TRANSITION SERVICES AGREEMENT

Exhibit 10.3

 

 

TRANSITION SERVICES AGREEMENT

 

 

by and among

 

Calpine Corporation,

 

Calpine Fuels Corporation,

 

Rosetta Resources Texas LP,

 

Rosetta Resources California, LLC,

 

Rosetta Resources Offshore, LLC,

 

Rosetta Resources Rockies, LLC,

 

Rosetta Resources Inc.

 

and

 

Calpine Natural Gas L.P.

 

 

July 7, 2005

 

TABLE OF CONTENTS

 

 

i

 

ii

ANNEX LIST

 

 

iii

TRANSITION SERVICES AGREEMENT

 

This Transition Services Agreement (this “ Transition Agreement ”) is made and entered into on July 7, 2005, by and among Rosetta Resources Texas LP, a Delaware limited partnership, Rosetta Resources California, LLC, a Delaware limited liability company, Rosetta Resources Offshore, LLC, a Delaware limited liability company, Rosetta Resources Rockies, LLC, a Delaware limited liability company, (collectively the “ Subject Companies ”), Rosetta Resources Inc., a Delaware corporation (“ Rosetta ”), Calpine Natural Gas L.P., a Delaware limited partnership (“ CNGLP ”), Calpine Corporation, a Delaware corporation (“ Calpine ”), and Calpine Fuels Corporation, a California corporation ( “Calpine Fuels” ), The entities in the preceding sentence are sometimes herein collectively called “ Parties ” and each individually a “ Party .”

 

R E C I T A L S :

 

The Sellers have entered into the Purchase and Sale Agreement (“ Purchase and Sale Agreement ”) pursuant to which the Sellers agreed to sell, and Rosetta agreed to purchase, the equity of the Subject Companies.

 

Calpine and the Subject Companies have entered into the Transfer and Assumption Agreement (“ Transfer Agreement ”) pursuant to which certain of the Subject Companies have been conveyed a portion of the Properties. As provided in more detail in the Transfer Agreement, if a Consent necessary to transfer a property was not obtained, such property was retained and Seller and Rosetta, for six (6) months after Closing ( “Consent Period” ), shall attempt to obtain such Consent, and intend to transfer such property to the Subject Companies if such Consent is obtained by the end of the Consent Period.

 

Rosetta desires that the Sellers provide certain services for all the Properties, including the Non-Consent Properties, for a certain interim transitional period and Sellers desire that Rosetta provide Sellers certain support in connection with such services and certain services in connection with such Properties including the Non-Consent Properties for which such Consent is not obtained.

 

ARTICLE

IDEFINITIONS

 

1.1 Capitalized Terms . The capitalized terms used in this Transition Agreement that are defined in the Purchase and Sale Agreement shall have the meaning ascribed to them in such agreement, and the following terms shall have the meaning ascribed to them below:

 

“Additional Services” are defined in Section 3.5 .

 

“Applicable Laws” are defined in Section 4.1 .

 

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“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in San Jose, California or Houston, Texas, are generally authorized or obligated, by law or executive order, to close.

 

“Calpine” is defined in the Preamble.

 

“Calpine Fuels” is defined in the Preamble.

 

“CNGLP” is defined in the Preamble.

 

“Common Representation” is defined in Exhibit H to the Transfer Agreement, provided that for purposes of this Transition Agreement such term shall expressly include the performance of Retained Liability Services or any other services provided hereunder relating to any claims by third parties.

 

“Confidential Information” is defined in Section 10.13 .

 

“Consent Period” is defined in the above Recitals.

 

“Consulting Costs” is defined in the Section 3.4 .

 

“Cured Non-Consent Properties” means those Non-Consent Properties for which Consents are obtained within the Consent Period and which are transferred to the Subject Companies in accordance with the provisions of the Purchase and Sale Agreement.

 

“Current Month Settlement” is defined in Section 5.2 .

 

“Effective Time” is defined in Section 10.15 .

 

“Excluded Properties” means, after the end of the Consent Period, those Non-Consent Properties for which the Consents necessary to transfer the Properties to the Subject Companies are not obtained within the Consent Period and that are excluded from the Properties transferred to the Subject Companies as provided in more detail in the Transfer Agreement.

 

“Facilities” is defined in Section 3.6 .

 

“Fee Statement” is defined in Section 5.1 .

 

“Force Majeure” is defined in Section 9.2 .

