................................................47
11.2 Consents and
Commercially Reasonable
Efforts...................................................47
11.3 Other
Transaction
Documents....................................................................48
ARTICLE XII. CONDITIONS TO CALPINE'S
OBLIGATIONS...........................................................48
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12.1 Representations,
Warranties and
Covenants......................................................48
12.2 No Proceedings
or
Litigation...................................................................48
12.3
Bankruptcy.....................................................................................49
12.4 Effective Date
Deliveries......................................................................49
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12.5 Transaction
Documents..........................................................................49
12.6 Pre-Formation
Transactions.....................................................................49
12.7 Corporate
Proceedings..........................................................................49
12.8 Regulatory
Approvals...........................................................................49
12.9 Opinion of
Counsel to Bear
Stearns.............................................................49
ARTICLE XIII. CONDITIONS TO BEAR STEARNS'
OBLIGATIONS......................................................50
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13.1 Representations,
Warranties and
Covenants......................................................50
13.2 No Proceedings
or
Litigation...................................................................50
13.3
Bankruptcy.....................................................................................50
13.4 Effective Date
Deliveries......................................................................50
13.5 Transaction
Documents..........................................................................51
13.6 Pre-Formation
Transactions.....................................................................51
13.7 Corporate
Proceedings..........................................................................51
13.8 Regulatory
Approvals...........................................................................51
13.9 Opinion of
Counsel to
Calpine..................................................................51
ARTICLE XIV. CERTAIN ACTIONS AFTER THE
EFFECTIVE
DATE......................................................51
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14.1 Survival of
Representations,
etc...............................................................51
14.2 No Conflict or
Violation.......................................................................52
14.3 Sufficiency of
Assets..........................................................................52
14.4
Permits........................................................................................52
14.5
Insurance......................................................................................52
14.6 Adequate
Capital...............................................................................53
14.7 Further
Assurances.............................................................................53
14.8 Litigation
Support.............................................................................53
14.9 Organizational
Documents of CMSC and
CalBear...................................................53
ARTICLE XV.
INDEMNIFICATION................................................................................53
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15.1 General
Indemnification........................................................................53
15.2 Right of
Offset................................................................................60
15.3
Payment........................................................................................60
15.4 Right to
Indemnification Not Affected by Knowledge or
Presumption..............................60
ARTICLE XVI. TERM; EVENTS OF DEFAULT AND
TERMINATION.......................................................60
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16.1
Term...........................................................................................60
16.2
Renewal........................................................................................60
16.3 Certain Matters
with Respect to
Renewal........................................................62
16.4 Calpine Events
of
Default......................................................................62
16.5 Bear Stearns
Events of
Default.................................................................63
16.6 Termination;
Liquidation Date; Transfer of Final Third Party Master
Agreements.................63
ARTICLE XVII. LIMITATION OF
LIABILITY......................................................................69
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17.1 Limitation of
Remedies.........................................................................69
17.2 Limitation of
Monetary
Damages.................................................................70
17.3 Limitation of
Non-Monetary
Damages.............................................................70
17.4 Limitation of
Consequential Damages,
Etc.......................................................70
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17.5 Liability for
Acts or Omissions of Other
Persons...............................................71
17.6 Survival of
Limitations........................................................................71
ARTICLE XVIII.
MISCELLANEOUS...............................................................................71
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18.1
Assignment.....................................................................................71
18.2
Notices........................................................................................71
18.3 Choice of Law;
Service of Process; Venue; Jury Trial
Waiver....................................76
18.4 Dispute
Resolution;
Arbitration................................................................77
18.5 Continued
Performance..........................................................................79
18.6 Regulatory
Event...............................................................................79
18.7 Forward
Contracts..............................................................................79
18.8 Effectiveness;
Entire Agreement; Amendments and
Waivers........................................79
18.9 Multiple
Counterparts..........................................................................80
18.10
Invalidity.....................................................................................80
18.11 Titles; Currency;
Schedules....................................................................80
18.12
Payments.......................................................................................80
18.13
Publicity......................................................................................80
18.14 Fees and
Expenses..............................................................................81
18.15 Specific Performance;
Remedies
Cumulative......................................................81
18.16 Representation of
Counsel; Mutual
Negotiation..................................................81
18.17
Knowledge......................................................................................81
18.18 No Third Party
Beneficiaries...................................................................81
18.19 Time of
Essence................................................................................82
18.20 Force
Majeure..................................................................................82
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EXHIBITS
Exhibit
A..................................Form of Agency and Services
Agreement
Exhibit
B.......................................Form of Trading Master
Agreement
Exhibit
C.......................................Organizational Documents of
CMSC
Exhibit
D....................................Organizational Documents of
CalBear
Exhibit E.............................Form
of Signature Page of CMSC and CalBear
Exhibit
F.................................................Form of Renewal
Notice
SCHEDULES
Schedule
1.1(a)......................................Calpine Existing
Indentures
Schedule
1.1(b)...................................Calpine Restricted
Transferees
Schedule
1.1(c)..............................Bear Stearns Restricted
Transferees
Schedule
1.1(d).........................................Significant
Subsidiaries
Schedule
3.7(a)........................................Employees of Bear
Stearns
Schedule
3.8(a).............................................Employees of
Calpine
Schedule
9.1.............................Calpine and Calpine Transaction
Parties
Schedule
9.2..........................Calpine Conflicts, Violations and
Consents
Schedule
10.1...........................................Bear Stearns and
CalBear
Schedule 10.2....................Bear
Stearns Conflicts, Violations and Consents
Schedule
12.9................................Opinions of Counsel to Bear
Stearns
Schedule
13.9.....................................Opinions of Counsel to
Calpine
Schedule
18.17.........................................................Knowledge
v
<PAGE>
MASTER TRANSACTION AGREEMENT
THIS MASTER
TRANSACTION AGREEMENT
(this "Agreement"), dated as of
September 7, 2005, is made by and among Calpine Corporation, a Delaware
corporation ("Calpine"), Calpine Energy Services, L.P., a Delaware limited
partnership ("CES") and The Bear Stearns
Companies Inc., a Delaware corporation
("Bear Stearns") and, on and after the Effective Date (as defined herein)
Calpine Merchant Services Company, Inc., a Delaware corporation ("CMSC") and
CalBear Energy LP, a Delaware limited
partnership ("CalBear"). Each of Calpine,
CES and Bear Stearns and, on and after the
Effective Date, CMSC and CalBear, are
sometimes hereinafter individually referred to as a "Party", and together
referred to as the "Parties".
RECITALS
WHEREAS, the Calpine
Transaction
Parties (as defined herein) and
CalBear desire to enter into a mutually
beneficial arrangement to facilitate the
Calpine Transaction Parties, on the one hand, and CalBear, on
the other hand,
trading in physical and financial gas and
electric power with
Third Parties (as
defined herein), and engaging in certain
energy management
services,
including
power and gas transportation and
transmission services (the "Transaction");
WHEREAS, Calpine and its Affiliates (as defined herein) will
generally
obtain more favorable terms for their purchases and sales of gas and power
through the Transaction than the terms that
are otherwise currently available to
Calpine and its Affiliates for such
purchases and sales;
WHEREAS, CalBear
desires CMSC to provide the Services (as defined
herein) to CalBear, including acting as agent for CalBear with respect to
certain Trades, all in accordance with the terms of the Agency and
Services
Agreement (as defined herein);
WHEREAS, CMSC is
willing to provide the
Services to CalBear on the
terms set forth in the Agency and Services
Agreement and in this Agreement;
WHEREAS, Calpine
and Bear Stearns desire to guarantee certain
obligations of CMSC and CES, on the one hand,
and CalBear,
on the other hand,
respectively;
WHEREAS, the Parties view the Transaction as one transaction, and
none
of the Parties would enter into any of the
Transaction
Documents (as defined
herein) without entering into all of the
Transaction Documents; and
WHEREAS, the Parties
desire to enter into
this Agreement in order to
more fully set forth certain rights and
obligations with
respect to the CalBear
Business (as defined herein) and the
Transaction and certain related matters.
1
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AGREEMENT
NOW, THEREFORE,
in consideration
of the foregoing
premises and the
mutual covenants and promises contained herein, and for other
good and valuable
consideration, the receipt and adequacy of which
are hereby
acknowledged, the
Parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the
following meanings:
"AAA" shall have the meaning given to such term in Section
18.4(b).
"Action" shall
mean, with respect to any Person,
any outstanding
action, order, writ, injunction, judgment,
determination or decree or any claim,
suit, litigation, proceeding, appeal, arbitration, mediation, tax audit or
governmental investigation of any kind
involving such Person or its business or
Assets.
"Affiliate" shall
mean, with
respect to any Person
(the "referent
person"), any Person that, directly or
indirectly, controls the referent person,
any Person that the referent Person
controls, or any Person that, directly or
indirectly, is under common control with the
referent person.
For purposes of
the preceding sentence, the term "control" shall mean the power, direct or
indirect, to direct or cause the direction
of the management and
policies of a
Person through voting securities, by
contract or otherwise. Any Subsidiary shall
be deemed to be an "Affiliate". Neither Calpine nor any Calpine Transaction
Party is, or shall be deemed to be, an
"Affiliate"
of Bear Stearns or
CalBear.
Neither Bear Stearns nor CalBear is, or
shall be deemed to be, an "Affiliate" of
Calpine or any Calpine Transaction
Party.
"Agency and Services
Agreement" shall mean
that certain
Agency and
Services Agreement, substantially in the form attached
hereto as Exhibit A, to
be dated on or about the Effective Date, by and between CMSC and CalBear,
pursuant to which, among other matters, CalBear appoints CMSC as its agent to
transact CalBear Business on behalf of
CalBear.
"Applicable Agency
Law" shall mean any
federal, state or
local laws
(including common law and criminal law), codes, statutes, directives,
ordinances, by-laws, regulations, rules,
judgments, consent orders, settlements,
and agreements with Governmental Authorities, proclamations or delegated or
subordinated legislation of any Governmental Authority governing the
relationships and related duties of agents or attorneys-in-fact to their
principals, such as any of the foregoing providing for duties of good faith,
fair dealing, loyalty or due care of agents
or attorneys-in-fact to principals.
"Applicable Law"
shall mean any federal, state or local laws
(including common law and criminal law), codes, statutes, directives,
ordinances, by-laws, regulations, rules,
judgments, consent orders, settlements
and agreements with Governmental Authorities, proclamations or delegated or
subordinated legislation of any Governmental Authority that are applicable
to
this Agreement, the other Transaction
Documents, the
transactions
contemplated
2
hereby or thereby, Calpine, the Calpine Transaction Parties, Bear Stearns,
CalBear, the Services or the CalBear
Trades, in each case other than Applicable
Agency Law.
"Arbitration Panel"
shall have the meaning given to such term in
Section 18.4(c).
"Assets" shall mean, with respect to any Person, all of such Person's
right, title and interest in and to all
properties,
assets and rights of
any
kind, now owned or hereafter acquired,
whether tangible or
intangible, real
or
personal, wherever located.
