UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 29, 1996
Commission File Number 033-73160
CALPINE CORPORATION
(A California Corporation)
I.R.S. Employer Identification No. 77-0031605
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
This report on Form 8-K, including all exhibits, contains 71 pages.
The exhibit index is located on page 3 of this report.
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Gilroy cogeneration facility (the "Facility") is a 120 megawatt natural
gas-fired combined cycle facility located in Gilroy, California. On August 29,
1996 Calpine Corporation, through its wholly owned subsidiary Calpine Gilroy
Cogen, L.P., purchased the assets of the Facility from Gilroy Energy Company, a
wholly owned subsidiary of McCormick & Company, Inc. for a purchase price of
$125.0 million.
In addition, under the terms of a supplemental agreement between Calpine and
McCormick, Calpine expects to pay McCormick approximately $24.0 million over the
next four years.
Calpine financed this acquisition with an 18-year non-recourse project loan of
$116.0 million provided by Banque Nationale de Paris. This loan includes both
floating and fixed interest rate tranches. The balance of the purchase price was
paid from cash on hand.
The Facility generates electricity for sale to Pacific Gas & Electric Company
pursuant to a long term power sales agreement which terminates in 2018. The
power sales agreement contains payment provisions for capacity and energy. In
addition, the Facility produces and sells thermal energy to a thermal host under
a long-term contract that is coterminous with the power sales agreement. Natural
gas for the Facility is currently supplied pursuant to a contract, which expires
July 31, 1997.
Calpine intends to continue to operate the Facility in the same business
following the transaction.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements of Business Acquired
The following financial statements of the Facility are attached hereto
and incorporated herein by reference:
1. Audited Balance Sheets, as of November 30, 1995 and 1994, and the
related Statements of Income, Shareholder's Equity and Cash Flows
for the years ended November 30, 1995 and 1994, together with the
report thereon by Ernst & Young LLP, independent accountants for
Gilroy Energy Company. Unaudited Balance Sheet as of May 31,
1996, and the related Statements of Income, Shareholder's Equity
and Cash Flows for the six month periods ended May 31, 1996 and
1995.
(b) Pro Forma Financial Information
Pro forma financial information for the transaction described in
Item 2, consisting of a Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1995, a Pro Forma Condensed
Consolidated Statement of Operations for the six month period ended
June 30, 1996, and a Pro Forma Condensed Consolidated Balance Sheet as
of June 30, 1996, together with notes thereto, are attached hereto and
incorporated herein by reference.
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<PAGE>
(c) Exhibits
2.1. Asset Purchase Agreement among Gilroy Energy Company, McCormick &
Company, Incorporated and Calpine Gilroy Cogen, L.P. Dated as of
August 29, 1996.
2.2 Noncompetition/Earnings Contingency Agreement among Calpine
Gilroy Cogen, L.P., McCormick & Company, Incorporated, and Gilroy
Energy Company, Inc. Dated as of August 28, 1996.
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<PAGE>
<TABLE>
Pro Forma Condensed Consolidated Statement of Operations
<CAPTION>
Year Ended December 31, 1995
-----------------------------------------------------------------------------------
Pro Forma
for the Recent
Recent Transaction Gilroy
Transaction Sr. Notes and Sr. Notes Transaction
Actual Adjustments Adjustments Adjustments Adjustments Pro Forma
(1) (2) (3)
--------- --------- ---------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Revenue:
Electricity and steam sales ..... $ 127,799 $ 53,128 $ -- $ 180,927 $ 36,221 $ 217,148
Service contract revenue ........ 7,153 250 -- 7,403 -- 7,403
Income (loss) from unconsolidated
investments in power projects (2,854) -- -- (2,854) -- (2,854)
Interest income on loans to power
projects ..................... -- 2,564 -- 2,564 -- 2,564
--------- --------- ---------- --------- --------- ---------
Total revenue ................ 132,098 55,942 -- 188,040 36,221 224,261
--------- --------- ---------- --------- --------- ---------
Cost of revenue:
Plant operating expenses ........ 33,162 23,554 -- 56,716 13,815 70,531
Depreciation and amortization ... 26,264 10,348 -- 36,612 5,490 42,102
Operating lease expense ......... 1,542 11,703 -- 13,245 -- 13,245
Service contract expense ........ 5,846 -- -- 5,846 -- 5,846
Production royalties ............ 10,574 -- -- 10,574 -- 10,574
--------- --------- ---------- --------- --------- ---------
Total cost of revenue ........ 77,388 45,605 -- 122,993 19,305 142,298
--------- --------- ---------- --------- --------- ---------
Gross profit ....................... 54,710 10,337 -- 65,047 16,916 81,963
Project development expenses ....... 3,087 -- -- 3,087 -- 3,087
General and administrative expenses 8,937 -- -- 8,937 -- 8,937
--------- --------- ---------- --------- --------- ---------
Income from operations ....... 42,686 10,337 -- 53,023 16,916 69,939
Interest expense ................... 32,154 7,025 9,176 48,355 9,168 57,523
Other income, net .................. (1,895) (7,263) -- (9,158) -- (9,158)
--------- --------- ---------- --------- --------- ---------
Income before provision for
income taxes ............. 12,427 10,575 (9,176) 13,826 7,748 21,574
Provision for income taxes ......... 5,049 4,295 (3,728) 5,616 3,148 8,764
--------- --------- ---------- --------- --------- ---------
Net income ............... $ 7,378 $ 6,280 $ (5,448) $ 8,210 $ 4,600 $ 12,810
========= ========= ========== ========= ========= =========
Net income per share .... $ 3.33 $ 5.79
========= =========
</TABLE>
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<PAGE>
<TABLE>
Pro Forma Condensed Consolidated Statement of Operations
<CAPTION>
Six Months Ended June 30, 1996
--------------------------------------------------------------------------------
Pro Forma
for the
King City
King City Transaction Gilroy
Transaction Sr. Notes and Sr. Notes Transaction
Actual Adjustments Adjustments Adjustments Adjustments Pro Forma
(4) (5) (6)
-------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Revenue:
Electricity and steam sales ............ $ 72,030 $ 1,583 $ -- $ 73,613 $ 9,491 $ 83,104
Service contract revenue ............... 5,434 -- -- 5,434 -- 5,434
Income (loss) from unconsolidated
investments in power projects ....... 1,713 -- -- 1,713 -- 1,713
Interest income on loans to power ......
projects ............................ 2,817 -- -- 2,817 -- 2,817
-------- -------- -------- -------- -------- --------
Total revenue ....................... 81,994 1,583 -- 83,577 9,491 93,068
-------- -------- -------- -------- -------- --------
Cost of revenue:
Plant operating expenses ............... 22,901 1,669 -- 24,570 4,035 28,605
Depreciation and amortization .......... 15,413 2,800 -- 18,213 2,745 20,958
Operating lease expense ................ 3,239 3,372 -- 6,611 -- 6,611
Service contract expense ............... 4,484 -- -- 4,484 -- 4,484
Production royalties ................... 5,282 -- -- 5,282 -- 5,282
-------- -------- -------- -------- -------- --------
Total cost of revenue ............... 51,319 7,841 -- 59,160 6,780 65,940
-------- -------- -------- -------- -------- --------
Gross profit .............................. 30,675 (6,258) -- 24,417 2,711 27,128
Project development expenses .............. 1,410 -- -- 1,410 -- 1,410
General and administrative expenses ....... 5,874 -- -- 5,874 -- 5,874
-------- -------- -------- -------- -------- --------
Income from operations .............. 23,391 (6,258) -- 17,133 2,711 19,844
Interest expense .......................... 18,665 1,391 3,259 23,315 4,585 27,900
Other income, net ......................... (2,777) (2,526) -- (5,303) -- (5,303)
-------- -------- -------- -------- -------- --------
Income (loss) before provision for
income taxes .................... 7,503 (5,123) (3,259) (879) (1,874) (2,753)
Provision for (benefit from) income taxes . 3,080 (2,103) (1,338) (361) (769) (1,130)
-------- -------- -------- -------- -------- --------
Net income (loss) ............... $ 4,423 $ (3,020) $ (1,921) $ (518) $ (1,105) $ (1,623)
======== ======== ======== ======== ======== ========
Net income (loss) per share .... $ 1.96 $ (0.72)
========= ========
</TABLE>
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<PAGE>
Notes to Pro Forma Condensed Consolidated Statement of Operations
(1) The recent transaction adjustments, presented in the Pro Forma Condensed
Consolidated Statement of Operations for the year ended December 31, 1995,
give effect to the following transactions as if such transactions had
occurred on January 1, 1995; (I) the acquisition by the Company of the
Greenleaf 1 and 2 Facilities, which actually occurred on April 21, 1995;
(ii) the acquisition by the Company of the lease for the Watsonville
Facility, which actually occurred on June 29, 1995; (iii) the entry by the
Company into the agreements in respect to the Cerro Prieto Steam Fields,
which actually occurred on November 17, 1995; and (iv) the acquisition by
the Company of the lease of the King City Facility, which actually occurred
on May 1, 1996.
<TABLE>
<CAPTION>
Greenleaf
1 and 2 Watsonville Cerro Prieto King City
Facilities Facility Steam Fields Facility Total
-------- ------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenue:
Electricity and steam sales ... $ 5,314 $ 3,978 $ -- $ 43,836 $ 53,128
Service contract revenue ...... -- -- 250 -- 250
Income (loss) from
unconsolidated investments
in power projects ......... -- -- -- -- --
Interest income on loans to
power projects ............ -- -- 2,564 -- 2,564
-------- ------- --------- -------- --------
Total revenue ............. 5,314 3,978 2,814 43,836 55,942
-------- ------- --------- -------- --------
Cost of revenue:
Plant operating expenses ...... 5,954 2,857 -- 14,743 23,554
Depreciation and amortization . 1,802 147 -- 8,399 10,348
Operating lease expense ....... -- 1,586 -- 10,117 11,703
Service contract expense ...... -- -- -- -- --
Production royalties .......... -- -- -- -- --
-------- ------- --------- -------- --------
Total cost of revenue ..... 7,756 4,590 -- 33,259 45,605
-------- ------- --------- -------- --------
Gross profit ..................... (2,442) (612) 2,814 10,577 10,337
Project development expenses ..... -- -- -- -- --
General and administrative
expenses ...................... -- -- -- -- --
-------- ------- --------- -------- --------
Income from operations .... (2,442) (612) 2,814 10,577 10,337
Interest expense ................. 1,921 -- 932 4,172 7,025
Other income, net ................ (105) -- -- (7,158) (7,263)
-------- ------- --------- -------- --------
Income before provision for
income taxes ........... (4,258) (612) 1,882 13,563 10,575
Provision for (benefit from)
income taxes .................. (1,730) (249) 765 5,509 4,295
-------- ------- --------- -------- --------
Net income ............. $ (2,528) $ (363) $ 1,117 $ 8,054 $ 6,280
======== ======= ========= ======== ========
</TABLE>
(2) Reflects $18.9 million of interest expense related to the 10-1/2% Senior
Notes and $540,000 of amortization expense for the costs associated with
the sale of the 10-1/2% Senior Notes, reduced by $4.4 million of actual
interest expense in 1995 as a result of the repayment of the $57 million
loan from The Bank of Nova Scotia to Calpine Thermal Company, a wholly
owned subsidiary of the Company, $3.4 million of interest expense as a
result of the repayment
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<PAGE>
of the $45 million loan from The Bank of Nova Scotia to the Company
(assuming an interest rate of 7.5%) and $2.4 million of interest expense as
a result of the repayment of all amounts outstanding under the Credit
Suisse Credit Facility. The $2.4 million represents $704,000 of actual
interest expense in 1995 and $1.7 million of assumed interest expense to
fund the King City and Cerro Prieto Transactions (assuming an interest rate
of 6.0%).