 

“Indemnified Claims” is defined in Section 10.15 .

 

“Indemnitee” is defined in Section 10.15 .

 

“Indemnitor” is defined in Section 10.15 .

 

“Law firm” is defined in Section 10.15 .

 

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“Lawsuit” is defined in Section 10.15 .

 

“Monthly Settlement Statement” is defined in Section 5.2 .

 

“Non-Consent Properties” means, during the period beginning on the Closing Date and ending on the earlier of the end of the Consent Period and the date Properties are transferred under Section 5(e) of the Transfer Agreement, all the Properties that were retained by a Seller in accordance with the Transfer Agreement and Purchase and Sale Agreement in order to permit Rosetta and the Sellers to attempt to obtain the Consents necessary to transfer such Properties to the Subject Companies, provided such term does not include any Excluded Properties after the end of the Consent Period.

 

“Party Representative” is defined in Section 10.15 .

 

“Privilege” is defined in Section 10.14 .

 

“Production Month Volume” means the volume of Hydrocarbons produced during a particular calendar month.

 

“Purchase and Sale Agreement” is defined in the above Recitals.

 

“Representatives” is defined in Section 3.2 .

 

“Retained Liability Services” is defined in Section 3.4 .

 

“Rosetta” is defined in the Preamble.

 

“Rosetta Excluded Property Services” is defined in Section 3.4 .

 

“Rosetta Non-Consent Support Services” is defined in Section 3.4 .

 

“Rosetta Service Fee” is defined in Section 2.1 .

 

“Rosetta Services” means all the services that Rosetta is obligated to provide or cause its Affiliates to provide pursuant to Section 3.4 , including Rosetta Non-Consent Support Services, Rosetta Excluded Property Services and Retained Liability Services, and any Additional Service provided pursuant to Section 3.5 and Article V .

 

“Sellers” mean Calpine Natural Gas Holdings LLC and Calpine Fuels collectively and “Seller” means each of the Sellers individually. It is expressly understood that the term “Sellers” does not include CNGLP, but does for the purposes of this Transition Agreement include Calpine.

 

“Sellers’ Service Fee” is defined in Section 2.1.

 

“Sellers’ Services” means, collectively, all services provided by Sellers or their Affiliates pursuant to Sections 3.3 and 3.5 .

 

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“Service Fee” is defined in Section 2.1 .

 

“Service Provider” means (a) the Sellers and their Affiliates with respect to the performance of Sellers’ Services and (b) Rosetta and its Affiliates with respect to the performance of Rosetta Services.

 

“Service Recipient” means (a) Rosetta and its Affiliates with respect to the performance of Sellers’ Services by the Sellers and their Affiliates and (b) the Sellers and their Affiliates with respect to the performance of Rosetta Services by Rosetta and its Affiliates.

 

“Subject Companies” is defined in the Preamble.

 

“Statement Date” is defined in Section 5.1 .

 

“Term” is defined in Section 2.2 .

 

“ Transfer Agreement ” is defined in the above Recitals.

 

“Transferred Properties” means all of the Properties except the Non-Consent Properties.

 

“Transition Agreement” is defined in the Preamble.

 

ARTICLE II

SERVICE FEE AND TERM

 

2.1 Service Fee . Rosetta shall pay to Sellers for the performance of Sellers’ Services an aggregate monthly fee equal to the sum of the fees (which fees are approximately equivalent to the amount that has historically been allocated for similar services) which are set forth for each service in Section 3.3 including any fees billed by the hour (the “ Sellers’ Service Fee ”) for each calendar month during the Term applicable to Sellers’ Services. Notwithstanding the foregoing in the event Rosetta notifies Sellers that it is assuming responsibility for any category of the Sellers’ Services set forth in Section 3.3 for which a separate monthly fee is specified, the subsequent monthly Service Fee shall be reduced by the amount of the monthly fee specified for such service. Calpine shall not be obligated to pay any fees for the Rosetta Non-Consent Support Services or other services for 12 months from the Effective Time. After the six (6) month period, Calpine shall pay for any Rosetta Excluded Property Services, any third party costs or other expenses incurred by Rosetta and any additional documented time of Calpine employees necessary to provide such services (“ Rosetta’s Service Fee ”). Sellers’ Service Fee and Rosetta’s Service Fee are collectively referred to herein as the “ Service Fee ”.