"Bankruptcy"
or "Bankruptcy Event" shall mean, with respect to any
Person, if that Person shall institute a
voluntary case seeking
liquidation or
reorganization under the Bankruptcy Law, or
shall consent to an involuntary case
thereunder against it; or such Person shall file a petition or consent or
otherwise institute any similar proceeding
under any other applicable Federal or
state law, or shall consent thereto;
or such Person shall
apply for, or consent
or acquiesce to, the appointment of a receiver,
administrator,
administrative
receiver, liquidator, sequestrator, trustee
or other officer with similar powers
for itself or any substantial part of its Assets; or such Person shall make a
general assignment for the benefit of its
creditors; or such
Person shall admit
in writing its inability to pay its debts
generally as they become due; or if an
involuntary case shall be commenced
seeking liquidation or reorganization of
such Person under the Bankruptcy Law or any similar proceedings shall be
commenced against such Person under any other Applicable Law and (a) the
petition commencing the involuntary case or similar proceeding is not timely
controverted, (b) the petition commencing the involuntary case or similar
proceeding is not dismissed within thirty (30) days of its filing, (c) an
interim trustee is appointed to take possession of all or a portion of the
property, and/or to operate all or any part
of the business of
such Person and
such appointment is not vacated within thirty (30) days, or (d) an order
for
relief shall have been issued or entered therein; or a decree or order of a
court having jurisdiction in the premises for the
appointment
of a receiver,
administrator, administrative receiver,
liquidator,
sequestrator,
trustee or
other officer having similar powers over such Person or all or
a part of its
property shall have been entered;
or any other similar
relief shall be granted
against such Person under any applicable
Bankruptcy Law.
"Bankruptcy Law" shall mean Title 11, U.S. Code or any similar
federal
or state law for the relief of debtors, as amended, and all rules and
regulations promulgated thereunder.
"Bankruptcy Remote"
shall mean,
with respect to a
Person that is an
Affiliate of Calpine, that such Person has implemented
governance
procedures,
organizational structure or other
arrangements designed to make such Person less
likely to become the subject of a Bankruptcy Event or to become consolidated
into a Bankruptcy of Calpine or its
Affiliates; provided that if such Person has
at least two (2) directors or persons in
similar governance functions designated
by Bear Stearns that have the right to veto
any voluntary
and veto any
consent
to any involuntary bankruptcy filing, and all of such Persons'
Contracts and
arrangements with Affiliates are substantially similar to the Contracts and
arrangements existing on the date of this Agreement or substantially as
advantageous to such Person as the
Contracts and arrangements which such Person
would obtain in a comparable arm's length transaction, such Person shall be
deemed to be Bankruptcy Remote.
3
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"Bear Stearns
Assets" shall mean the Assets of Bear
Stearns, its
Subsidiaries and their Affiliates (other
than CalBear).
"Bear Stearns
Claim" shall have the meaning given to such term in
Section 15.1(a)(i).
"Bear Stearns Event of
Default" shall have
the meaning given to such
term in Section 16.5.
"Bear Stearns
Guarantee" shall have the meaning given to such term in
Section 5.1(a).
"Bear Stearns
Party" shall have the meaning given to such term in
Section 15.1(a)(i).
"Bear Stearns SEC
Filings" shall have
the meaning given to such term
in Section 10.9(a).
"Bonus Amount" shall have the meaning given to such term in the
Agency
and Services Agreement.
"Books and Records" shall mean, with respect to any Person, all
books,
records, lists, ledgers, financial data, files,
reports, product and design
manuals, plans, drawings, technical manuals and operating
records of every kind
pertaining to such Person, any of its Subsidiaries or the Assets or the
customers, suppliers, distributors or personnel of such Person or any of
its
Subsidiaries, in whatever form, including
all (a) corporate books and records of
such Person or any of its Subsidiaries,
(b) disk or tape
files, printouts, runs
or other computer-based information and such Person's, or its applicable
Subsidiary's, interest in all computer programs required to access, and the
equipment containing, all such
computer-based information, (c) product, business
and marketing plans, (d) environmental control records, (e) sales, customer
maintenance, distributor, supplier and production
records including
sales and
promotional literature, and (f) personnel
records and information.
"Business Day" shall
mean any day on which
Federal Reserve member
banks in New York City are open for
business.
"CalBear Business"
shall have the meaning given to such term in
Section 3.1(a).
"CalBear Default
Option" shall have the meaning given to such term in
Section 16.6(d)(iii).
"CalBear Governance
Operations" shall have
the meaning given to such
term in the Agency and Services
Agreement.
"CalBear
Information"
shall mean the terms of, or other information
relating to, this Agreement, any other Transaction Document, the transactions
4
<PAGE>
entered into hereunder or thereunder
or contemplated hereby or thereby, the
Services, the CalBear Trades, the CalBear
Business or any related information.
"CalBear Name" shall
have the meaning
given to such term in
Section
16.6(c)(i).
"CalBear Referral
Business" shall have the meaning given to such term
in Section 3.1(a).
"CalBear Termination Option" shall have the meaning given to such
term
in Section 16.6(d)(ii).
"CalBear Trades"
shall have the meaning given to such term in the
Agency and Services Agreement.
"Calpine Assets" shall
mean the Assets of Calpine, its Subsidiaries
and their Affiliates.
"Calpine Claim" shall
have the meaning given
to such term in Section
15.1(b)(i).
"Calpine Event of
Default" shall have
the meaning given to such term
in Section 16.4.
"Calpine Existing
Indentures"
shall mean the
indentures
listed on
Schedule 1.1(a).
"Calpine Guarantee"
shall have the meaning given to such term in
Section 4.1(a).
"Calpine Party" shall
have the meaning given
to such term in Section
15.1(b)(i).
"Calpine SEC
Filings" shall have the meaning
given to such term
in
Section 9.9(a).
"Calpine Transaction Parties" shall mean each of CMSC and CES.
"Capital Stock" shall mean (a) in the case of a corporation,
corporate
stock, (b) in the case of a partnership or limited liability company,
partnership or membership interests or units (whether
general or limited),
and
(c) any other interest or participation that confers on a Person the right
to
receive a share of the profits and losses
of, or distribution of
assets of, the
issuing entity.
"CEA" shall mean the Commodity Exchange Act, as amended, and all
rules
and regulations promulgated thereunder.
"CET ISDA Agreement"
shall have the meaning given to such term in the
Trading Master Agreement.
"CFTC" shall mean the Commodity Futures Trading Commission and its
successors.
5
<PAGE>
"Chairman" shall
have the meaning given to such term in Section
18.4(c).
"Claim" shall
mean
a claim, counterclaim, Action, inquiry,
investigation, demand, charge, complaint,
information or subpoena.
"Claim Notice"
shall have the meaning
given to such term in
Section
15.1(c)(i).
"Confidential
Information"
shall mean,
as to any Person, all
proprietary and confidential financial,
marketing, operational, organizational,
know-how, personnel, customer, vendor, technical and
other data relating to the
business of such Person, in any form, whether oral or written,
including all
correspondence, memoranda, notes, summaries,
analyses, compilations, forecasts,
studies, models, extracts of and documents
and records reflecting, based upon or
derived from Confidential Information,
regardless of who prepares it, as well as
all copies and other reproductions thereof, whether in writing or stored
or
maintained in or by electronic, magnetic or
other means, media or devices.
"Contract" shall mean,
with respect to any Person,
any agreement,
contract, lease, sublease, note, loan, evidence of indebtedness,
indenture,
guarantee, letter of credit, franchise
agreement,
undertaking, covenant
not to
compete, employment agreement, license, sublicense, instrument, obligation,
commitment, purchase and/or sales order, quotation and other executory
commitment to which such Person is a party
or that relates to the
businesses of
such Person or its Assets, whether oral or
written, express or implied, and that
pursuant to its terms has not expired,
terminated or been fully performed by the
parties thereto.
"Credit Enhancement
Trade" shall have the
meaning given to such term
in the Trading Master Agreement.
"Cumulative Net Trading Profits" shall have the meaning
given to such
term in the Agency and Services
Agreement.
"Damages" shall
have the meaning given to such term in Section
15.1(a)(i).
"Default
Purchase Right" shall
have the meaning given to such term in
Section 16.6(d)(iii).
"Default Sale
Right" shall have the meaning given to such term in
Section 16.6(d)(iii).
"Default Termination Notice" shall have the meaning given to such
term
in Section 16.6(d)(iii).
"Defaulting Parties" means Calpine and each Calpine Transaction
Party,
in respect of Calpine Events of Default, and Bear Stearns and CalBear, in
respect of Bear Stearns Events of
Default.
"Defaulting
Termination Parties"
shall mean (i) if the
Liquidation
Date occurs pursuant to Section 16.6(b)(iv) or (v), the applicable
Defaulting
6
<PAGE>
Parties, (ii) if the Liquidation Date
occurs pursuant to Section 16.6(b)(vi) or
16.6(b)(vii), the Parties other than the Party
that terminated any of the other
Transaction Documents in accordance
with its terms,
and its Affiliates, and
(iii) if the Liquidation Date occurs pursuant to Section
16.6(b)(viii),
Bear
Stearns and CalBear.
"Designated CMSC Board
Member" shall have the meaning given to
such
term in Section 3.12.
"Effective Date" shall
have the meaning given to such term in Section
2.3.
"Election Notice" shall have the meaning given to such term in
Section
3.3(c).
"Elective
Non-Terminating
Parties" shall mean the Parties other than
the Elective Terminating Parties.
"Elective Terminating
Parties" shall mean the Party delivering the
Termination Notice pursuant to Section
16.6(b)(iii) or
Section 16.6(b)(ix)
and
its Affiliates that are Parties.
"Encumbrance" shall mean any claim, lien, judgment, pledge, escrow,
option, liability, charge, easement, restrictive covenant, security interest,
deed of trust, right of first refusal,
mortgage, right-of-way, encroachment,
building or use restriction, encumbrance or other right of third parties,
whether voluntarily incurred or arising by operation
of law, and shall include
any agreement to give any of the foregoing
in the future, and any
contingent or
conditional sales agreement or other title
retention agreement or
lease in the
nature thereof or the filing of, or
agreement to give any financing statement,
under the laws of any jurisdiction.
"Equity Securities"
shall mean (i) shares
of Capital Stock or
other
equity securities, (ii) subscriptions, calls, warrants, options or
commitments
of any kind or character relating to, or entitling any Person to purchase or
otherwise acquire, any Capital Stock or other equity securities, and (iii)
securities convertible into or exercisable
or exchangeable for shares of Capital
Stock or other equity securities.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934,
as
amended, and all rules and regulations
promulgated thereunder.
"Facilities" shall
mean, collectively,
Power generating
facilities
that are located in the United States of
America, Canada or Mexico.
"FERC" means
the Federal Energy Regulatory Commission and its
successors.
"Final Third Party Master Agreements" shall have the meaning
given to
such term in Section 16.6(d)(i).
"Fiscal Quarter"
shall have the meaning given to such term in the
Agency and Services Agreement.
7
<PAGE>
"Fiscal Year" shall
mean a fiscal year of
CalBear, which as of the
date of this Agreement commences on
December 1 of each calendar year and ends on
November 30 of the following calendar year, subject to revision in
accordance
with Section 3.15; provided that (x) the
first Fiscal Year shall commence on the
date of this Agreement and end the earlier of
(1) November 30, 2005 and (2) the
Termination Date, and (y) the last Fiscal Year shall end on the Termination
Date.