(3) The Gilroy Transaction Adjustments give effect to the Gilroy transaction as
if it had occurred on January 1, 1995.
(4) Represents the pro forma results of operations for the King City Facility
for the period January 1 through April 30, 1996.
(5) Reflects $7.0 million of interest expense related to the 10-1/2% Senior
Notes and $201,000 of amortization expense for the costs associated with
the sale of the 10-1/2% Senior Notes, reduced by $1.9 million of actual
interest expense as a result of the repayment of the $57 million loan from
The Bank of Nova Scotia to Calpine thermal Company, a wholly owned
subsidiary of the Company, $1.1 million of interest expense as a result of
the repayment of the $45 million loan from The Bank of Nova Scotia
(assuming an interest rate of 7.5%) and $973,000 of interest expense as a
result of the repayment of all amounts outstanding under the Credit Suisse
Credit Facility. The $973,000 represents $707,000 of actual interest
expense and $266,000 of assumed interest expense to fund a portion of the
King City Transaction (assuming an interest rate of 6.0%).
(6) Represents the pro forma results of operations for the Gilroy Facility for
the period January 1 through June 30, 1996.
-7-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 1996
------------------------------------------
Gilroy
Transaction
Actual Adjustments Pro Forma
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............ $ 38,403 $ (22,356)(1) $ 16,047
Accounts receivable .................. 43,227 9,000 (2) 52,227
Other current assets ................. 23,114 -- 23,114
--------- --------- ---------
Total current assets .............. 104,744 (13,356) 91,388
Property, plant & equipment, net ............ 530,203 127,521 (3) 657,724
Investment in power projects ................ 12,693 -- 12,693
Notes receivable ............................ 37,386 -- 37,386
Collateral securities ....................... 88,669 -- 88,669
Other assets ................................ 19,117 4,000 (4) 23,117
--------- --------- ---------
Total assets ...................... $ 792,812 $ 118,165 $ 910,977
========= ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of non-recourse
project financing ................. $ 27,178 $ -- $ 27,178
Other current liabilities ............ 25,680 2,165 (5) 27,845
--------- --------- ---------
Total current liabilities ......... 52,858 2,165 55,023
Long-term credit facility ................... -- -- --
Non-recourse long-term project financing,
less current portion ................. 180,974 116,000 (6) 296,974
Notes payable ............................... 6,598 -- 6,598
Senior Notes Due 2004 ....................... 105,000 -- 105,000
Senior Notes Due 2006 ....................... 180,000 -- 180,000
Deferred lease incentive .................... 81,495 -- 81,495
Deferred income taxes, net .................. 100,068 -- 100,068
Other liabilities ........................... 6,163 -- 6,163
--------- --------- ---------
Total liabilities ................. 713,156 118,165 831,321
--------- --------- ---------
Shareholder's equity:
Preferred stock ...................... 50,000 -- 50,000
Common stock ......................... 6,224 -- 6,224
Retained earnings .................... 23,432 -- 23,432
--------- --------- ---------
Total shareholder's equity ........ 79,656 -- 79,656
--------- --------- ---------
Total liabilities and shareholder's
equity ................... $ 792,812 $ 118,165 $ 910,977
========= ========= =========
</TABLE>
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<PAGE>
Notes to Pro Forma Consolidated Balance Sheet
(1) Represents the cash required to finance, in part, the Gilroy transaction.
(2) Represents the accounts receivable in the Gilroy transaction.
(3) Represents the property, plant and equipment acquired in the Gilroy
transaction.
(4) Represents debt reserve amount.
(5) Represents the accounts payable and accrued liabilities in the Gilroy
transaction.
(6) Project financing required to finance, in part, the Gilroy transaction.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CALPINE CORPORATION
Dated: September 11, 1996 By: /s/ Ann B. Curtis
--------------------------
Name: Ann B. Curtis
Title: Senior Vice President
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholder
Gilroy Energy Company
We have audited the accompanying balance sheets of Gilroy Energy Company
(the Company), a wholly owned subsidiary of Gilroy Foods, Inc. which in turn is
a wholly owned subsidiary of McCormick & Company, Inc., as of November 30, 1995
and 1994 and the related statements of income, shareholder's equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gilroy Energy Company at
November 30, 1995 and 1994 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Baltimore, Maryland
July 18, 1996
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<PAGE>
<TABLE>
GILROY ENERGY COMPANY
(a wholly owned subsidiary)
BALANCE SHEETS
(dollars in thousands)
<CAPTION>
ASSETS
November 30
May 31 , ---------------------
1996 1995 1994
-------- -------- --------
(Unaudited )
<S> <C> <C> <C>
Current assets:
Accounts receivable ....................................... $ 4,428 $ 1,615 $ 1,503
Prepaid expenses .......................................... 462 725 776
-------- -------- --------
Total current assets .............................. 4,890 2,340 2,279
Property and equipment, at cost:
Buildings ................................................. 2,720 2,720 2,720
Machinery and equipment ................................... 93,421 93,349 93,098
Furniture and fixtures .................................... 64 64 62
Software .................................................. 65 65 58
-------- -------- --------
96,270 96,198 95,938
Less accumulated depreciation and amortization ............. 39,202 36,712 31,701
-------- -------- --------
57,068 59,486 64,237
Due from parent and affiliates ............................. 64,780 69,422 61,522
-------- -------- --------
Total assets ............................................... $126,738 $131,248 $128,038
======== ======== ========
LIABILITIES
Current liabilities:
Bank overdraft ............................................ -- $ 58 $ 618
Accounts payable .......................................... $ 1,653 2,678 1,767
Accrued interest .......................................... 3,093 3,238 3,363
Other liabilities ......................................... 336 993 241
Current portion of long-term debt ......................... 2,848 2,468 2,152
-------- -------- --------
Total current liabilities ......................... 7,930 9,435 8,141
Long-term debt, due after one year ......................... 50,120 52,968 55,436
Other liabilities .......................................... 399 49 1,083
-------- -------- --------
50,519 53,017 56,519
Shareholder's equity:
Common stock, no par value:
Authorized shares -- 10,000
Issued and outstanding shares -- 1,000 ................. 10 10 10
Additional paid-in capital ................................ 16,946 16,946 16,946
Retained earnings ......................................... 51,333 51,840 46,422
-------- -------- --------
Total shareholder's equity ........................ 68,289 68,796 63,378
-------- -------- --------
Total liabilities and shareholder's equity ................. $126,738 $131,248 $128,038
======== ======== ========
See accompanying notes.
</TABLE>
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<PAGE>
<TABLE>
GILROY ENERGY COMPANY
(a wholly owned subsidiary)
STATEMENTS OF INCOME
(dollars in thousands)
<CAPTION>
Six Months Ended Years Ended
May 31, November 30,
-------------------- ---------------------
1996 1995 1995 1994
----- ----- ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues:
Electricity revenue.................... $9,306 $11,158 $35,132 $40,037
Steam revenue from Gilroy Foods, Inc .. 185 260 1,089 1,367
----- ----- ------ ------
9,491 11,418 36,221 41,404
Cost of sales................................ 6,525 8,125 18,825 23,766
----- ----- ------ ------
Gross margin................................. 2,966 3,293 17,396 17,638
Operating expenses;
Selling, general and administrative ... 720 946 1,888 1,885
----- ----- ------ ------
Operating income............................. 2,246 2,347 15,508 15,753
Interest expense............................. 3,093 3,237 6,477 6,731
----- ----- ------ ------
(Loss) Income before income taxes............ (847) (890) 9,031 9,022
Provision for income tax (benefit) expense .. (340) (356) 3,613 3,622
----- ----- ------ ------
Net (loss) income............................ $ (507) $ (534) $ 5,418 $ 5,400
===== ===== ====== ======
See accompanying notes.
</TABLE>
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<PAGE>
<TABLE>
GILROY ENERGY COMPANY
(a wholly owned subsidiary)
STATEMENT OF SHAREHOLDER'S EQUITY
(dollars in thousands)
<CAPTION>
Common Stock Additional Total
----------------------- Paid-In Retained Shareholder's
Shares Amount Capital Earnings Equity
----- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1993 1,000 $ 10 $16,946 $ 41,022 $57,978
Net income.................. -- -- -- 5,400 5,400
----- ---- ------- -------- -------
Balance at November 30, 1994 1,000 10 16,946 46,422 63,378
Net income.................. -- -- -- 5,418 5,418
----- ---- ------- -------- -------
Balance at November 30, 1995 1,000 10 16,946 51,840 68,796
Net (loss) (unaudited)...... -- -- -- (507) (507)
----- ---- ------- -------- -------
Balance at May 31, 1996
(unaudited).............. 1,000 $ 10 $16,946 $ 51,333 $68,289
===== ==== ======= ======== =======
See accompanying notes.