 

2.2 Term . Subject to the other provisions hereof, this Transition Agreement shall be effective on the date of the Closing and shall continue in effect (a) until six (6) months after Closing with respect to the Seller’s Services and Rosetta Non-Consent Support Services for the Non-Consent Properties, (b) until one (1) year after the Closing

 

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with respect to the performance of Sellers’ Services and Rosetta Non-Consent Support Services for each of the Transferred Properties, or (c) until two (2) years after the Closing with respect to the performance of Rosetta Excluded Property Services for any Excluded Properties (the period this Transition Agreement is in effect with respect to a particular service is herein called the “ Term ”). Upon receipt of notice from Rosetta or Calpine that it is assuming responsibility for a category of services, the Service Provider providing services shall have no further obligation to provide such services under this Transition Agreement. Each Party or its Affiliates shall assume and be responsible for providing any further services being provided after the end of the Term.

 

ARTICLE III

SERVICES TO BE PROVIDED

 

3.1 General . Except for Rosetta Services, nothing herein shall require a Service Provider to provide services which it or its Affiliates had not been providing before the Closing or to provide records, financial information, or other information which is not kept or reported by the Service Provider in the ordinary course of business. Nothing herein shall require a Service Provider to install, at its cost or expense, any equipment or expand any systems, or provide any services at any location beyond the level or type of services provided by Service Provider (or as was historically provided by the Calpine employees) as of the date hereof.

 

3.2 Personnel . Each Service Provider shall provide (i) sufficient personnel, including, as necessary or appropriate, contractors, agents or consultants (the “ Representatives ”), with the appropriate background and experience and (ii) equipment and facilities to perform the services it provides hereunder in a timely manner. Neither Party shall be obligated to hire any employees or, except as provided in Section 3.4(b) , retain any outside attorneys, consultants, engineers, or experts to provide the services under this Transition Agreement.

 

3.3 Sellers’ Services . Calpine shall cause Sellers to provide or cause their Affiliates to provide the following specific services to Rosetta or its Affiliates with respect to each Transferred Property for the duration of the Term. Sellers shall not be obligated to provide Rosetta any of the services currently being provided by CNGLP to Calpine, under the Agency and Contract Operator Agreement dated April 25, 2002 between Calpine and CNGLP. Calpine and CNGLP agree that said Agency and Contract Operator Agreement is hereby terminated effective as of the Closing Date.

 

(a) Information Systems . Calpine shall cause Sellers or their Affiliates to provide Rosetta the Telecom Services, Data Storage Services, Outsourcing (SAIC) Services, Software Maintenance Services, Workforce Services and Infrastructure Services described on Annex 3.3(a) Part 1 . The monthly fee for each of said services is as follows:

 

 

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The above monthly fee for Software Maintenance is further broken down on an annual basis by application in Annex 3.3(a) Part 2 . If Rosetta decides that it does not need to continue using any of the applications listed on Annex 3.3(a) Part 2 , it may terminate the receipt of software maintenance services for that application and reduce the total monthly fee for software maintenance services by the amount set forth on Annex 3.3(a) Part 2 for such application. Such termination shall be effective as of the beginning of a month, provided that (i) written notice of such termination and reduction is given to Sellers at least 20 days prior to the beginning of such month and (ii) Seller will be required to pay the fee with respect to any month and application, only to the extent amounts Sellers have paid as a third party a maintenance fee for that month and application. Sellers shall also use commercially reasonable efforts to assist Rosetta in establishing relationships with third-party service providers to provide each of the services as described in this Section 3.3(a) . If Rosetta desires any new hardware or software, Sellers shall install such hardware and software if Rosetta negotiates to acquire and prepays all costs and expenses associated with the acquisition, training and installation of such hardware and software, provided that Seller not be obligated to provide any of the services described in this Section 3.3(a) and Annex 3.3(a) Part 1 with respect to any such hardware or software requested by Rosetta unless Sellers determine, in their reasonable judgment, that such hardware and software comply with Sellers’ standards and can be legally used by Sellers and does not materially conflict with or limit the use of Sellers’ systems.

 

(b) Consultation . During normal business hours, Rosetta shall be entitled to reasonably consult with Sellers’ management or supervisory Representatives providing the Sellers’ Services in regard to such services for a period of time not to exceed 20 hours per month. Calpine shall cause Sellers or their Affiliates to make such Representatives reasonably available to Rosetta. The fee for such service shall be $300 per hour.