"Force Majeure" shall mean an event or circumstance which prevents
one
Party from performing its obligations
under the Transaction Documents, which
event or circumstance was not anticipated as of the date the applicable
obligation was agreed to, which is not
within the reasonable
control of, or the
result of the negligence of, the Party
claiming the Force Majeure, and which, by
the exercise of commercially reasonable efforts, such Party is unable to
overcome or avoid or cause to be
avoided, including acts of God, acts of the
public enemy including terrorism, unexpected delay by any Governmental
Authority, and any change in Applicable Law. Force Majeure shall exclude
any
event or circumstance if its sole effect on a Party is economic, including
economic effects that prevent Payment.
"Formation
Transactions" shall have the meaning given to such term in
Section 2.2.
"Forward" shall have
the meaning
given to such term in
the Trading
Master Agreement.
"FPA" shall mean the Federal Power Act, as amended, and all rules and
regulations promulgated thereunder.
"GAAP" shall mean
accounting
principles
generally accepted in the
United States of America. The term, "GAAP," when used herein,
shall mean the
accounting principles generally accepted by the
Securities Exchange Commission
as reflected in Regulation S-X promulgated under the Exchange Act. The term
"GAAP," when used herein with respect to
CalBear or the CalBear
Trades, shall
mean GAAP as applied consistently by Bear
Stearns from time to time.
"Gas" shall mean
physical or financial
natural gas unless
otherwise
agreed upon between the Parties.
"Gas Trade"
shall mean any
purchase or sale or
hedge of Gas, or the
transportation, transmission or storage of
Gas, all on a world-wide basis.
"Governmental
Authority" shall
mean any federal, state, local or
municipal government, governmental
department, commission, board, bureau, agency
or instrumentality, any RTO/ISO control area or SRO, or any judicial,
regulatory, administrative or quasi-governmental court, panel or other body,
having or asserting jurisdiction as to the
matter in question.
"Hard Covenants" shall
mean Section 4.2(b) of the Agency and Services
Agreement (to the extent of the prohibition therein with respect to entering
8
<PAGE>
into Trades directly with Calpine or any of
its Affiliates),
Sections 4.17(a),
(b), (c) and (e) of the Agency and Services
Agreement, and Section
3.13 of this
Agreement.
"Initial Notice" shall
have the meaning given to such term in Section
3.3(a).
"Initial Period" shall
have the meaning given to such term in Section
3.3(b).
"Initial Term" shall mean the period commencing on the Effective
Date
and ending on November 30, 2006.
"ISO" shall mean any FERC-authorized independent system
operator.
"Latest Renewal
Period" shall have the
meaning given to such term in
Section 16.2(a)(ii).
"Liabilities" shall
mean any liability, indebtedness, obligation,
co-obligation, commitment, expense, claim, deficiency,
guaranty or endorsement
of or by any Person of any nature (whether
direct or indirect, known or unknown,
absolute or contingent, liquidated or unliquidated, due or to become due,
accrued or unaccrued, matured or
unmatured).
"Liquidation" shall
have the meaning given to such term in the Agency
and Services Agreement.
"Liquidation Date"
shall mean the date on which
Liquidation
shall
begin.
"Material Adverse
Effect" or "Material
Adverse Change" shall mean,
with respect to any Person,
any change,
circumstance,
event or effect
that,
individually or in the aggregate with such
other changes, circumstances, events
or effects, is or is reasonably likely to
constitute, a material
adverse change
in, or have a material adverse effect on
(a) the business,
operations,
assets,
liabilities, foreseeable prospects,
financial condition or results of operations
of such Person and its Subsidiaries, taken as a whole, or (b) the right or
ability of such Person to consummate the transactions, taken as a whole,
contemplated hereby and by the other
Transaction Documents.
"Misconduct"
shall mean,
with respect to any Person: (a) any
nonfulfillment, nonperformance, nonobservance or other breach or
violation of,
or default under, any provision of any Transaction Document by such Person,
through any act or omission, if (i) such act or omission was
taken or not taken
with the intent to take or not take the
same by the individual
acting on behalf
of such Person, (ii) such individual knew
that such act or omission constituted
a breach or violation of the Transaction Documents or the policies of such
Person or such individual had previously
taken, or omitted to take, such act and
had been warned that such act or omission
constituted
a breach or violation
of
the Transaction Documents or the policies of such
Person, and (iii) at the time
of such act or omission, an officer (or with respect to
CMSC, prior to
January
1, 2006, an officer seconded to CMSC under the
applicable transition
services
agreement with an Affiliate of Calpine) of
such Person knew or should have known
that such act or omission was being taken
or omitted to be taken, (b) any fraud
by such Person with respect to the
Transaction Documents
or the matters covered
thereby, and (c) any nonfulfillment, nonperformance, nonobservance or other
9
<PAGE>
breach or violation of, or default under any provision of any Transaction
Document by such Person through any act or omission if such act or
omission
constituted gross negligence in the
scheduling of physical Trades.
"Month" shall mean a calendar month.
"MW" shall mean megawatt, or one million (1,000,000) watts of
Power.
"MWh" shall mean
megawatt-hour, or one
million watts
(1,000,000) of
Power for one (1) hour.
"Non-Compete
Defaulting Termination
Parties" shall mean (i) if the
Liquidation Date occurs pursuant to Section
16.6(b)(iv) or (v),
the applicable
Defaulting Parties, (ii) if the Liquidation Date occurs pursuant to Section
16.6(b)(vi) (except for an occurrence of the
Liquidation Date as a
result of a
termination of the Agency and Services
Agreement pursuant to Section 7.1(a)(iii)
thereof) or 16.6(b)(vii) (except for an occurrence of the
Liquidation Date as a
result of a termination of the Agency and
Services Agreement pursuant to Section
7.1(a)(iv) thereof), the Parties other than
the Party that terminated any of the
other Transaction Documents in accordance with its
terms, and its
Affiliates,
and (iii) if the Liquidation Date occurs
pursuant to Section 16.6(b)(viii), Bear
Stearns and CalBear.
"Non-Compete Period" [*]
"Non-Defaulting Termination Parties" shall mean the Parties other
than
the Defaulting Termination Parties.
"Non-Renewal Purchase
Notice" shall have the meaning
given to such
term in Section 16.6(d)(i).
"Non-Renewal Purchase Right" shall have the meaning given to such
term
in Section 16.6(d)(i).
"Non-Renewing Parties"
shall have the meaning
given to such term
in
Section 16.2(d).
"Offer" shall have the meaning given to such term in Section
3.3(b).
"Offer Notice"
shall have the meaning
given to such term in
Section
3.3(b).
"Offer Period"
shall have the meaning
given to such term in
Section
3.3(b).
"Ordinary Losses" shall mean (a) any Claims or Damages with respect
to
the actual or prospective operations or economic results of
CalBear, including
losses (i) on CalBear Trades where delivery
of Gas or Power or
determination of
price has occurred, (ii) on Forward CalBear
Trades, and (iii) with respect to
lost CalBear Trades, profits or opportunities, and (b) any other Claims or
Damages, excluding in each case under
clauses (a) and (b), Third Party Losses.
10
<PAGE>
"Organizational
Documents" shall mean the articles of incorporation,
by-laws, articles of organization, limited liability company agreement,
partnership agreement, formation agreement, joint venture agreement or
other
similar organizational documents of any Person other than
any individual,
as
applicable with respect to such Person.
"Party Arbitrator"
shall have the meaning given to such term in
Section 18.4(c).
"Payment" shall mean any payment, repayment, return, refund,
transfer,
deposit, funding, posting or other type of
payment or provision of an amount or
collateral (including provision of letters of
credit), whether as a
payment or
provision for services or property, capital contribution, loan, guarantee,
advance, cure of default, collateral, margin, credit support or any
other form
of security or any other amount.
"Permits" shall
mean, with respect to any Person, all licenses,
permits, franchises, approvals, authorizations, certifications, consents,
orders, settlements, exemptions or similar items of, or filings, reports,
notifications or similar items submitted to or granted by, any Governmental
Authority, whether foreign, federal, state or local or otherwise, under
Applicable Law, necessary for the past,
present or anticipated
conduct of, or
relating to the operation of the businesses of or the ownership of the
Assets
of, such Person.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust,
unincorporated organization,
limited liability company or Governmental
Authority or other entity.
"Power" shall mean physical or financial electric capacity as
measured
in MWs, physical or financial electric energy as measured in MWh,
and/or any
other electricity related products or services
available for sale,
including
reserves and other ancillary services needed to support the
transmission
and
distribution of Power from a point of
generation to a delivery point, as such
services are defined in applicable
FERC-filed tariffs.
"Power Trade" shall
mean any purchase or
sale or hedge of Power, or
the transportation or transmission of
Power, all on a world-wide basis.
"Pre-Formation Transactions" shall have the meaning given to such
term
in Section 2.1.
"PUHCA" shall mean the Public Utility Holding Company Act of 1935,
as
amended, and all rules and regulations
promulgated thereunder.
"Regulatory Approval"
shall mean all Permits
that are necessary
for
the entering into and performance of
CalBear Trades, this
Agreement, the
other
Transaction Documents, or the transactions
contemplated hereby or thereby.
"Regulatory Event"
shall have the meaning given to such term in
Section 18.6.
"Remedial Parties"
shall have the meaning given to such term in
Section 17.1.
11
<PAGE>
"Renewal Notice" shall have the meaning
given to such term in Section
16.2(a)(i).
"Renewal Period" shall
have the meaning given to such term in Section
16.1.
"Renewing Parties"
shall have the meaning given to such term in
Section 16.2(d).
"Reports" shall have
the meaning given to such term in the Agency and
Services Agreement.
"Representative" shall
mean, with respect to any Person, any officer,
director, principal, attorney, employee,
agent, consultant,
accountant or other
representative of such Person.
"Restricted
Transferees" shall
mean, with
respect to Calpine,
the
Calpine Transaction Parties and their
Affiliates, the Persons listed in Schedule
1.1(b), and with respect to Bear
Stearns, CalBear and their Affiliates, the
Persons listed in Schedule 1.1(c).
"Returns" shall mean, with respect to any Person, any and all
returns,
reports, declarations, documents and information statements with respect to
Taxes required to be filed by or on behalf
of such Person with any governmental
authority or Tax authority or agency, whether domestic or foreign, including
consolidated, combined and unitary returns
and all amendments thereto or thereof
and any documents with respect to or
accompanying requests
for the extension of
time in which to file any such returns, reports, declarations, documents and
information statements.
"Risk Policy" shall
have the meaning given to such term in the Agency
and Services Agreement.
"RTO" shall
mean
any FERC-authorized regional transmission
organization.
"Securities Act"
shall mean the U.S. Securities Act of 1933, as
amended, and all rules and regulations
promulgated thereunder.
"Service Fee" shall
have the meaning given to such term in the Agency
and Services Agreement.
"Service Fee Return"
shall have the meaning given to such term in the
Agency and Services Agreement.
"Service Fee Return
Refund" shall have the meaning given to such term
in the Agency and Services Agreement.
"Services" shall have the meaning given to such term in the Agency
and
Services Agreement.
"Significant
Subsidiary" shall mean
(a) in the case of Calpine, the
Subsidiaries of Calpine listed on Schedule
1.1(d), their successors, if such
successors are Affiliates of Calpine, and
assigns of all or substantially all of
12
<PAGE>
their assets, if such assigns are Affiliates of Calpine and (b) in
the case of
Bear Stearns, the Subsidiaries of Bear Stearns
listed on Schedule 1.1(d), their
successors, if such successors are Affiliates of Bear
Stearns, and assigns
of
all or substantially all of their assets,
if such assigns are Affiliates of Bear
Stearns.