</TABLE>
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<PAGE>
<TABLE>
GILROY ENERGY COMPANY
(a wholly owned subsidiary)
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Six Months Ended Years Ended
May 31, November 30,
-------------------- --------------------
1996 1995 1995 1994
------ ------ ------ -----
(Unaudited)
Operating activities:
<S> <C> <C> <C> <C>
Net income (loss) ............................... $ (507) $ (534) $ 5,418 $ 5,400
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating
activities:
Depreciation and amortization ................ 2,490 2,482 5,011 4,880
Changes in operating assets and liabilities:
Accounts receivable ........................ (2,813) (3,577) (113) 51
Prepaid expenses ........................... 263 325 52 49
Accounts payable ........................... (1,025) (360) 912 (1,221)
Accrued expenses and other liabilities ..... (452) (644) (408) 364
------ ------ ------ -----
Net cash (used in) provided by operating
activities ....................................... (2,044) (2,308) 10,872 9,523
------ ------ ------ -----
Investing activities:
Due from parent and affiliates ................... 4,642 5,071 (7,900) (4,610)
Purchase of property and equipment ............... (72) (117) (260) (3,376)
------ ------ ------ -----
Net cash provided by (used in) investing
activities ...................................... 4,570 4,954 (8,160) (7,986)
------ ------ ------ -----
Financing activities:
Principal payments on long-term debt ............. (2,468) (2,152) (2,152) (2,152)
------ ------ ------ -----
Net cash (used in) financing activities .......... (2,468) (2,152) (2,152) (2,152)
------ ------ ------ -----
Net decrease (increase) in bank overdraft ........ 58 494 560 (615)
Bank overdraft at beginning of period ............ (58) (618) (618) (3)
------ ------ ------ -----
Bank overdraft at end of period .................. $ -- $ (124) $ (58) $ (618)
====== ====== ====== ======
Supplemental disclosure of cash flow information:
Interest paid .................................... $ 3,238 $ 3,359 $ 6,602 $ 6,602
See accompanying notes.
</TABLE>
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<PAGE>
GILROY ENERGY COMPANY
(a wholly owned subsidiary)
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Gilroy Energy Company (the Company) was incorporated in the State of
California in July 1984. The Company is a wholly owned subsidiary of Gilroy
Foods, Inc. which in turn is a wholly owned subsidiary of McCormick & Company,
Inc. (McCormick). The Company runs a cogeneration facility in Gilroy, California
which uses natural gas and steam turbine engines to generate steam for sale to
Gilroy Foods, Inc. and electricity for sale to Pacific Gas and Electric Company.
Sales to Pacific Gas and Electric Company represented approximately 97%
of total revenues for each of the years ended November 30, 1995 and 1994 and 98%
for the six months ended May 31, 1996 and 1995.
Approximately 80% of the Company's net revenues are recognized during
the months of May through October of each year. As such, the results of
operations for the six month periods ended May 31, 1996 and 1995 are not
indicative of the results of operations that may be realized for the full year.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Bank Overdrafts
---------------
The Company maintains a zero balance bank account. Amounts sufficient
to cover checks presented to the bank are deposited into the account by
McCormick & Company, Inc. The bank overdrafts represent checks that have been
written but have not cleared the bank as of the balance sheet date.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets, ranging from five to forty years.
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<PAGE>
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of " (FAS 121). FAS 121 requires
recognition of impairment of long-lived assets in the event that the net book
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. The Company will be required to adopt FAS 121 in its 1997 fiscal
year. Management does not believe that the initial adoption of FAS 121 will have
a significant impact on the Company.
Repairs and Maintenance
-----------------------
The cogeneration plant requires a periodic shutdown for major overhauls
of its primary components every several years. The Company's policy is to accrue
the anticipated cost of these overhauls during the operating periods prior to
the scheduled overhaul dates. The amounts and period of accruals for overhaul
costs are revised annually based on management's estimate of time remaining
before the next scheduled overhaul and the estimated cost of the overhaul.
Repairs and maintenance expenditures that are not a part of major
overhauls or do not extend the useful life of the related equipment are charged
to expense when incurred.
Due from Parent and Affiliates
------------------------------
The due from parent and affiliates included in the balance sheet
represents a net balance as the result of various transactions between the
Company and Gilroy Foods, Inc. and McCormick & Company, Inc. There are no terms
of settlement, or interest charges associated with the account balance. The
balance is primarily the result of the Company's participation in McCormick's
central cash management program, wherein all the Company's cash receipts are
remitted to McCormick and all cash disbursements are funded by McCormick. Other
transactions include steam sales to Gilroy Foods, Inc., the Company's estimated
income tax payable or receivable resulting from the current and prior years
estimated provisions, and miscellaneous other administrative expenses incurred
by Gilroy Foods, Inc. or McCormick & Company, Inc. on behalf of the Company.
An analysis of transactions in the due from parent and affiliates
balance for the six months ended May 31, 1996 and 1995 (unaudited) and each of
the two years in the period ended November 30, 1995 follows:
-17-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Years Ended
May 31, November 30,
---------------------- ----------------------
1996 1995 1995 1994
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Balance in due from parent and affiliates at
beginning of period ......................... $ 69,422 $ 61,522 $ 61,522 $ 56,912
Net cash remitted (from) to Gilroy Foods, Inc. or
McCormick ................................... (4,616) (5,578) 10,671 7,729
Net intercompany sales ............................ 196 275 1,146 1,438
Net intercompany purchases for cost of sales ...... (532) (3) (218) (6)
Net intercompany purchases for selling, general and
administrative expenses ..................... (30) (121) (87) (929)
Benefit (provision) for income taxes .............. 340 356 (3,612) (3,622)
-------- -------- -------- --------
Balance in due from parent and affiliated at end of
period ............................................ $ 64,780 $ 56,451 $ 69,422 $ 61,522
======== ======== ======== ========
Average balance during the period ................. $ 66,384 $ 58,373 $ 61,811 $ 56,828
======== ======== ======== ========
</TABLE>
Gilroy Foods, Inc. provides certain administrative services to the
Company including the services of the President of Gilroy Energy Company, Inc.,
accounting, and other administrative services. It is the policy of Gilroy Foods,
Inc. to charge these expenses and all other central operating costs on the basis
of direct usage. In the opinion of management, no other costs of Gilroy Foods,
Inc. should be allocated to the Company.
McCormick provides various administrative services to the Company
including legal assistance and treasury services. McCormick does not charge the
Company for these services. In the opinion of management, the cost of the
services rendered by McCormick in these areas during each of the two years ended
November 30, 1995 and 1994 and the six months ended May 31, 1996 and 1995 are
nominal.
Concentration of Credit Risk
----------------------------
The Company sells electricity to Pacific Gas and Electric Company under
a long-term contract. All accounts receivable at May 31, 1996 (unaudited) and
November 30, 1995 and 1994 are due from this customer. No collateral is required
for accounts receivable. Management believes that no reserves are required for
potential credit losses at May 31, 1996 and November 30, 1995 and 1994.
Sources of Supply
-----------------
The Company purchases natural gas for the operation of the cogeneration
facility under a supply contract with one supplier. The supply contract requires
the Company to purchase substantially all of its natural gas needs from the
supplier at a price based on the market value determined in accordance with the
contract through July 31, 1997. Management believes that in the event that this
supplier is not able to meet its obligations under the contract, alternative
sources of supply for natural gas are readily available at comparable prices.
-18-
<PAGE>
2. LONG-TERM DEBT
The Company's outstanding indebtedness is as follows:
November 30,
May 31, -------------------
1996 1995 1994
------- ------- -------
(Unaudited)
Note payable in annual installments through $52,968 $55,436 $57,588
2006 with interest at 11.68% per annum
Less current portion ...................... 2,848 2,468 2,152
------- ------- -------
$50,120 $52,968 $55,436
======= ======= =======
The note payable requires the maintenance of a $5,000 maintenance fund
and a $10,000 debt service fund. The note holder has agreed to accept a
guarantee of up to $15,000 by McCormick & Company, Inc. in lieu of establishing
these funds. The terms of the note payable require the Company to comply with
certain nonfinancial covenants. Management believes that the Company was in
compliance with all applicable covenants at November 30, 1995 and 1994. The note
payable is secured by the cogeneration facility.
The note payable agreement provides for the payment of a prepayment
penalty in the event of early retirement. The amount of the prepayment penalty
approximates the present value of the differential between current market
interest rates and the stated rate over the remaining life of the debt as
defined by the agreement.
Aggregate maturities of long-term debt over the next five fiscal years
ending November 30 and thereafter are as follows:
1996.............................................. $2,468
1997.............................................. 2,848
1998.............................................. 3,101
1999.............................................. 3,481
2000.............................................. 3,797
Thereafter........................................ 39,741
------
$55,436
=======
3. INCOME TAXES
The Company is included in the consolidated federal and state income
tax returns of McCormick. McCormick does not have a formal tax sharing
arrangement with its subsidiaries. The income tax provisions included in the
statements of income has been provided under the liability method assuming that
Gilroy Energy Company had prepared separate income tax returns for the years
ended November 30, 1995 and 1994 and the six months ended May 31, 1996 and 1995
(unaudited). Any income taxes receivable or payable as a result of the income
tax provisions, including any deferred amounts due or payable resulting from the
current or prior years provisions are included in due from parent and
affiliates.
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<PAGE>
The (benefit) provision for income taxes is summarized as follows:
Six Months Ended Years Ended
May 31, November 30,
------------------ ------------------
1996 1995 1995 1994
------- ------- ------- -------
(Unaudited)
Current:
Federal . $ (288) $ (303) $ 3,877 $ 4,061
State ... (52) (53) 1,169 1,225
------- ------- ------- -------
(340) (356) 5,046 5,286
------- ------- ------- -------
Deferred:
Federal . -- -- (1,095) (1,278)
State ... -- -- (338) (386)
------- ------- ------- -------
-- -- (1,433) (1,664)
------- ------- ------- -------
$ (340) $ (356) $ 3,613 $ 3,622
======= ======= ======= =======
The reconciliation between income tax computed at the United States
federal statutory rate and income taxes actually provided follows:
<TABLE>
<CAPTION>
Six Months Ended May 31, Years Ended November 30,
----------------------------------- -------------------------------
1996 1995 1995 1994
--------------- -------------- ------------- --------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ -----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at federal rate ...... $ (288) 34.0% $ (303) 34.0% $3,071 34.0% 3,067 34.0%
State income taxes, net of
federal benefit ........ (52) 6.1% (53) 6.0% 542 6.0% 555 6.1%
------ ------ ------ ------
Actual income taxes
(benefit) provided ..... $ (340) 40.1% $ (356) 40.0% $3,613 40.0% $3,622 40.1%
====== ====== ====== ======
</TABLE>
The temporary differences that give rise to significant portions of the
deferred tax assets and liabilities that have been netted in due from parent and
affiliates consist of the following:
<TABLE>
<CAPTION>
November 30,
-----------------
1995 1994
------- -------
<S> <C> <C>
Temporary differences resulting in deferred tax assets:
Repairs and maintenance expenditures ................ $ 986 $ 1,082
------- -------
Temporary differences resulting in deferred tax
liabilities:
Depreciation ........................................ 50,897 54,587
Prepaid expenses .................................... 810 758
Other ............................................... 357 357
------- -------
52,064 55,702
------- -------
$51,078 $54,620
======= =======
</TABLE>
No valuation allowance is provided for deferred tax assets.
-20-
<PAGE>
4. RELATED PARTY TRANSACTIONS
The Company sells substantially all of the steam, which is a byproduct
of the cogeneration process to Gilroy Foods, Inc. During the years ended
November 30, 1995 and 1994, the amount of revenue recognized by the Company from
steam sales to Gilroy Foods, Inc. was $1,089 and $1,367, respectively. During
the six months ended May 31, 1996 and 1995, the amount of revenue recognized by
the Company from steam sales to Gilroy Foods, Inc. was $185 and $261,
respectively.