 

(c) Legal Advisory Services . Calpine shall cause Sellers or their Affiliates to, during normal business hours, make their legal representatives available to Rosetta to ensure the orderly transition of pending legal matters to Rosetta. The fee for such service shall $300 per hour after the first forty (40) hours. The first 40 hours shall be provided at no fee.

 

(d) Regulatory Advisory Services . Calpine shall cause Sellers or their Affiliates to provide regulatory advisory services to Rosetta, provided, however, that Sellers shall have neither the right nor the obligation to enter into

 

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arrangements or make filings with any Government Body on behalf of Rosetta, including, without limitation, those services (i) required for the preparation of permit applications in the City of Rio Vista County, California, directed to the Attorney for Solano County and (ii) necessary to obtain regulatory approvals related to Rosetta’s purchase of the PG&E Rio Vista Gathering System, and all such services shall be provided in a manner that will not interfere with Calpine corporate policies. The monthly fee for such service shall be $300.

 

(e) Permitting and Construction . Calpine shall cause Sellers or their Affiliates to provide consulting services to Rosetta for the construction and permitting of Rosetta’s and the Subject Companies gas gathering systems. The monthly fee for such service shall be $1,900.00.

 

(f) Operating and Maintenance . Calpine shall cause Sellers or their Affiliates to provide personnel for pipeline operating and maintenance assistance to Rosetta for the operation and maintenance of Rosetta’s and the Subject Companies’ gas gathering systems. The monthly fee for such services shall be $9,000.00.

 

3.4 Rosetta Services .

 

(a) General Services . If and to the extent that CNGLP is currently provided, or has within the last twelve (12) months provided, services that are necessary, helpful or appropriate in order for Sellers or their Affiliates to perform the Sellers’ Services with respect to any of the Non-Consent Properties or the Transferred Properties, or to operate, own, maintain and manage such Non-Consent Properties, Rosetta shall provide or cause its Affiliates, including CNGLP, to provide Sellers and their Affiliates such services ( “Rosetta Non-Consent Support Services” ), for the applicable Term. Without limitation of the foregoing, it is expressly understood that such Rosetta Non-Consent Support Services shall also include, but are not limited to, the services described on Annex 3.4 , arranging for payment of royalties and severance taxes, and obtaining, with the cooperation of Sellers, (i) any consents to transfer the Non-Consent Properties to Rosetta or a Subject Company, and (ii) any releases of bond placed by Sellers. In addition, Rosetta shall provide or cause its Affiliates, including CNGLP, to provide Sellers and their Affiliates with the same services as the Rosetta Non-Consent Support Services ( “Rosetta Excluded Property Services” ) for the Excluded Properties commencing at the end of the Consent Period and continuing thereafter during the Term applicable to the Excluded Properties as provided in Section 2.2 .

 

(b) Retained Liability Services . Rosetta shall provide and shall cause its Affiliates, including CNGLP, to provide Sellers and its Affiliates, at Sellers’ sole cost and expense, such services, except for legal services (“ Retained Liability Services ”) (a) as may be necessary or appropriate from time to time to investigate, cure, remediate, compromise, settle, defend, prosecute, litigate or appeal any of the Sellers’ Retained Liabilities, and (ii) necessary to collect any revenue from the Transferred Properties and Cured Non-Consent Properties and pay the applicable royalties; provided that, Rosetta shall continue to withhold the applicable percentage of the royalty payments from the Rio

 

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Vista field as are presently being withheld for Sellers’ account, until all monies for which royalty owners have been overpaid have been recovered. Rosetta’s obligation to provide and cause its other Affiliates to provide such the Retained Liability Services shall continue in effect, with regard to each of Sellers’ Retained Liabilities, so long as a claim may be legally maintained with respect to such liability and shall survive the termination or cancellation of this Transition Agreement as to all other services; provided that, in no event, shall Rosetta be obligated to provide and or cause its Affiliates to provide Retained Liability Services more than 10 years after the Closing.

 

(b) WestCarb Services . In addition to the foregoing and at Rosetta’s cost, Rosetta shall also be obligated to provide operating, management, consulting and technical services in connection with WESTCARB/DOE carbon dioxide monitoring project, including such services with respect to a third party drilling contractor drilling or re-completing of any wells, but excluding the costs of any third party consultants which will be selected and hired by Calpine or, if necessary, a project manager (collectively the “ Consulting Costs ”). Rosetta shall be responsible, and pay for the first one million dollars in third party costs excluding Consulting Costs, but including those for drilling or reworking wells, and Sellers shall pay all costs in excess thereof (and all third party costs shall be paid in advance upon twenty (20) day written request of Rosetta).