"Soft Covenants"
shall mean Sections
3.1 and 3.14 of this
Agreement
and Sections 4.1(b), (c) and (e), and 4.4(a) of the Agency and Services
Agreement.
"Specified Risk
Limits" shall have the
meaning given to such term in
the Agency and Services Agreement.
"SRO" shall
mean any applicable self-regulatory organization,
including CFTC-designated contract
markets.
"Subsidiary" shall
mean, with respect to any Person, any corporation
or other business entity, whether or not incorporated, of which at least a
majority of the securities or interests
having, by their terms, ordinary voting
power to elect members of the board of
directors,
managing members, or other
persons performing similar functions with respect to such entity, is held,
directly or indirectly, by such Person.
"Tax(es)" shall mean all taxes, estimated taxes, withholding taxes,
assessments, levies, imposts, and other like charges,
including any
interest,
fines, penalties, additions to tax or
additional amounts that have or may become
payable in respect thereof, imposed by any foreign, federal, state or local
government or taxing authority, whether computed on a separate,
consolidated,
unitary, combined or any other basis, which taxes shall include all income
taxes, service, license and net worth taxes,
payroll and employee
withholding
taxes, unemployment insurance, retirement,
social security, sales and use taxes,
value-added taxes, excise taxes, franchise taxes, gross receipts taxes,
occupation taxes, real and personal
property taxes,
stamp taxes,
transfer and
recording taxes, workers' compensation and
other obligations of the same or of a
similar nature.
"Termination Amount"
shall have the meaning given to such term in
Section 16.6(d)(ii).
"Termination Date"
shall have the meaning given to such term in
Section 16.1.
"Termination Fee" shall have the meaning given to such term in
Section
16.6(d)(ii).
"Termination Notice"
shall mean an irrevocable notice delivered by a
Party, on behalf of itself and its
Affiliates that are Parties and in any manner
set forth in Section 18.2, to any of the
Parties that are not Affiliates of such
Party, stating the intent of such Party to cause a Liquidation Date in
accordance with Section 16.6(b)(iii) or Section 16.6(b)(ix) and setting forth
(a) a Termination Amount, (b)(i) in the case of such notice
by Calpine or any
Calpine Transaction Party, (A) Calpine's or such
Calpine Transaction
Party's
binding offer, irrevocable by its terms for two (2) Business
Days following
receipt of the Termination Notice by Bear Stearns or CalBear, to either (x)
purchase the Final Third Party Master
Agreements,
in accordance with Section
13
<PAGE>
16.6(d)(v) (including the last sentence thereof), from CalBear for the
Termination Amount or (y) receive from Bear
Stearns or CalBear the
Termination
Fee, and (B) that Bear Stearns or CalBear shall elect within such two (2)
Business Day period to either sell the
Final Third Party Master Agreements or
pay the Termination Fee in accordance with
the immediately preceding clause (A),
or (ii) in the case of such notice by Bear
Stearns or CalBear, (A) Bear Stearns'
or CalBear's binding offer, irrevocable by its terms for two
(2) Business Days
following receipt of the Termination Notice by Calpine or any Calpine
Transaction Party, to either (x) sell the
Final Third Party Master Agreements,
in accordance with Section 16.6(d)(v) (including the last sentence
thereof) to
Calpine or any Calpine Transaction Party for the
Termination Amount or
(y) pay
to Calpine or any Calpine Transaction Party the Termination Fee and (B) that
Calpine or any Calpine Transaction Party shall elect within such two (2)
Business Day period to either purchase the Final Third Party
Master Agreements
or pay the Termination Fee in accordance
with the immediately
preceding clause
(A).
"Termination Purchase Right" shall have the meaning given to such
term
in Section 16.6(d)(ii).
"Termination Sale
Right" shall have the meaning given to such term in
Section 16.6(d)(ii).
"Third Party" shall mean, with respect to any Person, any other
Person
that is not an Affiliate of such Person,
including any
Governmental
Authority.
For purposes of this Agreement and the other Transaction Documents, none of
Calpine or any Calpine Transaction Party shall be deemed to be a
"Third Party"
with respect to Bear Stearns or CalBear and neither
Bear Stearns nor CalBear
shall be deemed to be a "Third Party" with respect to Calpine or any
Calpine
Transaction Party.
"Third Party
Claim" shall have the meaning given to such term in
Section 15.1(c)(i).
"Third Party Losses"
shall mean any Claims or Damages arising out of
or resulting from (i) a Third Party Claim, including any such Claim by a
Governmental Authority or (ii) actions
taken to investigate, prevent or mitigate
a potential Third Party Claim, to the extent such actions (A) are taken by
Calpine or any Calpine Transaction Party or (B) are
reasonable actions taken by
CalBear or any of its Affiliates to
investigate, prevent
or mitigate
potential
Third Party Claims arising out of or resulting
from a violation of
Applicable
Law by Calpine or any Calpine Transaction
Party for which
indemnification would
be available under Section 15.1(a)(i)(A), (B), or (E), if after notice of
such
violation by CalBear or any of its
Affiliates,
neither Calpine nor
any Calpine
Transaction Party takes timely,
reasonable
actions to
investigate, prevent
or
mitigate such potential Third Party
Claims.
"Third Party Master
Agreement" shall have
the meaning given to
such
term in the Agency and Services
Agreement.
"Third Party
Service Transaction" shall mean any arrangement to
provide a set of services to a Third Party related to Power or Gas
contract
management or physical or financial
optimization
activities of a
counterparty,
14
<PAGE>
to the extent that such services are related to Power generation or Gas
production, purchases, sales, transmission, transportation,
dispatch,
scheduling, nomination, injection, withdrawal, storage, ancillary
services or
related physical or financial services and
products.
"Threshold" shall
have the meaning given to such term in Section
15.1(a)(iv)(B).
"Trades" shall mean any and all Gas Trades and Power Trades.
"Trading Master
Agreement"
shall mean that
certain Trading
Master
Agreement, substantially in the form attached hereto as
Exhibit B, to be dated
on or about the Effective Date, by and
between CES, CMSC and CalBear, governing,
among other matters, Credit Enhancement
Trades.
"Trading Volume"
shall mean a volume of
Power equal to the aggregate
volume of Power (measured in MWhs) traded in any
calendar year by (a)
Calpine,
in the CES discretionary program, and (b)
CalBear.
"Transaction Documents" shall mean (a) this Agreement, (b) the Agency
and Services Agreement, (c) the Trading Master Agreement,
and (d) the CET
ISDA
Agreement.
"Transaction Parties"
shall mean the Calpine
Transaction Parties and
CalBear, collectively.
"Transfer" shall
have the meaning given to such term in Section
3.3(a).
1.2 Construction.
(a) Unless the context of this Agreement otherwise requires, (i)
words
of any gender include each other gender,
(ii) words using the singular or plural
number also include the plural or singular
number, respectively, (iii) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement, (iv) the terms "modified" and "amended" and derivative or
similar words shall mean amended,
supplemented,
waived or otherwise
modified,
(v) the terms "Article" or "Section"
refer to the specified
Article or Section
of this Agreement, (vi) the word "including" shall mean "including, without
limitation," whether or not so specified, and (vii) the word "or" shall be
disjunctive but not exclusive.
(b) References to
agreements and other
documents shall be
deemed to
include all subsequent modifications
thereto.
(c) References to statutes shall include all regulations promulgated
thereunder and references to statutes or regulations shall be construed as
including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation.
(d) The language
used in this
Agreement shall be deemed to be the
language chosen by the Parties to express
their mutual intent,
and no rule of
strict construction shall be applied
against any Party.
15
<PAGE>
(e) The annexes,
schedules and exhibits to this Agreement are a
material part hereof and shall be treated
as if fully incorporated into the body
of this Agreement.
(f) Whenever this
Agreement refers to a
number of days, such
number
shall refer to calendar days unless
Business Days are specified.
(g) Whenever this
Agreement refers to a right, obligation, act or
omission of CalBear, the same shall mean a
right, obligation, act or omission of
CalBear itself, and not of CalBear through
CMSC as agent or attorney-in-fact for
or on behalf of or in the name of CalBear,
unless the
applicable
provision of
this Agreement expressly states
otherwise.
ARTICLE II.
FORMATION TRANSACTIONS; EFFECTIVE DATE
2.1 Pre-Formation Transactions.
As soon as reasonably
practicable
following the date hereof:
(a) CES Marketing VII, LLC shall be converted from a limited
liability
company to a corporation under the laws of the State of
Delaware and its
name
shall be changed to Calpine Merchant
Services Company,
Inc., and Calpine
shall
enter into, or cause to be entered
into, amended and restated Organizational
Documents of CMSC, substantially in the
form attached hereto as Exhibit C;
(b) Arroyo Energy LP's name shall be changed to CalBear
Energy LP and
Bear Stearns or its Affiliates shall enter into amended and restated
Organizational Documents of CalBear, substantially in the form attached
hereto
as Exhibit D;
(c) Calpine
and the Calpine Transaction Parties shall take
commercially reasonable actions to obtain any
Regulatory Approvals necessary or
advisable in order for CMSC to perform the
Services; and
(d) CalBear shall take commercially reasonable actions to obtain any
Regulatory Approvals necessary or advisable
in order for CalBear to execute any
CalBear Trades.
The transactions
described in this Section 2.1 shall be
referred to
herein as the "Pre-Formation
Transactions."
2.2 Formation Transactions. Upon the terms and subject to the
conditions
set forth in this
Agreement, on or prior to the Effective Date:
(a) Calpine shall
cause CMSC and Bear Stearns shall cause CalBear to
become a Party to this Agreement by executing an
additional signature
page to
this Agreement, substantially in the form of
Exhibit E hereto, and,
following
such execution each of CMSC and CalBear shall be
a party to, shall be bound by
the obligations of, and shall receive the benefits
of this Agreement and shall
be "CMSC" and "CalBear", respectively, and a "Party", in each case as defined
herein, for all purposes hereunder; and
16
<PAGE>
(b) CalBear and the applicable Calpine Transaction Parties shall
enter
into the Agency and Services Agreement, the
Trading Master Agreement and the CET
ISDA Agreement.
The transactions described in this Section 2.2 shall be
referred to herein as the "Formation
Transactions."
2.3 Effective Date. Unless this Agreement shall have been terminated
pursuant to Section 16.6(a) hereof, the consummation of the transactions
contemplated herein to be consummated on the
Effective Date shall take place at
10:00 a.m. New York time at the offices of Latham & Watkins
LLP, at 885 Third
Avenue, New York, NY 10022, on the third (3rd) Business Day following the
satisfaction or waiver of all of the
conditions precedent
to the obligations of
the Parties set forth in Article
XII and Article XIII (other than conditions
which are not capable of being satisfied until the Effective Date), or such
other date as the Parties hereto agree (the
"Effective Date").
ARTICLE III.
RELATIONSHIP OF THE PARTIES
Each of the Parties covenant and agree with each other as
follows:
3.1 CalBear Business[*]
(b) Notwithstanding
any other provision of
this Agreement, the
sole
and exclusive remedy for any breach of this
Section 3.1 shall be, in the event
of a breach by Calpine or the Calpine
Transaction
Parties, on the one
hand, or
Bear Stearns, on the other hand, the termination
of this Agreement
pursuant to
Section 16.6(b)(iii) hereof.