Gilroy Foods, Inc. provides certain accounting and administrative
services to Gilroy Energy Company, Inc. A portion of the cost of these services
is billed directly to Gilroy Energy Company, Inc.
The Company leases the land where the cogeneration facility is located
under an operating lease with Gilroy Foods, Inc. The lease agreement runs
through 2018 and provides for minimum annual rental payments with
1996 ............... $ 40
1997 ............... 40
1998 ............... 40
1999 ............... 40
2000 ............... 40
2001 through 2018... 715
---
$915
====
Rent expense recognized under this lease was $38 and $37 in the years
ended November 30, 1995 and 1994, respectively, and $20 and $19 in the six
months ended May 31, 1996 and 1995, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company has an agreement with the Pacific Gas and Electric Company
(PG&E) to sell all electricity generated by the cogeneration facility to PG&E.
The agreement establishes the methodology used to calculate the purchase price
of the electricity, establishes the operating hours of the cogeneration
facility, and provides for the payment to the Company of additional capacity
payments if certain operating targets as defined are achieved. The current
provisions of this agreement extend through December 31, 1998. Subsequent to
December 31, 1998 and continuing through the expiration of the base agreement on
December 31, 2017, the pricing and operating provisions of the agreement will be
established by negotiation between PG&E and Gilroy Energy Company.
The Company has an agreement with Gilroy Foods, Inc. whereby Gilroy
Foods, Inc. has agreed to purchase substantially all of the steam produced by
the Company. The terms of the agreement, which extends through 2017, provide for
the establishment of the purchase price for steam based on the current cost of
alternative sources of energy available to Gilroy Foods, Inc.
-21-
<PAGE>
The Company has an operating and maintenance agreement with an outside
party for the daily operation and maintenance of the cogeneration facility. This
agreement, which extends through November 1996, provides for all operating and
routine maintenance of the cogeneration facility at direct costs plus a minimum
annual fee of $100,000. The contract also provides for the payment of bonuses,
as defined, if certain operating targets are met.
6. FAIR VALUE
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
Accounts receivable, due from parent and affiliates, bank overdrafts, current
portion of long- term debt, accounts payable, and accrued liabilities -- The
amounts reported in the balance sheet approximate fair value.
Long-term debt. The fair value of long-term debt, based on a discounted
cash flow analysis using current interest rates for debt with similar
characteristics and maturities is as follows:
November 30
1995 1994
-----------------------------------------------------
Fair Carrying Fair Carrying
Value Value Value Value
------- ------- ------- -------
Long-term debt $68,100 $52,968 $63,000 $55,436
7. SUBSEQUENT EVENT
In May 1996, McCormick & Company, Inc. announced its intention to sell
the assets and liabilities, excluding the due from parent and affiliates, the
current portion of long-term debt and the long-term debt of the Company to
Calpine Corporation. At the time of the closing of the sale, McCormick &
Company, Inc. will assume the due from parent and affiliates and will be
required to retire the current portion of the long-term debt and the long- term
debt. In addition to all remaining assets and liabilities of Gilroy Energy
Company, Calpine Corporation will assume all rights and obligations under the
following agreements to which Gilroy Energy Company is currently a party:
o Long-term contract to sell electricity to Pacific Gas and Electric
Company.
o Natural gas supply contract through July 31, 1997.
o Lease for the land with Gilroy Foods, Inc. upon which the cogeneration
facility is located.
o Steam sale contract with Gilroy Foods, Inc.
o Upon closing of the sale, the management contract with the current
operator of the cogeneration facility will be terminated by McCormick &
Company, Inc.
-22-
<PAGE>
It is currently anticipated that the closing date for the sale of the
applicable assets and liabilities of Gilroy Energy Company to Calpine
Corporation will take place in the third quarter of 1996.
-23-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of August 28, 1996, by and among Gilroy Energy Company, Inc., a
California corporation (the "Seller"); McCormick & Company, Incorporated, a
Maryland corporation ("McCormick"), and Calpine Gilroy Cogen, L.P., a Delaware
limited partnership (the "Buyer"), with reference to the following:
A. The Seller is a wholly owned subsidiary of Gilroy Foods,
Incorporated, a California corporation ("Gilroy Foods"). Gilroy Foods is a
wholly owned subsidiary of McCormick. Consequently, McCormick is the indirect
parent of the Seller.
B. Immediately prior to execution and delivery of this Agreement,
Gilroy Foods sold substantially all of its assets, including the Food Processing
Facility (as defined below), and assigned all of its right, title and interest
in and to the Ground Lease and the Steam Agreement (as defined below), to
ConAgra, Inc., a Delaware corporation ("ConAgra"), and ConAgra assumed all of
Gilroy Foods' obligations under the Ground Lease and the Steam Agreement
(collectively, the "ConAgra Acquisition").
C. The Seller owns the Gilroy cogeneration facility, a 120 megawatt
(nominal net) gas-fired combined cycle cogeneration facility more fully
described in Schedule A-1 (the "Facility") located on certain real property in
the City of Gilroy, State of California, and more particularly described in
Schedule A-2 hereto (the "Site").
D. The Site is leased by the Seller from ConAgra, pursuant to that
certain Lease Agreement, dated June 17, 1986 by and between the Seller and
Gilroy Foods, as amended by that certain Amendment No. 1 to Lease Agreement
dated September 14, 1994 by and between the Seller and Gilroy Foods, and
assigned by Gilroy Foods to ConAgra pursuant to the ConAgra Acquisition
(collectively the "Ground Lease").
E. ConAgra owns and operates the food dehydrating plant which is
adjacent to the Facility (the "Food Processing Facility") and purchases steam
from the Seller for use at the Food Processing Facility pursuant to that certain
Steam Purchase and Sales Contract dated January 20, 1986 by and between Gilroy
Foods and the Seller, which was assigned by Gilroy Foods to ConAgra pursuant to
the ConAgra Acquisition.
F. The Buyer desires to purchase, and the Seller desires to sell, all
of the Seller's right, title and interest in the Facility and other related
assets and properties set forth below in exchange for the Purchase Price (as
defined below), all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties, intending to be legally bound,
hereby agree as follows:
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<PAGE>
ARTICLE 1
Definitions and Interpretation
1.1 Defined Terms. Capitalized terms used in this Agreement without
other definition shall have the meanings specified in this Section 1.1, unless
the context requires otherwise.
"Affiliate" of a specified Person means any other Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with the Person specified. For purposes of the
foregoing, "control," "controlled by" and "under common control with," with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Agent" means Banque Nationale de Paris, Los Angeles Branch, as agent
for the Issuing Bank, and the other financial institutions identified as lenders
(collectively, the "Lenders") in that certain Credit Agreement, dated as of even
date herewith, by and among the Buyer, the Agent, the Issuing Bank and the
Lenders.
"Agreement" means this Asset Purchase Agreement, including all
Exhibits, Schedules and Attachments.
"Allocation Statement" has the meaning set forth in Section 2.3.1.
"Amended and Restated Lease Agreement" means that certain Amended and
Restated Lease Agreement, to be executed by and between ConAgra and the Buyer,
in the form attached hereto as Exhibit B.
"Amended and Restated Natural Gas Sales Agreement" means that certain
Amended and Restated Natural Gas Sales Agreement, to be executed by and between
Amoco and the Buyer, in the form attached hereto as Exhibit C.
"Amoco" means Amoco Energy Trading Corporation, a Delaware corporation
and wholly owned subsidiary of Amoco Production Company, a Delaware corporation.
"Assets" has the meaning set forth in Section 2.1.
"Assigned Contracts" has the meaning set forth in Section 2.1.3.
"Assignment of Lease Agreement" means that certain Assignment of Lease
Agreement to be executed by and between the Seller and the Buyer and recorded in
the Santa Clara County Recorders Office, in the form of Exhibit D hereto,
whereby the
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<PAGE>
Seller assigns and the Buyer assumes all of the Seller's rights and obligations
under the Ground Lease, as more fully set forth therein.
"Assignment of Natural Gas Sales Agreement" means that certain
Assignment of Natural Gas Sales Agreement to be executed by and between the
Seller and the Buyer, in the form of Exhibit E hereto, whereby the Seller
assigns and the Buyer assumes all of the Seller's rights and obligations under
the Natural Gas Sales Agreement, as more fully set forth therein.
"Assignment of Power Purchase Agreement" means that certain Assignment
of Power Purchase Agreement to be executed by and between the Seller and the
Buyer, in the form of Exhibit F hereto, whereby the Seller assigns and the Buyer
assumes all of the Seller's rights and obligations under the Power Purchase
Agreement, as more fully set forth therein.
"Assignment of Steam Agreement" means that certain Assignment of Steam
Sales Agreement to be executed by and between the Seller and the Buyer, in the
form of Exhibit G hereto, whereby the Seller assigns and the Buyer assumes all
of the Seller's rights and obligations under the Steam Agreement, as more fully
set forth therein.
"Assignment of Wastewater Discharge Requirements" means that certain
Assignment in Part of Waste Discharge and Water Reclamation Requirements among
the Seller, ConAgra and the Buyer, in the form of Exhibit H hereto, whereby the
Seller and ConAgra assign and the Buyer assumes all of the Seller's and
ConAgra's rights, benefits and duties under those certain Waste Discharge and
Water Reclamation Requirements (as defined in the Assignment of Wastewater
Discharge Requirements) to the extent that such rights, benefits and duties
relate to the discharge of wastewater from the Facility.
"Assumed Liabilities" has the meaning set forth in Section 2.2.
"Bechtel North American" means Bechtel North American Power
Corporation, a Nevada corporation.
"Bill of Sale" means the Bill of Sale contemplated by Section 3.2.2.
"Books and Records" has the meaning set forth in Section 2.1.5.
"Buyer" has the meaning set forth in the preamble.
"Calpine" means Calpine Corporation, a California corporation.
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section 3.1.
"Closing Documents" means, collectively, this Agreement, the Quitclaim
Deed, the Covenant Respecting Easement, the Amended and Restated Lease
Agreement,
-26-
<PAGE>
the Assignment of Lease Agreement, the Assignment of Natural Gas Sales
Agreement, the Assignment of Power Purchase Agreement, the Assignment of Steam
Agreement, the Assignment of Wastewater Discharge Requirements, the Bill of
Sale, the General Assignment and Assumption Agreement, the ConAgra Option
Agreements, the Lessor Consent and Agreement, the Natural Gas Sales Consent and
Agreement, the Noncompete Agreement, the Memorandum of Lease, the Memorandum of
Option (QF Property), the Memorandum of Option (Site), the Memorandum of
Wastewater Discharge Option Agreement, the Power Purchase Consent and Agreement,
the Purchaser's Consent, the Steam Sales Amendment, the Steam Sales Consent and
Agreement, the Shutdown Agreement, the Shutdown Consent, the Stock Purchase
Letter Agreement, the Substation Operating Agreement, and all other agreements
to be executed and delivered at Closing as agreed to by the parties.