 

(c) Seismic Services . Rosetta shall use good faith and commercially reasonable efforts to obtain consents to transfer any geological or geophysical license for which consent to assign was not obtained prior to Closing on the most economical basis. Sellers’ share of the costs of obtaining such transfers shall not to exceed $4,500,000.00 in total.

 

3.5 Additional Services . Except as otherwise provided in this Section, each Service Provider shall perform or cause its Affiliates to perform any additional services ( “Additional Services” ) (a) that are reasonably requested by its Service Recipient, in writing, from time to time, and (b) that are reasonably necessary to effectuate an orderly transition in the operation of the Transferred Properties or Cured Non-Consent Properties or the operation of the Excluded Properties, unless such performance would significantly disrupt the operations of such Service Provider or its Affiliates or materially increase its responsibilities under this Transition Agreement. Such Service Recipient shall reimburse such Service Provider and its Affiliates for any and all costs and expenses, whether direct or indirect, including a reasonable amount for overhead, in connection with any Additional Services, so provided by such Service Provider. If the Service Provider or its Affiliates reasonably believes the performance of the Additional Services required above would significantly disrupt its operations or materially increase the scope of its responsibility under this Transition Agreement, the Parties shall negotiate in good faith to establish terms under which the Service Provider and its Affiliates shall provide such Additional Services, but such Service Provider shall not be obligated to provide such Additional Services if, following good faith negotiation, it is unable to reach agreement on such terms.

 

3.6 Joint Use . Subject to any agreement with third parties and if not in material violation of such agreement, any Party shall have the right to utilize any

 

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Transferred Property and Non-Consent Property of another Party and any other property of the another Party necessary for performing their services, or to own, operate, maintain and manage such Properties (the “ Facilities ”). Such use shall include, but is not limited to, the use of Facilities for the separating, metering, and handling of production and delivering production to the point of sale and salt water to any existing saltwater disposal wells and disposing of salt water at the Facilities. Any Facility is and shall remain the property of the Party owning such Facility pursuant to the Transfer Agreement. The cost, risk and expense associated with any Facilities utilized shall be borne by the Parties using such Facilities in proportion to their use of such Facilities. The owner of the Facility being utilized shall retain the exclusive right to control and conduct any and all operations, including but not limited to, daily operations, maintenance, modification, and construction activities as to the Facility. The Parties use of the Non-Consent Properties shall be subject to the provisions of this Section 3.6 from the Effective Date and the provisions herein shall continue in effect for six (6) months after the Closing, or for so long thereafter until the Parties enter into a suitable and more definite agreement for the use of the Non-Consent Properties.

 

ARTICLE IV

PERFORMANCE AND AUTHORITY

 

4.1 Standard of Care – Indemnity Obligations .

 

(a) Each Service Provider shall provide the services that it is obligated to provide under this Transition Agreement in accordance with the management and administrative practices used and at the same level of service provided by Sellers and their Affiliates in the past in connection with the Properties and the Buyer Business. Each Service Provider shall provide the services that it is obligated to provide under this Transition Agreement in material compliance with any and all federal, state, local and tribal laws, rules and regulations (“ Applicable Laws ”) applicable to the particular Properties.

 

(b) Except for their indemnity obligations hereunder, Calpine, Sellers and their Affiliates shall have no responsibility for and shall incur no liability for any Loss of any nature suffered or incurred by Rosetta or its Affiliates arising out of or in connection with this Transition Agreement, including (i) the rendering of the Sellers’ Services by Sellers or their Affiliates, or (ii) the provision or failure of Rosetta or its Affiliates to provide Rosetta Services INCLUDING WITHOUT LIMITATION ANY LOSS ARISING OUT OF OR IN CONNECTION WITH THE NEGLIGENCE OF SELLERS AND/OR THEIR AFFILIATES OR FOR WHICH SELLERS AND/OR THEIR AFFILIATES, WOULD OTHERWISE BE STRICTLY LIABLE, unless such Losses are the result of the gross negligence or willful misconduct of Sellers and/or its Affiliates. Calpine and Sellers, at their expense, shall jointly and severally indemnify, defend and hold harmless Rosetta, its Affiliates and the