3.2 Exclusivity.
(a) Except
as may otherwise be specifically provided in this
Agreement, including Sections 3.2(b), (c) and (d), or the other
Transaction
Documents, from the date hereof through the earlier of (i) the date of
termination of this Agreement, if this Agreement is terminated
prior to the
Effective Date, or (ii) in all other cases, the last day of the Non-Compete
Period, neither Calpine or any of the
Calpine Transaction
Parties, on the
one
hand, nor Bear Stearns or CalBear, on the other hand, will, directly or
indirectly, through one or more of their
respective
Affiliates
or otherwise,
engage in any business arrangement with a Third Party,
whether structured as
a
strategic alliance, joint venture, partnership, co-ownership, contractual
relationship, agency relationship, or otherwise, which, when taken as
a whole,
substantially replicates the substance of the business
arrangement
under the
Transaction Documents, taken as a whole, and in
connection therewith
provides
for the sharing of the profits (whether through the ownership of Equity
Securities, contractually, or otherwise) of
such business with the Third Party,
in each case, in any state, possession,
territory or other political subdivision
of the United States, Canada or Mexico.
(b) The foregoing
Section 3.2(a) shall not prohibit any
business of
Calpine or any Calpine Transaction Party with a Third Party if the primary
business of such Third Party and its Affiliates, taken as a whole, is the
17
<PAGE>
ownership, operation or management of one or
more Facilities or gas or electric
loads or the purchase, sale, trading or
transmission of Power or Gas.
(c) Nothing
in this Agreement shall prohibit (x) Calpine or the
Calpine Transaction Parties or any of their
Affiliates, on the one hand, or Bear
Stearns or CalBear or any of their
Affiliates,
on the other hand,
from having
passive investments of less than five (5) percent in the aggregate of the
outstanding Equity Securities of any entity listed for trading on a
national
stock exchange (as defined in the
Exchange Act) or any recognized automatic
quotation system, (y) Calpine, the Calpine Transaction Parties or any of
their
Affiliates, on the one hand, or Bear Stearns or CalBear or any of their
Affiliates, on the other hand, from entering into any financing or credit
enhancement transaction, including any transaction similar to a transactions
contemplated by the Trading Master
Agreement (provided that the other aspects of
such transaction do not result in the engagement in a business that would
otherwise violate this Section 3.2), or (z) Bear Stearns, CalBear or any of
their Affiliates from acting as an
underwriter, initial
purchaser,
lender or
otherwise with respect to any debt,
equity or other
financing of any Person, or
purchasing, owning, holding, trading or selling any security or
other interest
in any Person (provided that such activity or the related
transactions,
when
taken as a whole, does not result in the
engagement
in a business
that would
otherwise violate this Section 3.2).
(d) Nothing in this
Agreement shall
prohibit Calpine or the Calpine
Transaction Parties or any of their
Affiliates, on the one hand, or Bear Stearns
or any of its Affiliates (other than
CalBear), on the other
hand, from engaging
in any transaction that has been proposed to CalBear by Calpine or its
Affiliates, on the one hand, or Bear Stearns or its
Affiliates,
on the other
hand, in accordance with the terms of the
Transaction Documents,
if CalBear has
elected not to pursue such transaction and such transaction has ceased to be
CalBear Referral Business in accordance
with Section 3.1(a) above.
3.3 Certain Restrictions on Sales by Calpine of Equity Securities
and
Assets of CMSC.
(a) Calpine and each of the Calpine Transaction Parties hereby
agrees
that it shall not, and shall cause its
Affiliates not to, directly or indirectly
(through the sale of Equity Securities in an Affiliate or otherwise), sell,
assign, transfer, convey, pledge, mortgage,
hypothecate or otherwise encumber or
dispose of (in each case, a "Transfer") any Equity Securities of, or all or
substantially all of the Assets of, CMSC,
except in compliance with this Section
3.3. If Calpine, any of the Calpine Transaction Parties, or any of their
Affiliates wishes to Transfer any such Assets or Equity
Securities,
Calpine
shall first deliver to Bear Stearns a letter
(the "Initial Notice")
signed by
Calpine (and any such Calpine Transaction Party or Affiliate, if applicable)
setting forth the Equity Securities and/or
Assets proposed to be Transferred and
the material terms of the proposed Transfer
other than the price.
(b) Upon receipt of an Initial Notice, Bear Stearns and its
Affiliates
shall have forty five (45) days (the "Initial Period") to submit a binding
letter (the "Offer Notice") signed by Bear Stearns (and any
such Affiliate, if
applicable) setting forth (A) a proposed purchase price with respect to the
Equity Securities and/or Assets proposed to
be Transferred and (B) Bear Stearns'
(or such Affiliate's) offer (irrevocable by
its terms for five (5) Business Days
18
<PAGE>
(such five (5) day period, the "Offer
Period")) to purchase from Calpine or such
Calpine Transaction Party or any of their Affiliates the Equity Securities
and/or Assets described in the Initial Notice, on the terms and conditions
described in the Initial Notice and for the purchase price set forth in the
Offer Notice (an "Offer"). If an Offer Notice is delivered
prior to the end
of
the Initial Period, the Initial Period
shall end on the date of delivery of such
Offer Notice and the Offer Period shall
commence on such date.
If neither Bear
Stearns nor any of its Affiliates delivers
an Offer Notice to Calpine within the
Initial Period, Calpine or its Affiliate
may, during the period beginning on the
forty-sixth (46th) day following the receipt of the Initial Notice by Bear
Stearns and ending on the ninetieth (90th) day following the receipt of the
Initial Notice by Bear Stearns, Transfer to
a Third Party all (but not less than
all) of the Equity Securities and/or Assets
covered by the Initial Notice, for a
purchase price negotiated between Calpine
or such Affiliate and such Third Party
and on other terms and conditions at least as favorable to Calpine as those
contained in the Initial Notice;
provided that if a
Third Party transferee
has
accepted such offer, Calpine shall have completed such Transfer within an
additional one hundred eighty (180) days from the end of such
ninety (90) day
period; and provided, further, that, with respect to any such
Transfer that is
not completed within the time periods set
forth in this Section 3.3(b), Calpine
shall not complete any such Transfer
without again complying with each provision
of this Section 3.3, as applicable.
(c) Upon receipt of an Offer Notice, Calpine and its Affiliates
shall
have the option to sell the Equity
Securities
and/or Assets described in the
Initial Notice to Bear Stearns (or its
Affiliate, as applicable) at the purchase
price and upon the terms and conditions specified in the Offer.
If Calpine or
any of its Affiliates desires to exercise the option set
forth in the preceding
sentence, it shall deliver a notice (an
"Election Notice") to Bear Stearns at
any time during the Offer Period, which Election Notice shall specify that
Calpine or any of its Affiliates has elected to exercise
its option to
accept
the Offer and sell the Equity Securities and/or Assets described
in the Initial
Notice to Bear Stearns (or its Affiliate,
as applicable) on the
terms set forth
in the Offer. If Calpine or any of its
Affiliates delivers an
Election Notice
during the Offer Period, then Bear Stearns (or its
Affiliates,
as applicable)
shall be obligated to purchase and Calpine
(or such Affiliate,
as applicable)
shall be obligated to sell, the Equity
Securities and/or Assets described in the
Initial Notice at the purchase price and on the other terms and conditions
indicated in the Offer. The closing of such purchase and sale shall occur on
a
closing date selected by Bear Stearns or such Affiliate, as applicable;
provided, however, that such closing date shall be
not less than ten (10) days
nor more than ninety (90) days following
the date of the Election Notice, unless
more time is required to obtain any
applicable regulatory or other approvals. If
neither Calpine nor any of its Affiliates
delivers an Election
Notice to Bear
Stearns (or its Affiliate, as applicable) within the Offer Period,
the Offer
shall automatically expire at the end of the Offer
Period and neither Bear
Stearns nor any of its Affiliates shall have any obligation to purchase the
Equity Securities and/or Assets described
in the Initial Notice.
(d) If Bear Stearns or one of its Affiliates delivers an Offer Notice
to Calpine within the Initial Period, but neither Calpine nor any of its
Affiliates delivers an Election Notice to
Bear Stearns during the Offer Period,
Calpine or its Affiliate may, during the
period beginning on the sixth (6th) day
following the receipt of the Offer Notice by
Calpine and ending on the fiftieth
(50th) day following the receipt of the Offer Notice by
Calpine, Transfer to
a
Third Party all (but not less than all) of
the Equity Securities
and/or Assets
covered by the Initial Notice, (x) for the
purchase price and on the other terms
19
<PAGE>
and conditions contained in the Offer Notice or
(y) for a purchase
price more
favorable financially to Calpine, and on other terms at least as
favorable to
Calpine, as those contained in the Offer
Notice; provided that
if a Third Party
transferee has accepted such offer,
Calpine shall have
completed such Transfer
within an additional one hundred eighty (180) days from the end of
such fifty
(50) day period; and provided, further, that, with respect to any
such Transfer
that is not completed within the time periods set forth
in this Section 3.3(d),
Calpine shall not complete such Transfer without again complying with each
provision of this Section 3.3, as
applicable.
(e) In addition
to the foregoing restrictions, Calpine (or the
applicable Calpine Transaction Party or Affiliate) shall not complete any
Transfer pursuant to Section 3.3(b) or Section 3.3(d) without receiving the
prior consent of Bear Stearns to the
transferee of such
Transfer, such
consent
with respect to any proposed Third Party transferee not to be unreasonably
withheld or delayed after Calpine's (or the applicable Calpine Transaction
Party's or Affiliate's) request for such consent (and in no event shall such
consent take more than the longer of ten
(10) Business Days following receipt of
such request by Bear Stearns or the time
remaining until the
end of the Initial
Period or the Offer Period, as applicable);
provided that Bear
Stearns may give
or withhold such consent in its sole and
absolute discretion with respect to any
proposed Transfers to a Restricted
Transferee. Calpine
may make the request for
such consent at any time following delivery of an Initial
Notice, including
contemporaneously with the applicable
Initial Notice; provided that Calpine must
provide the identity of any proposed Third Party transferee (as well as the
identity of the ultimate operating and holding company
parent, if any, of
each
proposed Third Party transferee, if the identity of such Person(s) is not
readily apparent) in each request for
consent, and otherwise
comply with this
Section 3.3. Any consent given to a Transfer pursuant to this Section
3.3(e)
shall expire (i) if no proposed
Third Party
transferee
mentioned in a
request
for consent and approved by Bear Stearns has accepted Calpine's offer to
Transfer the Equity Securities and/or Assets covered by the Initial Notice
in
accordance with Section 3.3(b) or Section 3.3(d) by the
end of the ninety (90)
day period set forth in Section 3.3(b) or
the fifty (50) day period set forth in
Section 3.3(d), respectively, at the end of such period, or (ii)
if a proposed
Third Party transferee approved by Bear Stearns has accepted such offer, if
Calpine's Transfer to such Third Party
transferee has not been completed within
an additional one hundred eighty (180) days from
the end of the ninety (90) day
period set forth in Section 3.3(b) or the fifty (50) day period set forth in
Section 3.3(d), as applicable.
(f) Calpine
further agrees that in connection with any Transfer
subject to this Section 3.3 consented to by Bear Stearns, Calpine shall, if
requested by Bear Stearns, deliver to Bear Stearns an opinion of external
counsel in form and substance reasonably satisfactory to Bear Stearns and
counsel for Bear Stearns, to the effect
that the Transfer is not in violation of
this Agreement, and, with respect to a Transfer of
any Equity Security,
is not
in violation of the Securities Act or the securities laws of any State. Any
purported Transfer in violation of the
provisions of this Section 3.3, including
any Transfer to a Third Party made without
Bear Stearns' prior consent, shall be
null and void and shall have no force or
effect.