"ConAgra" has the meaning set forth in the Recitals.
"ConAgra Acquisition" has the meaning set forth in the Recitals.
"ConAgra Assignment Agreement" means that certain Assignment of Steam
Purchase and Sale Contract, dated as of even date herewith, between Gilroy Foods
and ConAgra, pursuant to which Gilroy Foods assigns to, and ConAgra assumes, all
of Gilroy Foods' right, title and interest in and to, and duties, liabilities
and obligations under the Steam Agreement, from and after the effective date of
such assignment, as more fully set forth therein.
"ConAgra Option Agreements" collectively means that certain (i) QF Site
Option Agreement between ConAgra and the Buyer in the form of Exhibit I-1
hereto, (ii) Wastewater Discharge Option Agreement between ConAgra and the Buyer
in the form of Exhibit I-2 hereto and (iii) Facility Site Option Agreement
between ConAgra and the Buyer in the form of Exhibit I-3 hereto.
"Covenant Respecting Easement" means that certain Covenant Respecting
Easement between Gilroy Foods and Gilroy Foods relating to the provision of an
access easement, for the benefit of the QF Site.
"CPUC" means the California Public Utilities Commission and its
successors.
"Default" means, when used with reference to any agreement without
other reference, any event or circumstance that, with the giving of notice or
lapse of time, or both, would, unless cured or waived, become an Event of
Default under such agreement.
"Deposit" means the principal amount of Five Hundred Thousand Dollars
($500,000), which was paid by the Buyer to McCormick as a deposit and which
amount, without interest, shall be applied in the following manner: (i) credited
against the Purchase Price on the Closing Date, (ii) nonrefundable, if this
Agreement is terminated by the Seller and McCormick pursuant to Section 3.4.1
because of a Default by the Buyer, (iii) refundable, in the event this Agreement
is terminated by the Buyer pursuant to Section
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<PAGE>
3.4.2 because of a default by the Seller or McCormick or by mutual consent of
the parties, in which case the Deposit shall be returned to the Buyer by
McCormick in immediately available funds within two (2) business days
thereafter, or (iv) refundable, in the event this Agreement is terminated
pursuant to Section 3.4.3 because of a failure of a condition (absent a Default
by the Buyer), in which case the Deposit shall be returned to the Buyer by
McCormick in immediately available funds within two (2) business days
thereafter.
"Effective Date" means the date on which the Assignment of Lease
Agreement, the ConAgra Assignment Agreement, the Memorandum of Lease, the
Memorandum of QF Site Option Agreement, the Memorandum of Facility Site Option
Agreement, and the Memorandum of Wastewater Discharge Option Agreement are
recorded in the Santa Clara County Recorders Office.
"Employee Benefit Plan" means any employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974).
"Environmental Laws" means, collectively, all Governmental Rules which
in any way relate to health, safety or the environment.
"Escrow" has the meaning set forth in Section 3.1.
"Escrow Holder" has the meaning set forth in Section 3.1.
"Event of Default" means, when used with reference to any agreement
without other reference, an event of default or other similar event as defined
in, or pursuant to, the terms of such agreement.
"Excluded Liabilities" has the meaning set forth in Section 2.2.
"Facility" has the meaning set forth in the Recitals.
"FERC" means the Federal Energy Regulatory Commission and its
successors.
"Fixed Assets" has the meaning set forth in Section 2.1.1.
"Food Processing Facility" has the meaning set forth in the Recitals.
"FPA" means the Federal Power Act and the rules and regulations adopted
thereunder.
"GAAP" means generally accepted accounting principles in effect in the
United States from time to time.
"General Assignment and Assumption Agreement" means the General
Assignment and Assumption Agreement contemplated by Section 3.2.3.
"Gilroy Foods" has the meaning set forth in the Recitals.
-28-
<PAGE>
"Governmental Approval" means any applicable authorization, approval,
consent, license, lease, ruling, permit, tariff, certification, exemption,
filing or registration by or with any Governmental Person.
"Governmental Person" means any federal, state, local or other
government, any political subdivision or any governmental, judicial, public or
statutory instrumentality, tribunal, agency (including those pertaining to
health, safety or the environment), authority, body or entity, or other
regulatory bureau, authority, body or entity having legal jurisdiction over the
matter or Person in question.
"Governmental Rule" means any applicable federal, state, local or other
law, statute, treaty, rule, regulation, ordinance, order, code, judgment,
decree, directive, injunction, writ or similar action or decision duly
implementing any of the foregoing by any Governmental Person, but does not
include Governmental Approvals.
"Ground Lease" has the meaning set forth in the Recitals.
"Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials or wastes, including petroleum and by-products of
petroleum, asbestos and substances defined as "hazardous substances", "hazardous
material", or "toxic substances" in the Comprehensive Environmental Response
Compensation and Liability Act of 1980 as amended, 42 U.S.C. Sections 9601 et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et
seq., and those substances defined as "hazardous wastes" in the Hazardous Waste
Control Law, California Health and Safety Code Sections 25110 et seq., or
"hazardous substances" in the Hazardous Substance Account Act, California Health
and Safety Code Sections 25300 et seq.; in the regulations adopted and
publications promulgated pursuant to such laws, and in the hazardous materials
storage and handling ordinances of the city and/or county in which the Site is
located, if any; as amended.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnitee" has the meaning set forth in Section 8.3.
"Indemnitor" has the meaning set forth in Section 8.3.
"Inventory" has the meaning set forth in Section 2.1.2.
"Lessor Consent and Agreement" means that certain Consent and Agreement
(Real Estate Documents) to be executed by and between ConAgra and the Buyer in
the form attached hereto as Exhibit J.
"Letter of Credit" means that certain irrevocable standby letter of
credit issued by Banque National de Paris for the benefit of the Seller and
McCormick in the form set forth in the Noncompete Agreement.
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<PAGE>
"Liabilities" has the meaning set forth in Section 4.11.
"Lien" means any lien, mortgage, encumbrance, charge, pledge, lease,
security interest, claim, option or right of any kind (including any conditional
sale or other title retention agreement).
"McCormick" has the meaning set forth in the preamble.
"Memorandum of Lease" means the Memorandum of Lease Agreement, in the
form attached hereto as Exhibit K, to be executed by and between ConAgra and the
Buyer and recorded in the Santa Clara County Recorders Office.
"Memorandum of QF Site Option Agreement" means the Memorandum of QF
Site Option Agreement, in the form attached hereto as Exhibit L, to be executed
by and between ConAgra and the Buyer and recorded in the Santa Clara County
Recorders Office.
"Memorandum of Facility Site Option Agreement" means the Memorandum of
Facility Site Option Agreement, in the form attached hereto as Exhibit M, be
executed by and between ConAgra and the Buyer and recorded in the Santa Clara
County Recorders Office.
"Memorandum of Wastewater Discharge Option Agreement" means the
Memorandum of Wastewater Discharge Option Agreement, in the form attached hereto
as Exhibit M-1, be executed by and between ConAgra and the Buyer and recorded in
the Santa Clara County Recorders Office.
"Natural Gas Sales Agreement" means that certain Natural Gas Sales
Agreement, dated August 1, 1995 by and between the Seller and Amoco.
"Natural Gas Sales Consent and Agreement" means that certain Consent
and Agreement (Natural Gas Sales Agreement) to be executed by and between Amoco,
the Seller and the Agent, in the form attached hereto as Exhibit N.
"Net Trade Adjustment" means the difference (which may be a positive or
negative number) obtained by subtracting the Net Trade Estimate from the Net
Trade Amount.
"Net Trade Amount" means the trade accounts receivable plus the prepaid
expenses (excluding, however, any amounts representing prepaid insurance for
coverage which is canceled on the Closing Date) less trade account payables as
they appear in the Seller's balance sheet prepared as of the Closing Date (it
being understood that Buyer has not received such balance sheet and is relying
upon the Net Trade Estimate prepared by McCormick) plus accrued maintenance
items identified on Schedule B. A sample calculation of the Net Trade Amount,
assuming a May 31, 1996 Closing Date, is attached hereto as Schedule B.
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<PAGE>
"Net Trade Estimate" means an estimate of the Net Trade Amount as of
the Closing Date, also attached hereto as Schedule B.
"Noncompete Agreement" means that certain Noncompetition/Earnings
Contingency Agreement to be executed by and among the Seller, McCormick and the
Buyer, in the form of Exhibit O hereto.
"O&M Agreement" means that certain Gilroy Foods Cogeneration Plant
Operation and Maintenance Agreement, dated as of January 20, 1986, by and
between the Seller and Bechtel North American.
"PG&E" means Pacific Gas and Electric Company, a California
corporation.
"Person" means any individual, corporation, partnership, trust, joint
venture, unincorporated association, limited liability company, Governmental
Person or other entity, including its permitted successors and permitted
assigns.
"Post-Closing Review" has the meaning set forth in Section 2.4.2.
"Power Purchase Agreement" means that certain Long-Term Energy and
Capacity Power Purchase Agreement among Gilroy Foods, Pacific Thermonetics, Inc.
and PG&E, as executed by PG&E on December 19, 1983, as amended by a First
Amendment to "Long-Term Energy and Capacity Power Purchase Agreement Between
Gilroy Foods, Inc., Pacific Thermonetics, Inc. and Pacific Gas and Electric
Company" dated December 19, 1983, as executed by PG&E on July 18, 1985, and, as
so amended, as assigned by Gilroy Foods to the Seller, as further amended by a
Second Amendment to "Long-Term Energy and Capacity Power Purchase Agreement"
dated December 19, 1983, as Amended July 18, 1985, as executed by PG&E on
June 9, 1986, as further amended by a Third Amendment to "Long-Term Energy and
Capacity Power Purchase Agreement" dated December 19, 1983, as Amended July 18,
1985 and June 9, 1986, as executed by PG&E on August 18, 1988, and as further
amended by a Fourth Amendment to the Long-Term Energy and Capacity Power
Purchase Agreement Between Gilroy Energy Company and Pacific Gas and Electric
Company, as executed by PG&E on June 6, 1991.
"Power Purchase Consent and Agreement" means that certain Consent to
Assignment and Agreement (Power Purchase Agreement) to be executed by and
between PG&E, the Buyer and the Agent, in the form attached hereto as Exhibit P.
"Pre-closing" has the meaning set forth in Section 3.1.
"Project Documents" has the meaning set forth in Section 4.8.