(g) Notwithstanding
anything herein to the contrary, this Section 3.3
shall not apply to (i) a Transfer to
Calpine or any of its Affiliates, provided
that if such Transfer is a Transfer of (A)
Assets from CMSC, such Transfer is to
20
<PAGE>
an Affiliate of Calpine that is Bankruptcy
Remote, or (B) Equity Securities of
CMSC, following such Transfer CMSC is
Bankruptcy Remote, (ii) a Transfer to Bear
Stearns or any of its Affiliates, or (iii) a Transfer to any Person or such
Person's Subsidiaries if such Person or its
Subsidiaries merge
with Calpine or
purchase all or substantially all of the
Equity Securities or Assets of Calpine.
(h) In addition
to the restrictions set forth elsewhere in this
Agreement, in the event of a proposed
Transfer to a Third Party by Calpine or
any of its Affiliates of Equity Securities and/or Assets of CMSC pursuant
to
this Section 3.3, Bear Stearns' consent to such Transfer shall not be deemed
unreasonably withheld if such Third Party does not agree to become
bound in
writing at the closing of such Transfer by the terms and conditions of this
Agreement and the other Transaction
Documents and agree to assume the rights and
obligations of Calpine and all of the
Calpine Transaction
Parties hereunder and
thereunder pursuant to one or more instruments of assumption reasonably
satisfactory in form and substance to Bear
Stearns.
Notwithstanding the
other
provisions of this Section 3.3,
unless expressly waived by Bear Stearns,
any
otherwise permitted Transfer shall be null and void ab initio
if Bear Stearns
does not receive written instruments with respect to such Transfer
(including
copies of any instruments of assumption and
the Third Party transferee's consent
to be bound by this Agreement and the other Transaction Documents, as
applicable) that are in a form reasonably
satisfactory in form
and substance to
Bear Stearns. Upon the execution of such
instruments of assumption by such Third
Party, such Third Party shall be deemed to be Calpine and the Calpine
Transaction Parties for all purposes of
this Agreement.
3.4 Certain Restrictions
on Sales by Bear Stearns of Equity Securities and
Assets of CalBear.
(a) Bear Stearns
hereby agrees that it shall not, and shall cause its
Affiliates not to, directly or indirectly
(through the sale of Equity Securities
in an Affiliate or otherwise), Transfer any Equity Securities of, or all or
substantially all of the Assets of, CalBear, except in compliance with this
Section 3.4. If Bear Stearns or any of its Affiliates wishes to Transfer any
such Assets or Equity Securities, Bear
Stearns shall first deliver to Calpine an
Initial Notice signed by Bear Stearns (and
any such Affiliate,
if applicable)
setting forth the Equity Securities and/or
Assets proposed to be Transferred and
the material terms of the proposed Transfer
other than the price.
(b) Upon receipt of an
Initial Notice,
Calpine and its Affiliates
shall have the Initial Period to submit an Offer Notice
signed by Calpine
(and
any such Affiliate, if applicable) setting forth (A) a proposed
purchase price
with respect to the Equity Securities and/or Assets proposed to be
Transferred
and (B) Calpine's (or such Affiliate's)
offer (irrevocable by
its terms for the
Offer Period) to purchase from Bear Stearns
or any of its
Affiliates the Equity
Securities and/or Assets described in the Initial Notice, on the terms and
conditions described in the Initial Notice
and for the purchase price set forth
in the Offer Notice. If an Offer Notice is delivered prior to the end of the
Initial Period, the Initial Period shall end on the date of delivery
of such
Offer Notice and the Offer Period shall commence on such date. If neither
Calpine nor any of its Affiliates delivers an Offer Notice to Bear Stearns
within the Initial Period, Bear Stearns or its Affiliate may,
during the period
beginning on the forty-sixth (46th) day following the receipt of the Initial
Notice by Calpine and ending on the
ninetieth (90th) day following the
receipt
21
<PAGE>
of the Initial Notice by Calpine, Transfer to a Third Party all (but
not less
than all) of the Equity Securities and/or Assets covered
by the Initial Notice,
for a purchase price negotiated
between Bear Stearns
or such Affiliate and such
Third Party and on other terms and
conditions
at least as
favorable to Bear
Stearns as those contained in the Initial
Notice; provided that if a Third Party
transferee has accepted such offer, Bear Stearns shall have completed such
Transfer within an additional one hundred
eighty (180) days from the end of such
ninety (90) day period; and provided, further, that, with respect to any such
Transfer that is not completed within the
time periods set forth in this Section
3.4(b), Bear Stearns shall not complete any such Transfer without again
complying with each provision of this
Section 3.4, as applicable.
(c) Upon receipt of an Offer Notice, Bear Stearns and its Affiliates
shall have the option to sell the Equity
Securities
and/or Assets
described in
the Initial Notice to Calpine (or its
Affiliate, as
applicable) at the purchase
price and upon the terms and conditions
specified in the
Offer. If Bear Stearns
or any of its Affiliates desires to exercise the option set forth in the
preceding sentence, it shall deliver an Election
Notice to Calpine at any time
during the Offer Period, which Election Notice shall specify that Bear
Stearns
or any of its Affiliates has elected to exercise
its option to accept the Offer
and sell the Equity Securities and/or Assets described
in the Initial Notice to
Calpine (or its Affiliate, as applicable) on the terms set
forth in the Offer.
If Bear Stearns or any of its Affiliates
delivers an Election
Notice during the
Offer Period, then Calpine (or its
Affiliates, as applicable) shall be obligated
to purchase and Bear Stearns (or such Affiliate, as applicable) shall be
obligated to sell, the Equity Securities and/or Assets described
in the Initial
Notice at the purchase price and on the
other terms and conditions indicated in
the Offer. The closing of such purchase and sale shall occur on a
closing date
selected by Calpine or such Affiliate,
as applicable;
provided, however, that
such closing date shall be not less than
ten (10) days nor more than ninety (90)
days following the date of the Election
Notice, unless more
time is required to
obtain any applicable regulatory or other
approvals. If neither Bear Stearns nor
any of its Affiliates delivers an Election Notice to
Calpine (or its Affiliate,
as applicable) within the Offer Period, the
Offer shall automatically expire at
the end of the Offer Period and neither
Calpine nor any of its Affiliates shall
have any obligation to purchase the Equity
Securities and/or Assets described in
the Initial Notice.
(d) If Calpine or one of its Affiliates delivers an Offer Notice to
Bear Stearns within the Initial Period,
but neither Bear
Stearns nor any of its
delivers an Election Notice to Calpine
during the Offer Period, Bear Stearns or
its Affiliate may, during the period
beginning on the sixth
(6th) day following
the receipt of the Offer Notice by Bear Stearns and ending on the fiftieth
(50th) day following the receipt of the Offer Notice by
Bear Stearns,
Transfer
to a Third Party all (but not less than all)
of the Equity
Securities
and/or
Assets covered by the Initial
Notice, (x) for the purchase price and on the
other terms and conditions contained in the Offer Notice or
(y) for a purchase
price more favorable financially to Bear
Stearns, and on other terms at least as
favorable to Bear Stearns, as those
contained in the Offer Notice; provided that
if a Third Party transferee has accepted such offer, Bear Stearns shall have
completed such Transfer within an additional one hundred
eighty (180) days from
the end of such fifty (50) day period; and
provided, further, that, with respect
to any such Transfer that is not completed
within the time
periods set forth in
this Section 3.4(d), Bear Stearns shall not
complete such Transfer without again
complying with each provision of this
Section 3.4, as applicable.
22
<PAGE>
(e) In addition to the
foregoing
restrictions, Bear
Stearns (or the
applicable Affiliate) shall not complete
any Transfer pursuant to Section 3.4(b)
or Section 3.4(d) without receiving the prior consent of Calpine to the
transferee of such Transfer, such consent with respect to any
proposed Third
Party transferee not to be unreasonably
withheld or delayed
after Bear Stearns'
(or the applicable Affiliate's) request for such
consent (and in no event shall
such consent take more than the longer of ten (10) Business Days following
receipt of such request by Calpine or the time
remaining until the end of the
Initial Period or the Offer Period,
as applicable); provided that Calpine may
give or withhold such consent in its sole
and absolute
discretion with
respect
to any proposed Transfers to a Restricted
Transferee. Bear
Stearns may make the
request for such consent at any time
following delivery of an Initial
Notice,
including contemporaneously with the applicable Initial
Notice; provided
that
Bear Stearns must provide the identity of any
proposed Third Party
transferee
(as well as the identity of the ultimate
operating and holding
company parent,
if any, of each proposed Third Party transferee, if the identity of such
Person(s) is not readily apparent) in each request for
consent, and
otherwise
comply with this Section 3.4. Any consent
given to a Transfer
pursuant to this
Section 3.4(e) shall expire (i) if no
proposed Third Party transferee mentioned
in a request for consent and approved by Calpine has accepted Bear Stearns'
offer to Transfer the Equity Securities and/or Assets covered by the Initial
Notice in accordance with Section 3.4(b) or Section 3.4(d) by the end of the
ninety (90) day period set forth in Section
3.4(b) or the fifty
(50) day period
set forth in Section 3.4(d), respectively,
at the end of such period, or (ii) if
a proposed Third Party transferee approved by Calpine has accepted
such offer,
if Bear Stearns' Transfer to such Third Party
transferee has not been completed
within an additional one hundred eighty (180) days from the end of
the ninety
(90) day period set forth in Section 3.4(b) or the fifty (50) day
period set
forth in Section 3.4(d), as applicable.
(f) Bear Stearns
further agrees that in connection with any Transfer
subject to this Section 3.4 consented to by Calpine,
Bear Stearns shall, if
requested by Calpine, deliver to Calpine an opinion of
external counsel in form
and substance reasonably satisfactory to
Calpine and counsel for Calpine, to the
effect that the Transfer is not in
violation of this
Agreement,
and is not in
violation of the Securities Act or the securities laws of any State. Any
purported Transfer in violation of the
provisions of this Section 3.4, including
any Transfer to a Third Party made without
Calpine's prior consent, shall be
null and void and shall have no force or
effect.
(g) Notwithstanding
anything herein to the contrary, this Section 3.4
shall not apply to (i) a Transfer to Bear
Stearns or any of its Affiliates, (ii)
a Transfer to Calpine or any of its
Affiliates,
including any such Transfer
pursuant to Section 16.6(d), or (iii) a Transfer to any Person
or such Person's
Subsidiaries if such Person or its Subsidiaries merge with Bear Stearns or
purchase all or substantially all of the Equity Securities or Assets of Bear
Stearns.
(h) In addition
to the restrictions set forth elsewhere in this
Agreement, in the event of a proposed
Transfer to a Third Party by Bear Stearns
or any of its Affiliates of Equity
Securities and/or
Assets of CalBear pursuant
to this Section 3.4, Calpine's consent to such Transfer shall not be deemed
unreasonably withheld if such Third Party does not agree to become
bound in
writing at the closing of such Transfer by the terms and conditions of this
Agreement and the other Transaction
Documents and agree to assume the rights and
obligations of Bear Stearns and CalBear
hereunder and thereunder pursuant to one
23
<PAGE>
or more instruments of assumption
reasonably
satisfactory in form and substance
to Calpine. Notwithstanding the other provisions of this Section 3.4,
unless
expressly waived by Calpine, any otherwise permitted Transfer
shall be null and
void ab initio if Calpine does not receive
written instruments
with respect to
such Transfer (including copies of any instruments of
assumption and the Third
Party transferee's consent to be bound by this Agreement and the other
Transaction Documents, as applicable) that
are in a form reasonably satisfactory
in form and substance to Calpine. Upon the execution of such instruments of
assumption by such Third Party, such Third Party shall be deemed to be Bear
Stearns and CalBear for all purposes of
this Agreement.
(i) In addition
to the restrictions set forth elsewhere in this
Agreement, in the event of a proposed
Transfer to a Third Party by Bear Stearns
or any of its Affiliates of Equity
Securities and/or
Assets of CalBear pursuant
to this Section 3.4, Calpine's consent to such Transfer shall not be deemed
unreasonably withheld if such Third Party does not have, at the time of the
transfer, a credit rating by (i) Standard
& Poors Ratings Group of at least BBB+
and (ii) Moody's Investor Services of at
least Baa1.
3.5 No Joint Venture or
Partnership Created.
(a) Calpine and the Calpine Transaction Parties, on the one hand, and
Bear Stearns and CalBear, on the other hand, are independent contractors.
Neither Calpine or any Calpine
Transaction
Party, on the one hand, nor Bear
Stearns or CalBear, on the other hand, is an agent (except as specifically
provided in the Agency and Services Agreement), representative or partner of
Bear Stearns or CalBear, or Calpine or any Calpine Transaction Party,
respectively, and each of Calpine and the
Calpine Transaction
Parties and Bear
Stearns and CalBear agrees that the Transaction, this Agreement, the other
Transaction Documents and the transactions
contemplated hereby
and thereby are
not intended to create, and shall not be interpreted, construed or deemed to
create in any respect an association, joint venture, co-ownership,
co-authorship, or partnership, whether general, limited or
otherwise, between
Calpine or any Calpine Transaction Party, on the one hand, and Bear
Stearns or
CalBear, on the other hand, or to impose any partnership obligation or
partnership liability between Calpine or any
Calpine Transaction
Party, on the
one hand, and Bear Stearns or CalBear, on
the other hand. None of Calpine or any
Calpine Transaction Party, on the one
hand, nor Bear Stearns or CalBear, on the
other hand, shall have any right, power or authority to negotiate, execute,
authenticate or deliver any Contract for or on behalf of or in
the name of, or
to incur any Liability for, or to otherwise bind, Bear Stearns or Calpine,
respectively, or bind CalBear or any of the Calpine Transaction Parties,
respectively, except as specifically set forth in the Agency and Services
Agreement or the Trading Master Agreement,
in each case with
respect to CalBear
and CMSC. Calpine and the Calpine
Transaction Parties, on the one hand, and Bear
Stearns and CalBear, on the other hand, agree that they are not, and shall
not
be, and shall not hold Bear Stearns or CalBear, or Calpine or the Calpine
Transaction Parties, respectively, out to
be, co-employers.
(b) The Parties will determine a public description of the
Transaction
mutually satisfactory to Calpine and Bear Stearns. Calpine and Bear Stearns
shall not, and shall cause their
Affiliates not to,
make any press release that
is materially inconsistent with such public
description.
Reference is made
to
Section 18.13 for other agreements with
respect to press releases.
24
<PAGE>
3.6 Conflicts of Interest;
Non-Discrimination.
(a) Conflicts of
Interest. Calpine,
CMSC, Bear Stearns and CalBear
acknowledge that CMSC is providing the
Services to CalBear and that Calpine (a)
indirectly owns a one hundred percent (100%) equity interest in CMSC and (b)
either directly or indirectly through one or more of its wholly-owned
Subsidiaries, including CES or CMSC, is conducting for its own account a
business similar to the CalBear Referral
Business. Accordingly,
Calpine, CMSC,
Bear Stearns and CalBear acknowledge and agree that conflicts may arise from
time to time between the interests of
CalBear, on the one
hand, and CMSC,
CES
and Calpine's other Affiliates,
on the other hand. In
addition, Calpine,
CMSC,
Bear Stearns and CalBear acknowledge and agree that CMSC may provide
services
similar to the Services with respect to transactions entered into by Third
Parties or for or on behalf of Third
Parties by CMSC.
The Parties
acknowledge
that Section 4.2 of the Agency and Services
Agreement contains certain covenants
of CMSC representing the sole and exclusive agreement of the Parties with
respect to such conflicts of interest.
(b) Non-Discrimination. Calpine agrees that it shall, and
shall cause
its Affiliates to, cause CMSC to comply
with its obligations pursuant to Section
4.2 of the Agency and Services Agreement.
Calpine agrees that it
shall not, and
shall cause its Affiliates not to, take any action
or enter into any agreement,
transaction or arrangement with the purpose
of avoiding CMSC's obligations under
Section 4.2 of the Agency and Services Agreement, including by providing
services substantially similar to the Services
through Calpine or any of its
Affiliates other than CES or CMSC with the purpose of avoiding CMSC's
obligations under Section 4.2 of the Agency
and Services Agreement.
3.7 Non-Solicitation of
Bear Stearns Employees.
(a) Prior to the termination of this Agreement and for a period of
one
(1) year following the date of termination
of this Agreement, each of Calpine
and the Calpine Transaction Parties shall not, and
shall cause their Affiliates
not to, directly or indirectly, for itself
or on behalf of any other Person, (i)
hire any employee of Bear Stearns or
CalBear who is involved in the transactions
contemplated hereby or by the other
Transaction Documents
or the CalBear Trades
and who is listed on Schedule 3.7(a) (provided that Schedule
3.7(a) shall not
initially include more than [*] employees) (A) while such employee
is employed
by Bear Stearns or CalBear, or (B) in the
event of a voluntary
resignation from
Bear Stearns or CalBear of an employee
listed on Schedule
3.7(a) at the time of
such resignation, for a period of (60) days
following such resignation, or (ii)
solicit, induce or attempt to solicit or
induce any employee of Bear Stearns or
CalBear listed on Schedule 3.7(a) to leave his or her employment with Bear
Stearns or CalBear, as applicable; provided that a general
solicitation or an
employment agency solicitation that is not directed
to specifically target
any
such employee shall not be deemed to
violate this Section
3.7(a)(ii) so long as
Calpine, the Calpine Transaction Parties and their Affiliates do
not hire any
such employee as a result of such
solicitation or inducement.
(b) Once each calendar year, commencing with calendar year
2006, Bear
Stearns may modify Schedule 3.7(a) to (i) increase the number of employees
listed on Schedule 3.7(a) up to the number
of employees that Calpine includes on
Schedule 3.8(a), and/or (ii) remove employees from Schedule
3.7(a); provided
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that if Bear Stearns modifies Schedule
3.7(a) to remove any employee therefrom,
Section 3.7(a) shall no longer apply with respect to such employee; and
provided, further, that such modifications to Schedule 3.7(a) shall not be
effective until Bear Stearns provides a copy of such modified
Schedule 3.7(a)
(highlighting any modifications thereto) to Calpine in accordance
with Section
18.2. In addition, after (i) the dismissal
or termination of any employee listed
on Schedule 3.7(a) or (ii) sixty (60) days
have elapsed
following a
voluntary
resignation of an employee listed on Schedule 3.7(a), Schedule 3.7(a) shall
automatically be modified to remove the
name of such employee,
and Bear Stearns
shall promptly provide a copy of such modified
Schedule 3.7(a) to Calpine in
accordance with Section 18.2.
(c) Notwithstanding the provisions of Section 3.7(a), none of
Calpine,
the Calpine Transaction Parties or their Affiliates shall be deemed to have
violated Section 3.7(a) until Bear Stearns
provides notice to Calpine of the
hiring and/or solicitation of any employee of Bear Stearns or CalBear in
violation of Section 3.7(a) (which notice
contains the name,
title and position
of the employee hired in violation of
Section 3.7(a) or
details concerning
the
solicitation violating Section 3.7(a)) and
Bear Stearns has provided Calpine the
opportunity to cure such violation in accordance with this Section 3.7(c).
During the period commencing on the date of receipt of any such notice and
ending on the thirtieth (30th) day thereafter (subject to an extension for
any
retention period or other period required
by Applicable Law),
Calpine shall be
entitled to cure any violation of Section 3.7(a) by dismissing the employee
named in the notice (on terms determined by Calpine in its discretion, but
subject to the length of the cure period described above) or ceasing the
activity causing the solicitation described
in the notice, as applicable.
3.8 Non-Solicitation of
Calpine Employees.
(a) Prior to the termination of this Agreement and for a period of
one
(1) year following the date of termination of this Agreement, each of Bear
Stearns and CalBear shall not, and shall
cause their Affiliates not to, directly
or indirectly, for itself or on behalf of any other Person, (i) hire any
employee of Calpine or any Calpine Transaction Party who is involved in the
transactions contemplated hereby or by the other Transaction
Documents or the
CalBear Trades or the Services and who is
listed on Schedule
3.8(a) (provided
that Schedule 3.8(a) shall not initially
include more than [*]
employees) (A)
while such employee is employed by Calpine
or any Calpine
Transaction Party, or
(B) in the event of a voluntary resignation from Calpine or any Calpine
Transaction Party of an employee listed on Schedule 3.8(a) at the
time of such
resignation, for a period of (60) days following such resignation, or (ii)
solicit, induce or attempt to solicit or
induce any employee of
Calpine or any
Calpine Transaction Party listed on Schedule 3.8(a) to leave his or her
employment with Calpine or any Calpine Transaction Party, as applicable;
provided that a general solicitation or an employment
agency solicitation
that
is not directed to specifically
target any such
employee shall not be deemed to
violate this Section 3.8(a)(ii) so long as Bear Stearns and
CalBear and their
Affiliates do not hire any such employee as a result of such
solicitation
or
inducement.
(b) Once each calendar
year, commencing with calendar year 2006,
Calpine may modify Schedule 3.8(a) to (i)
proportionally
increase the number of
employees listed on Schedule 3.8(a) to reflect increases in the number of
26
<PAGE>
employees of CMSC, and/or (ii) remove employees from
Schedule 3.8(a);
provided
that if Calpine modifies Schedule 3.8(a) to remove any employee therefrom,
Section 3.8(a) shall no longer apply with respect to such employee; and
provided, further, that such modifications to Schedule 3.8(a) shall not be
effective until Calpine provides a copy of such modified Schedule 3.8(a)
(highlighting any modifications thereto) to Bear Stearns in
accordance
with
Section 18.2. In addition, after (i) the dismissal or termination of any
employee listed on Schedule 3.8(a) or (ii) sixty (60) days have elapsed
following a voluntary resignation of an employee listed on Schedule 3.8(a),
Schedule 3.8(a) shall automatically be modified to remove the name of such
employee, and Calpine shall promptly
provide a copy of such
modified Schedule
3.8(a) to Bear Stearns in accordance with
Section 18.2.