"Prudential" means The Prudential Life Insurance Company of America, a
New Jersey mutual insurance company.
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"PUHCA" means the Public Utility Holding Company Act of 1935 and the
rules and regulations adopted thereunder.
"Purchase Price" has the meaning set forth in Section 2.3.
"Purchase Price Adjustment Schedule" has the meaning set forth in
Section 2.4.4.
"Purchaser's Consent" means that certain Consent and Agreement (Steam
Purchase Agreement) to be executed by and between ConAgra and the Buyer in the
form attached hereto as Exhibit Q.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, and
all rules and regulations adopted thereunder.
"QF Site" means the site described in the Memorandum of QF Site Option
Agreement.
"Qualifying Facility" means a "qualifying facility" within the meaning
of PURPA.
"Quitclaim Deed" means that certain Quitclaim Deed from Seller to
Gilroy Foods relating to the termination of a storm drain easement.
"Seller" has the meaning set forth in the preamble.
"Senior Loan Documents" means collectively, that certain Construction
and Term Loan Agreement, dated as of May 15, 1986, by and between the Seller and
Prudential, and all agreements, instruments or other documents relating to the
loan made by Prudential to the Seller in connection with the original
construction of the Facility.
"Shutdown Agreement" means that certain Shutdown Agreement between
ConAgra and the Buyer in the form of Exhibit R hereto.
"Shutdown Consent" means that certain Consent and Agreement (Shutdown
Agreement and Assignment in Part WDR's) to be executed by and between ConAgra
and the Buyer in the form attached hereto as Exhibit R-1.
"Site" has the meaning set forth in the preamble.
"Steam Agreement" means that certain Steam Purchase and Sale Contract,
dated as of January 20, 1986, by and between the Seller and Gilroy Foods.
"Steam Sales Amendment" means that certain First Amendment to Steam
Purchase and Sale Contract, to be executed by and between ConAgra and the Buyer,
in the form attached hereto as Exhibit S.
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"Stock Purchase Letter Agreement" means that certain Letter Agreement
Regarding Acquisition of Gilroy Foods between McCormick and Calpine and that
certain Indemnity Guaranty from Calpine.
"Substation Operating Agreement" means that certain Substation
Operating Agreement, to be executed by and between ConAgra and Calpine, in the
form attached hereto as Exhibit T.
"Threshold" has the meaning set forth in Section 8.3.
1.2 Interpretation.
(a) Reference to a given Section, Subsection, Exhibit or Schedule is a
reference to a Section, Subsection, Exhibit or Schedule of this Agreement,
unless otherwise specified. The terms "hereof," "herein," "hereunder,"
"herewith" refer to this Agreement as a whole.
(b) Except where otherwise expressly provided or unless the context
otherwise necessarily requires: (i) reference to a given Governmental Rule is a
reference to that law as amended or modified as of the date on which the
reference is made, (ii) reference to a given agreement or instrument is a
reference to that agreement or instrument as modified, amended, supplemented and
restated through the date hereof, (iii) accounting terms have the meanings given
to them by GAAP applied on a consistent basis, and (iv) "including" means
"including, without limitation."
ARTICLE 2
Sale and Purchase of Assets, Liabilities, and Purchase Price, Manner of Payment
2.1 Sale of Assets. Upon the terms and subject to the conditions of
this Agreement, at the Closing on the Closing Date, the Seller shall sell,
convey, transfer, assign and deliver to the Buyer, and the Buyer agrees to
purchase from the Seller, all of the Seller's right, title and interest in, to
the following (collectively, the "Assets"):
2.1.1 Fixed Assets. All of the equipment, machinery, tools, supplies,
computers, office equipment, fixtures and other fixed assets relating to the
ownership, management, operation and maintenance of the Facility, a list of
which, including identification of the location thereof, is attached hereto as
Schedule 2.1.1, which assets shall be deemed to be Fixed Assets hereunder;
2.1.2 Inventory and Spare Parts. All of the Seller's inventory and
spare parts relating to the ownership, management, operation and maintenance of
the Facility, a list of which, including identification of the location thereof,
is attached hereto as Schedule 2.1.2 (hereinafter referred to collectively as
the "Inventory");
2.1.3 Agreements and Contracts. The Seller's right, title and interest
in all agreements and contracts listed in Schedule 2.1.3, including the Power
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Purchase Agreement, the Steam Sales Agreement, the Natural Gas Sales Agreement
and the Ground Lease (collectively, the "Assigned Contracts");
2.1.4 Intangibles. All of the trade names, trademarks, service marks,
copyrights, patents, patent rights, licenses, trade secrets, technical know-how,
goodwill and other intangibles owned by the Seller or in which the Seller has an
interest and which relate to the ownership, management, operation and
maintenance of the Facility;
2.1.5 Books and Records. All papers, databases, computer programs,
disks, software, records, and other books, records, documents and materials in
the Seller's, Bechtel North American's or Gilroy Foods' care, custody or control
relating to ownership, management, operation or maintenance of the Facility
(collectively, "Books and Records") (The Seller may make and retain copies of
the Books and Records as it sees fit.);
2.1.6 Governmental Approvals. All Governmental Approvals and other
intangible assets relating to ownership, management, operation or maintenance of
the Facility;
2.1.7 Improvements and Real Estate Rights. The Facility and all
easements, rights of way and other appurtenant rights relating to the Seller's
interest in the Site or which are used to maintain and operate the Facility; and
2.1.8 All Property Not Elsewhere Described. All other property of the
Seller of every kind, character or description owned, used or held for use
(whether or not exclusively) in connection with the ownership, management,
operation or maintenance of the Facility, wherever located and whether or not
similar to the other Assets set forth elsewhere in this Section 2.1.
2.2 Liabilities. The Buyer and the Seller hereby acknowledge and agree
that the Buyer is not assuming any of the debts, obligations or liabilities in
connection with the Facility, including, all liabilities arising out of the
agreements, contracts, leases, licenses, permits and other arrangements relating
to the Assets prior to the Closing Date, except as expressly set forth in
Schedule B. The Buyer shall assume all of the liabilities, obligations and
duties of the Seller attributable to the Assets arising in respect of all
periods after the Closing Date; provided, that the Buyer shall not assume any of
the liabilities or obligations listed on Schedule 2.2 attached hereto
(collectively, the "Excluded Liabilities"), which Excluded Liabilities shall be
retained by and remain obligations and liabilities of the Seller (together with
the liabilities assumed under Schedule B, collectively, the "Assumed
Liabilities").
2.3 Purchase Price. At the Closing, the Buyer shall pay the Seller, in
immediately available funds, for the Assets an aggregate amount of (i)
$125,000,000 (the "Purchase Price") plus (ii) the Net Trade Estimate minus (iii)
the Deposit, as follows:
2.3.1 Allocation Statement. The Purchase Price shall be allocated as
follows:
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(i) Fixed Assets, Including Inventory $124,900,000
(a) Power Purchase Agreement 63,400,000
(b) Property, Plant and Equipment 61,500,000
(ii) Other Assets 100,000
------------
TOTAL $125,000,000
============
The allocations set forth above shall be referred to herein collectively as the
"Allocation Statement."
2.3.2 Reporting. The Seller and the Buyer agree to report an allocation
of the Purchase Price among the Assets in the manner entirely consistent with
the foregoing Allocation Statement and agree to act in accordance with such
Allocation Statement and filing of all tax returns (including, filing Form 8594
with its Federal income tax return for the taxable year that includes the date
of Closing) and in the course of any tax audit, tax review or tax litigation
relating thereto. The Seller's federal employer identification number is
52-0408290, and the Buyer's federal employer identification number is
77-0436504.
2.4 Purchase Price Post-Closing Adjustment. The Purchase Price shall be
adjusted after the Closing Date in accordance with the provisions of this
Section 2.4.
2.4.1 Preparation of Net Trade Amount. Within forty-five (45) days
after the Closing Date, the Seller shall prepare (i) the Net Trade Amount as of
the Closing Date, and (ii) a schedule showing the adjustments to the Purchase
Price (if any) to be made in accordance with Section 2.4.4 (the "Purchase Price
Adjustment Schedule"). Such Net Trade Amount shall be prepared in accordance
with GAAP, consistent with the audited financial statements as of and for the
years ended November 30, 1995 and November 30, 1994, and shall present fairly
the financial position of the Seller as of the Closing Date, with respect to
those items included in the Net Trade Amount.
2.4.2 Post-Closing Review. The Buyer shall thereafter have the right to
conduct and complete a review (the "Post-Closing Review") of the Net Trade
Amount as of the Closing Date and the Purchase Price Adjustment Schedule within
thirty (30) days after receipt of (i) the Net Trade Amount as of the Closing
Date, (ii) the Purchase Price Adjustment Schedule, and (iii) the financial
records of the Seller's operation of the Facility through the Closing Date. The
Post-Closing Review shall be conducted by the Buyer or its representatives, at
the Buyer's expense, in a manner sufficient to reasonably satisfy the Buyer that
the Net Trade Amount as of the Closing Date fairly presents the financial
position of the Seller in conformity with GAAP, consistent with the audited
financial statements as of and for the years ended November 30, 1995 and
November 30, 1994, with respect to those items included in the Net Trade Amount.
The Buyer shall have the right to audit the books and records of the Seller and
the Seller shall permit the Buyer access to the Seller's audit workpapers
pertaining to the Net Trade Amount as of the Closing Date and the Purchase Price
Adjustment Schedule.
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2.4.3 Access to Books and Records. The Buyer shall give representatives
of the Seller reasonable access after the Effective Date to the Books and
Records. The Buyer shall retain all Books and Records relating to periods
commencing January 1, 1989 and expiring on the Closing for all periods required
by law and shall not destroy any of such Books and Records without prior written
notice to McCormick, who shall be afforded an opportunity to make copies
thereof, at McCormick's expense, prior to their destruction; PROVIDED, HOWEVER,
that the Buyer makes no representations or warranties regarding the contents or
condition of such Books and Records while in the buyer's possession.
2.4.4 Determination of Purchase Price Post-Closing Adjustment. The
Purchase Price shall be adjusted after the completion of the Post-Closing Review
to reflect the final determination of the Net Trade Amount. The Purchase Price
shall be increased by the Net Trade Adjustment if such Net Trade Adjustment is a
positive number, or shall be decreased by the Net Trade Adjustment if such Net
Trade Adjustment is a negative number.
2.4.5 Payment of Purchase Price Post-Closing Adjustment. The Net Trade
Adjustment, and interest accrued thereon, in favor of either the Seller or the
Buyer shall be paid to the other party, by wire transfer of immediately
available funds, to an account designated by the party in whose favor such Net
Trade Adjustment is being made, promptly upon the determination of the Net Trade
Amount and in no event later than ten (10) days after the expiration of the
Post-Closing Review period. Interest on the Net Trade Adjustment shall accrue
from the Closing Date until paid at the rate of the Prime Rate as published in
the Wall Street Journal as of the Closing Date. Such interest shall be
calculated on the basis of a year of 365 days.
ARTICLE 3
Closing Date, Actions at Pre-Closing, Closing and Termination Prior to Closing
3.1 Closing Date. Subject to the other provisions of this Agreement,
the pre-closing of the transactions contemplated by this Agreement (the
"Pre-Closing") shall be held at the offices of Thelen, Marrin, Johnson &
Bridges, Two Embarcadero Center, San Francisco, California 94111, on or before
August 31, 1996, or on such other date and at such other place as may be
mutually agreed upon by the parties. The parties hereby nominate Stewart Title
Company of California as escrow holder ("Escrow Holder"), who shall be
responsible for the transfer of funds and the delivery and recordation of
documents described herein ("Escrow"). The date of the closing shall be the date
of transfer of funds and the delivery and recordation of documents contemplated
herein (the "Closing") and is sometimes referred to herein as the "Closing
Date."
3.2 Actions at Pre-Closing or Closing. Subject to the other provisions
in this Agreement, the following actions shall be taken at the Pre-Closing or
the Closing, as specified herein:
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3.2.1 Purchase Price. At the Closing, the Buyer shall deliver or cause
to be delivered to the Seller through Escrow the Purchase Price plus (i) the Net
Trade Estimate minus (ii) the Deposit, in the manner set forth in Section 2.3
hereof.
3.2.2 Bill of Sale. At the Pre-closing, the Seller shall execute and
deliver the Bill of Sale in order to transfer to the Buyer all of the Assets
specified therein.
3.2.3 General Assignment and Assumption Agreement. At the Pre-closing,
the Seller and the Buyer shall execute and deliver the General Assignment and
Assumption Agreement, by which the Seller shall assign to the Buyer all of the
Assets not transferred by the Bill of Sale, the Assignment of Natural Gas Sales
Agreement, the Assignment of Power Purchase Agreement, the Assignment of Steam
Sales Agreement, and the Assignment of Lease Agreement, and as of the Closing
Date, the Buyer shall assume all of the Assumed Liabilities.
3.2.4 Assignment of Agreements and Contracts. At the Pre- closing, the
Seller and the Buyer shall execute and deliver, or cause to be executed and
delivered, into Escrow, as appropriate, the Assignment of Natural Gas Sales
Agreement, the Assignment of Power Purchase Agreement, the Assignment of Steam
Sales Agreement, and the Assignment of Lease Agreement.
3.2.5 ConAgra's Consents and Agreements. At the Pre-closing, McCormick
and the Seller shall cause ConAgra to execute and deliver into Escrow, as
appropriate, and the Buyer shall execute and deliver into Escrow, as
appropriate, the Steam Sales Consent and Agreement, the Amended and Restated
Lease Agreement, the Lessor Consent and Agreement, the Purchaser's Consent and
the Shutdown Consent, the Shutdown Agreement, the Steam Sales Amendment, the
Substation Operating Agreement, the Memorandum of Option (QF Property), the
Memorandum of Option (Site), the Memorandum of Lease, the Memorandum of
Wastewater Discharge Option Agreement, and the Assignment of Wastewater
Discharge Requirements.
3.2.6 Noncompete Agreement. At the Pre-closing, the Seller, McCormick
and the Buyer shall execute and deliver the Noncompete Agreement, and at the
Closing the Buyer shall cause the delivery and issuance of the Letter of Credit
as set forth therein.
3.2.7 Books and Records. At the Closing, the Seller shall deliver all
of the Books and Records to the Buyer; provided, however, that the Seller shall
have a sixty (60) day period following the Closing to deliver to the Buyer those
Books and Records relating to the operation of the Facility which are not
physically at the Site on the Effective Date.
3.2.8 Final Schedules. At the Pre-closing, the Buyer and the Seller
shall mutually agree upon and execute and deliver Schedule B (sample calculation
of Net Trade Amount), Schedule 2.1.1 (Fixed Assets), Schedule 2.1.2 (Inventory),
Schedule 2.2 (Excluded Liabilities), and any other Schedule which the Buyer and
the Seller mutually agree to revise; provided, however, that the Seller shall
deliver to the Buyer final versions of
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Schedule 2.1.1 (Fixed Assets) and Schedule 2.1.2 (Inventory) within fifteen (15)
business days after the Closing, which final schedules shall not be materially
or substantially different from the schedules delivered at the Pre-Closing.
3.2.9 Senior Loan Documents. At the Closing, the Seller shall, and
McCormick shall cause the Seller to, satisfy out of the proceeds of the Purchase
Price any and all outstanding obligations of the Seller under the Senior Loan
Documents, and the Seller shall deliver evidence reasonably satisfactory to the
Buyer that all Senior Loan Documents have terminated and that all Liens held by
Prudential pursuant thereto have been released and appropriate evidence thereof
have been filed with the appropriate Governmental Person.
3.2.10 ConAgra Option Agreements. At the Pre-closing, McCormick and the
Seller shall cause ConAgra to execute and deliver, and the Buyer shall execute
and deliver, the ConAgra Option Agreements.
3.2.11 Stock Purchase Letter Agreement. At the Pre-closing, McCormick
shall and the Buyer shall cause Calpine to execute and deliver the Stock
Purchase Letter Agreement.
3.2.12 Escrow Instructions. At the Closing, Escrow Holder shall record
the appropriate Closing Documents, as instructed in the joint escrow
instructions mutually agreed upon by McCormick, the Seller and the Buyer.
3.3 Additional Actions. Each of the Seller, McCormick and the Buyer
shall, on request, at the Pre-closing and the Closing and after the Effective
Date, take such further actions as may be reasonably requested by the other
party(ies) to carry out the intent of this Agreement and the other Closing
Documents to which any of them or ConAgra is/are or will be a party(ies).
3.4 Termination Prior to Closing. This Agreement may, by prior written
notice to the other party(ies), be terminated:
3.4.1 Termination by the Seller/McCormick. By the Seller and/or
McCormick if a Default shall be made by the Buyer with respect to the due and
timely performance of any of its covenants or agreements contained herein and
such Default cannot be timely cured and has not been waived by the Seller and
McCormick, or if any of the representations and warranties of the Buyer
contained in Article 5 are untrue, incorrect or breached in any material respect
as of the Effective Date; or
3.4.2 Termination by the Buyer. By the Buyer if a Default shall be made
by the Seller and/or McCormick with respect to the due and timely performance of
any of the covenants or agreements contained herein and such default cannot be
timely cured and has not been waived by the Buyer, or if any of the
representations and warranties of the Seller and/or McCormick contained in
Article 4 are untrue, incorrect or breached in any material respect as of the
Effective Date; or
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3.4.3 Termination Due to Failure of Condition. Either (i) by the Buyer
if all of the conditions set forth in Article 6 shall not have been satisfied or
waived by the Buyer on or before August 31, 1996 (or such later date as mutually
agreed upon among the parties), other than through failure of the Buyer to fully
comply with its obligations hereunder, or (ii) by the Seller and/or McCormick if
all of the conditions set forth in Article 7 shall not have been satisfied or
waived by the Seller on or before August 31, 1996 (or such later date as
mutually agreed upon among the parties), other than through failure of the
Seller or McCormick to fully comply with its respective obligations hereunder;
or
3.4.4 Termination by Mutual Consent. By mutual consent of the Seller,
McCormick and the Buyer.
If this Agreement is terminated as provided above, all further
obligations of the parties hereunder and under the other Closing Documents shall
terminate, except that the obligations set forth in Article 8 (indemnification),
Section 10.1 (transaction costs), Section 10.10 (alternative dispute resolution)
and, if applicable, McCormick's obligation to return the Deposit to the Buyer
shall survive; provided, however, that if this Agreement is terminated (i) by
the Seller and/or McCormick pursuant to Section 3.4.1 because of a Default by
the Buyer, the Seller's and McCormick's right to liquidated damages as set forth
below, or (ii) by the Buyer pursuant to Section 3.4.2 because of a Default by
the Seller or McCormick, the Buyer's right to pursue all legal remedies for
breach of contract or otherwise, including damages relating thereto, shall also
survive such termination unimpaired.
IN THE EVENT THE CLOSING AND THE CONSUMMATION OF THE TRANSACTION HEREIN
CONTEMPLATED DO NOT OCCUR AS HEREIN PROVIDED BY REASON OF DEFAULT OF THE BUYER,
THE BUYER, THE SELLER AND MCCORMICK AGREE THAT IT WOULD BE IMPRACTICAL AND
EXTREMELY DIFFICULT TO ESTIMATE THE DAMAGES SUFFERED BY THE SELLER AND MCCORMICK
AS A RESULT OF THE BUYER'S FAILURE TO COMPLETE THE PURCHASE OF THE ASSETS
PURSUANT TO THIS AGREEMENT, AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE
DATE OF THIS AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS PARAGRAPH
REPRESENT A REASONABLE ESTIMATE OF THE DAMAGES WHICH THE SELLER AND MCCORMICK
WILL INCUR AS A RESULT OF SUCH FAILURE. THEREFORE, THE BUYER, THE SELLER AND
MCCORMICK DO HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT
THAT THE SELLER AND MCCORMICK WOULD SUFFER IN THE EVENT THAT THE BUYER DEFAULTS
AND FAILS TO COMPLETE THE PURCHASE OF THE ASSETS IS AN AMOUNT EQUAL TO THE
DEPOSIT MADE HEREBY (WHICH INCLUDES ANY ACCRUED INTEREST THEREON). SAID AMOUNT
WILL BE THE FULL, AGREED AND LIQUIDATED DAMAGES FOR THE BREACH OF THIS AGREEMENT
BY BUYER. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A
FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTION 3275
OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO THE SELLER AND
MCCORMICK PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. THE
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SELLER HEREBY WAIVES THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 3389. NO
PARTY SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS HEREUNDER, EACH TO THE OTHER,
EXCEPT THOSE RIGHTS OR OBLIGATIONS SET FORTH HEREIN AS SURVIVING THE TERMINATION
OF THIS AGREEMENT AND THE RIGHT OF THE SELLER AND MCCORMICK TO COLLECT SUCH
LIQUIDATED DAMAGES FROM THE BUYER.
THE BUYER'S INITIALS ________________
THE SELLER'S INITIALS ________________
MCCORMICK'S INITIALS ________________
ARTICLE 4
Representations and Warranties of the Seller and McCormick
Each of the Seller and McCormick hereby jointly and severally
represents and warrants to the Buyer as follows, effective as of the Effective
Date:
4.1 Due Organization. Each of the Seller and McCormick is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and is qualified to transact business in all
jurisdictions where the ownership of its properties or its operations require
such qualification, except where the failure to so qualify would not have a
material adverse effect on its financial condition, its ability to own its
properties or transact its business, or to carry out the transactions
contemplated hereby.