(c) Notwithstanding
the provisions of
Section 3.8(a),
none of Bear
Stearns, CalBear or their Affiliates shall be deemed to have violated
Section
3.8(a) until Calpine provides notice to Bear Stearns of the hiring and/or
solicitation of any employee of Calpine or any Calpine
Transaction
Party in
violation of Section 3.8(a) (which notice
contains the name,
title and position
of the employee hired in violation of
Section 3.8(a) or
details concerning
the
solicitation violating Section 3.8(a)) and
Calpine has provided Bear Stearns the
opportunity to cure such violation in accordance with this Section 3.8(c).
During the period commencing on the date of receipt of any such notice and
ending on the thirtieth (30th) day thereafter (subject to an extension for
any
retention period or other period required
by Applicable Law), Bear Stearns shall
be entitled to cure any violation of
Section 3.8(a) by
dismissing the
employee
named in the notice (on terms determined by
Bear Stearns in its discretion, but
subject to the length of the cure period described above) or ceasing the
activity causing the solicitation described
in the notice, as applicable.
3.9 Confidential
Information.
(a) Prior to the termination of this Agreement and for a period of
one
(1) year following the termination of this Agreement, the Parties shall, and
shall cause their respective Affiliates and Representatives to,
(i) maintain in
strict confidence any and all
Confidential
Information concerning
the Parties
and the CalBear Business (including the
CalBear Information) and not disclose to
any Third Party any such Confidential Information and (ii) restrict the
use of
Confidential Information to prevent
anticompetitive use of
such information in
violation of antitrust laws, including with
respect to Confidential Information
regarding trading positions, pricing models, projected trades and other
commercial information related to the Power
and Gas trading markets developed by
CMSC, with respect to compliance by Bear
Stearns and CalBear,
or CalBear, with
respect to compliance by Calpine and the
Calpine Transaction
Parties; provided
that the foregoing obligations shall not apply to Calpine or the Calpine
Transaction Parties in connection with a disclosure by Calpine or
the Calpine
Transaction Parties of the aggregate
net portfolio
positions of CES, but,
for
the avoidance of doubt, shall apply with respect to any individual Credit
Enhancement Trade or any disclosure that,
directly or indirectly, would allow a
Third Party to identify or otherwise
directly determine the
terms of any Credit
Enhancement Trade. It is understood that the Parties shall not have any
liability hereunder with respect to
information that (i) is, or through no fault
of the Parties or any of their respective
Affiliates or Representatives becomes,
generally available to the public,
(ii) is received
from a Third Party and
is
27
<PAGE>
not subject to any confidentiality obligation between the receiving Party or
Parties and such Third Party, (iii) is independently developed by a Party
without the use of the Confidential Information, (iv) the Parties or their
respective Affiliates or Representatives
are legally required
to disclose, or
that is the subject of any disclosure
request made by any Governmental Authority
or by any Third Party pursuant to Applicable Law, or (v) is necessary in
connection with the defense or prosecution
of any Action.
(b) In the event that a Party or any of its Affiliates or
Representatives is required or requested to disclose any Confidential
Information pursuant to Section 3.9(a)(iv) or (v), such Party shall, unless
prohibited or otherwise required by Applicable Law, if an
Affiliate of Calpine,
promptly notify Bear Stearns, or if an Affiliate of Bear Stearns, promptly
notify Calpine, so that the Parties may cooperate
in seeking a protective order
and/or other motion, at the expense of the Party
seeking such protective order
and/or other motion, to prevent or limit the
production or
disclosure of such
Confidential Information. If such protective order is not obtained or such
motion has been denied, then the Person required or requested to disclose
such
Confidential Information may disclose only that portion of such
Confidential
Information which, based on the advice of such
Person's outside legal counsel,
is required by Applicable Law or requested by a Governmental Authority to be
disclosed (provided that the Person required or requested to disclose such
information shall use all reasonable
efforts to preserve the confidentiality of
the remainder of such Confidential
Information).
Such Person shall
continue to
be bound by its obligations pursuant to this Section 3.9 for
any Confidential
Information that is not required or
requested to be disclosed, or that has been
afforded protective treatment, pursuant to
such order or motion.
(c)
Notwithstanding
the provisions
of Section 3.9(a) above,
disclosures of Confidential Information may be made (i) in the
ordinary course
of CalBear's business, but only to the extent reasonably
necessary to
conduct
such business, (ii) to each Party's advisors, auditors, legal counsel and
insurers and lenders who reasonably need to have access to such
Confidential
Information in connection with the performance of their work, (iii) to
Representatives of Calpine and its
Affiliates who reasonably need to have access
to such Confidential Information in connection
with the performance of their
work, (iv) to Representatives of Bear Stearns
and its Affiliates who reasonably
need to have access to such Confidential Information in connection with the
performance of their work, (v) to bona fide
potential Third Party
purchasers of
an interest in any Party or its Subsidiaries, but in each case only to the
extent required in connection with such transaction; provided that any such
Third Party receiving any Confidential Information agrees to maintain the
confidentiality of such Confidential Information in accordance with the
terms
hereof, and (vi) by any Party or any of
their respective
Affiliates at any time
in connection with any reporting requirements of such Person under any
Applicable Law, any bona fide debt or
equity financing of such Person, any bona
fide merger or sale of such Person, or any bona fide sale of all or
substantially all of such Person's Assets,
but in each case only
to the extent
reasonably necessary in connection with
such transaction, and
such Confidential
Information may be included in any financial statements, schedules or
information, any diligence materials or any prospectus,
offering memorandum,
information statement or proxy statement provided to any Person in
connection
therewith (provided that any such disclosure
pursuant to this clause (vi) shall
not include the terms of any individual
CalBear Trade or any
disclosure
that,
28
<PAGE>
directly or indirectly, would allow a Third Party to identify or otherwise
directly determine the terms of any
individual
CalBear Trade, without prior
notice to each Party that is not an
Affiliate of the disclosing Party unless
prohibited by Applicable Law).
3.10 Netting. Except as expressly set
forth in Section 4.4(e) of the Agency
and Services Agreement, in the event that, at any time,
Calpine or any Calpine
Transaction Party, on the one hand, or Bear Stearns or CalBear,
on the other
hand, is required, pursuant to this Agreement, the
other Transaction Documents,
the transactions contemplated hereby or thereby, the Services or the CalBear
Trades, to make any Payment to Bear Stearns or CalBear, on the one hand, or
Calpine or any Calpine Transaction Party,
on the other hand, respectively, then
in each case the amounts of such Payments
between or among Calpine, the Calpine
Transaction Parties, Bear Stearns and
CalBear, as applicable, may be aggregated
and Calpine and the Calpine Transaction Parties, on the one hand, or Bear
Stearns and CalBear, on the other hand, as applicable, may discharge their
obligations to make such Payments through
netting, in which case the Party (or
Calpine and the Calpine Transaction Parties
or Bear Stearns and CalBear, in each
case as a group), if any, owing the greater
aggregate amount to any other Party
(or Calpine and the Calpine Transaction Parties or Bear
Stearns and CalBear, in
each case as a group), may pay to the Party (or such
group of Parties) to which
the applicable Payment or Payments are owed the
difference between the
amounts
owed. For the avoidance of doubt, this Section 3.10 is intended to permit
netting of all amounts due among the
Parties hereto or the
parties to any other
Transaction Documents to the fullest
extent possible. Each Party reserves to
itself all rights, setoffs, counterclaims and other remedies and defenses
consistent with Article XVII (to the extent not
expressly herein waived or
denied) which each such Party is or may be
entitled to arising
from or out of
this Agreement and the other Transaction Documents. All outstanding CalBear
Trades, Services and obligations to make
Payment in connection
therewith under
this Agreement and the other
Transaction
Documents may be
offset against each
other, set off or recouped therefrom. Except as provided in this
Agreement or
the other Transaction Documents, upon the termination of this
Agreement or any
other Transaction Document, the Parties shall continue to net
all amounts due
among them arising under this Agreement or
the other Transaction Documents.
3.11 Acknowledgements. Each Party acknowledges that, in
view of the nature
of the Transaction and the CalBear
Business, and the
consideration given by the
Parties therefore, the restrictions contained in Sections 3.2, 3.3,
3.4, 3.5,
3.6, 3.7, 3.8, 3.9, 3.12, and 3.15 are reasonably necessary to protect the
legitimate business interests of the Parties and that any
violation of such
restrictions will result in irreparable
injury to the Parties,
the Transaction
and the CalBear Business for which damages
will not be an adequate remedy. Each
Party therefore acknowledges that, if any such
restrictions are violated by it,
each other Party that is not an Affiliate of such Party shall be entitled to
preliminary and injunctive relief or other equitable
remedies. Each Party has
independently consulted with its counsel
and after such consultation agrees that
the covenants set forth in Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9,
3.12, and 3.15 are reasonable and
appropriate. If the
final judgment of a court
or arbitration body of competent jurisdiction declares that any term or
provision of Sections 3.2, 3.3, 3.4, 3.5,
3.6, 3.7, 3.8, 3.9,
3.12, and 3.15 is
invalid or unenforceable, the Parties agree that the court
or arbitration body
making the determination of invalidity or
unenforceability shall
have the power
to reduce the scope, duration, or area of the term or
provision,
to delete
specific words or phrases, or to replace any invalid or
unenforceable
term or
29
<PAGE>
provision with a term or provision that is
valid and enforceable
and that comes
closest to expressing the intention of the invalid or
unenforceable
term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment or determination may be
appealed.
3.12 CMSC Board Representation. CalBear shall be entitled to
designate up
to two (2) members of the board of
directors of CMSC (each, a "Designated CMSC
Board Member"); provided that each such
Designated CMSC Board
Member shall be
either (a) a professional independent director compensated by Bear Stearns or
its Affiliates (other than CalBear) and
reasonably acceptable to Calpine, or (b)
an employee of Bear Stearns or its
Affiliates with a title of Managing Director
or equivalent or a more senior title.
CalBear shall be
entitled to designate a
replacement for any Designated CMSC Board Member at any time,
whether upon the
death, removal or resignation of such
Designated CMSC Board Member or otherwise.
If CalBear designates any Designated CMSC
Board Member at any time, Calpine and
each of the Calpine Transaction Parties agrees, and agrees to cause its
Affiliates to (a) vote for, elect or appoint each such
Designated
CMSC Board
Member designated by CalBear to the board of directors of CMSC promptly
following such designation, (b) vote for, elect or appoint any replacement
Designated CMSC Board Member designated by CalBear to the board
of directors of
CMSC promptly following such designation,
and (c) unless
otherwise requested by
Bear Stearns, maintain the Designated CMSC
Board Members (as replaced by CalBear
from time to time) as directors of CMSC at
all times prior to the termination of
this Agreement. CMSC's Organizational Documents
shall provide that any decision
of the board of directors of CMSC shall
require the consent of
the Designated
CMSC Board Members, if any, to (i) initiate a
voluntary Bankruptcy
Event, (ii)
consent to an involuntary Bankruptcy Event, or (iii) modify
the Organizational
Documents of CMSC to eliminate or otherwise alter the voting rights of the
Designated CMSC Board Members or CalBear's
right to designate,
or Calpine and
its Affiliates duty to appoint, such Designated CMSC Board Members. CMSC's
Organizational Documents shall also provide that the Designated CMSC Board
Members shall not be entitled to vote with
respect to any matter
presented to
the board of directors of CMSC other than the
matters listed in the
preceding
sentence.
3.13 Performance of Financial
Obligations of CalBear.
Bear Stearns
shall provide to CalBear all funds and collateral
necessary for CalBear to perform its
obligations
under the Third Party
Master
Agreements, and the C