4.2 Power and Authority. Each of the Seller and McCormick has full
corporate power and authority to enter into and perform its obligations
hereunder and under the other Closing Documents to which it is or will be a
party and to consummate the transactions herein and therein contemplated in
accordance with the terms, provisions and conditions hereof and thereof. All
corporate proceedings required to be taken by the Seller and McCormick, as
applicable, to authorize them to execute, deliver and perform the terms of this
Agreement and the other Closing Documents to which both or either of them is or
will be a party have been duly and validly taken.
4.3 Valid, Binding and Enforceable Obligations. Each of this Agreement
and the other Closing Documents to which either the Seller and/or McCormick
are/is or will be a party(ies) has been, or will be on the Closing Date, as the
case may be, duly and validly executed by the Seller and/or McCormick, as
applicable, and constitutes, or will constitute when executed and delivered, a
valid, binding, and enforceable obligation, enforceable against the Seller
and/or McCormick in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights and the enforcement of debtors'
obligations generally and by general principles of equity, regardless of whether
enforcement
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is pursuant to a proceeding in equity or at law or by application of laws
limiting the scope or breadth of covenants therein relating to restraint of
trade.
4.4 No Violations. The execution and delivery by the Seller and
McCormick of this Agreement and the other Closing Documents to which either or
both of them is/are or will be a party(ies), and the Seller's and McCormick's
consummation of the transactions contemplated hereby and thereby will not (i)
violate or be in conflict with the charter documents of either the Seller or
McCormick, as applicable, (ii) violate, be in conflict with, or constitute a
Default or Event of Default under, or cause or permit the acceleration of the
maturity of, or give rise to any right of termination, cancellation, imposition
of fees or penalties under, any material agreement or material commitment under
which the Seller or McCormick is bound, except the Senior Loan Documents, (iii)
result in the creation or imposition of any Lien upon any of the Assets, or
under any debt, obligation, contract, commitment or other agreement by which any
of the Assets is or may be bound or (iv) violate any Governmental Rule.
4.5 Governmental Approvals. To the Seller's and McCormick's knowledge,
other than the filings or approvals set forth in Schedule 4.5, no Governmental
Approval is necessary in connection with the execution and delivery of this
Agreement and the other Closing Documents, or for the consummation of the
transactions contemplated hereby and thereby, including for the valid and
effective sale, transfer and assignment to the Buyer of the Assets.
4.6 Third Party Consents and Notices. To the Seller's and McCormick's
knowledge, no filing, registration, qualification, notice, consent, approval or
authorization to, with or from any Person (excluding Governmental Persons) is
necessary in connection with the execution and delivery of this Agreement and
the other Closing Documents, or for the consummation of the transactions
contemplated hereby and thereby, including for the valid and effective sale,
transfer and assignment to the Buyer of the Assets, except as otherwise set
forth on Schedule 4.6 attached hereto.
4.7 No Litigation. Except as set forth on Schedule 4.7, to the Seller's
or McCormick's knowledge, there are no actions, suits or proceedings of any type
pending or, threatened at law or in equity, before or by any Governmental Person
against or affecting the Seller and/or the Facility or to which the Seller may
become a party, which actions, suits or proceedings could materially and
adversely affect the Buyer's ownership or operation of the Facility or the
Seller's ability to perform its obligations under this Agreement and the other
Closing Documents.
4.8 Agreements and Contracts; Project Documents. Set forth on Schedule
4.8 is a complete and accurate list of each and every material agreement and
contract to which the Seller is a party or by which the Seller is bound or to
which the Seller is subject relating to the Seller's ownership, management,
operation and maintenance of the Facility, including the Assigned Contracts
(collectively, the "Project Documents"). A true, correct and complete copy of
each such contract has been delivered to or been made available to the Buyer on
or before the Effective Date and:
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(a) none of the Assigned Contracts has been modified, supplemented,
amended, waived or terminated in any respect which could reasonably be expected
to have a material adverse effect on the Facility or the transactions
contemplated by this Agreement, whether orally or in writing, except by a
Project Document;
(b) no Default or any Event of Default by the Seller has occurred and
is continuing under any of the Assigned Contracts and neither the Seller nor
McCormick has any knowledge that any Default or any Event of Default by any
other Person has occurred and is continuing under any Assigned Contract; and
(c) the Assigned Contracts constitute the legal, valid and binding
obligation of the Seller, are in full force and effect and are enforceable as to
the Seller, and to the Seller's and McCormick's knowledge, constitute the legal,
valid and binding obligation of, and are enforceable against, the third party
signatories to such Assigned Contracts in accordance with their respective terms
(except as such enforceability may be limited or denied by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights and enforcement of debtors' obligations generally, and
(ii) general principles of equity, regardless of whether enforcement is pursuant
to a proceeding in equity or at law).
4.9 Utility Regulatory Matters. Neither the Seller nor any Affiliate of
the Seller is (i) subject to regulation under the FPA, other than as
contemplated by C.F.R. Section 291.601(c) in respect of qualifying facilities or
(ii) subject to regulation as a "public utility," "electric utility" or other
similar entity under state laws relating to public utilities, other than as a
qualifying facility under PURPA.
4.10 Qualifying Facility Matters. The Facility is a cogeneration
facility that has been certified by the FERC as a Qualifying Facility. The
Facility is, and during all applicable periods when owned by the Seller has
been, a Qualifying Facility in compliance in all respects with all technical and
ownership requirements contained in all applicable FERC rules and regulations.
the Seller has provided to PG&E all documents, information and other data
requested or required by PG&E in accordance with PG&E's policies and procedures
for monitoring the compliance of Qualifying Facilities with applicable FERC
rules and regulations. No Person (including PG&E, the CPUC and the FERC, or any
agent or representative of PG&E, the CPUC or the FERC) has ever provided notice
to the effect, or otherwise asserted or alleged, that the Facility has failed or
may fail to comply in any respect with any applicable FERC rule or regulation
relating to Qualifying Facilities or PG&E procedures or policies relating
thereto, or that the Facility has been placed on "probation." No payment from
PG&E has ever been reduced, delayed or withheld as a result of noncompliance
with any applicable FERC rules or regulations (and other than as a result of
minor administrative inefficiencies).
4.11 No Undisclosed Liabilities. As of the dates of the audited
financial statements dated as of November 30, 1995 which have been provided to
the Buyer, the Seller had no material debts, liabilities or obligations (whether
accrued, absolute, asserted or unasserted, contingent, by guaranty, surety or
assumption or otherwise and whether due or to become due),
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of any nature whatsoever, including (i) any foreign or domestic tax liabilities
or deferred tax liabilities incurred in respect to or measured by the Seller's
income for its period prior to the close of business on the dates of such
financial statements, or (ii) any other debts, liabilities or obligations
relating to or arising out of any act, omission, transaction, circumstance, sale
of goods, services, state of facts or other condition which occurred or existed
on or before such date, whether or not then known, due or payable (all of the
foregoing, including clauses (i) and (ii), are collectively referred to as
"Liabilities"), which in accordance with GAAP should be disclosed and which were
not fully disclosed, reflected or reserved against in such financial statements
or the notes thereto, and except for those Liabilities which have been incurred
since the date of the most recent balance sheets included in such financial
statements in the ordinary course of business which are set forth on Schedule
4.11, the Seller has not incurred any Liabilities relating to the Facility.
4.12 Fixed Assets and Inventory. Schedule 2.1.1 and Schedule 2.1.2,
respectively, sets forth a complete and accurate list of all material Fixed
Assets and Inventory. Except as set forth on Schedule 2.1.1, all of the Fixed
Assets are located on the Site. The final Schedule 2.1.1 and Schedule 2.1.2 to
be delivered by the Seller to the Buyer within fifteen (15) business days after
the Closing will not be materially or substantially different from the schedules
delivered into Escrow at the Pre-Closing.
4.13 Title to Assets. The Seller is the lawful owner of, has good and
valid record and marketable title to, and has the full right to sell, convey,
transfer, assign and deliver the Assets as contemplated herein, subject to the
required consents otherwise contemplated or disclosed herein. Except for the
Liens evidenced by the Senior Loan Documents, which Liens shall be released
prior to or as of the Closing Date, all of the Assets are entirely free and
clear of any and all Liens of any kind, other than liens for current or
supplemental real and personal property taxes and assessments not yet due and
payable, and there are no filings in any registry of deeds in any jurisdiction
or under the Uniform Commercial Code or similar statute in any jurisdiction
(except as may be related to the Senior Loan Documents) showing the Seller as a
debtor or which creates or perfects or which purports to create or perfect any
Lien in or on any of the Assets. Upon the Closing, the Seller shall convey all
of the Assets to the Buyer by the Bill of Sale, the General Assignment and
Assumption Agreement and the other Closing Documents effective to vest in the
Buyer, and the Buyer will have, good and valid record and marketable title to
all of the Assets, free and clear of all Liens of any kind, other than for
current or supplementary real and personal property taxes and assessments not
yet due and payable.
4.14 Governmental Approvals for Business. Set forth on Schedule 4.14.1
is a complete and accurate list of each and every Governmental Approval
necessary for the current ownership, management, operation and maintenance of
the Facility and/or the Assets by the Seller. Except as set forth in Schedule
4.14.2, each Governmental Approval has been duly and validly issued, or
transferred, to the Seller, and is in full force and effect, and all rights and
entitlements thereunder are vested exclusively in the Seller. The Seller has not
committed any act or failed to act in any manner or under any circumstances
which could reasonably result in the revocation or suspension of any
Governmental Approval or in any other disciplinary action relating thereto. No
Person has claimed, and the Seller has not
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received any notice, that the Seller has committed any such act or failed to so
act. The consummation of the transactions provided for in this Agreement and the
other Closing Documents will not impair or materially adversely affect any of
the rights, powers or privileges of the Seller granted pursuant to any of the
Governmental Approvals listed on Schedule 4.14.1.
4.15 ERISA. The Seller has no employees and has never had any employees
and has not established, sponsored, maintained, participated in, incurred any
obligation to contribute to, or incurred any liability under or related to any
Employee Benefit Plan.
4.16 Labor Matters. To the extent related to the Seller's ownership,
management, operation and maintenance of the Facility, (i) the Seller is not a
party to any collective bargaining agreement, (ii) as the Seller has no
employees, no employee of the Seller is a member of or represented by a
collective bargaining unit with respect to his employment with the Seller, and
(iii) to the knowledge of the Seller or McCormick, there are no labor
controversies or grievances pending or threatened against the Seller which could
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, operations or financial condition of the Seller.
4.17 Legal Compliance. Except as set forth in Schedule 4.17, the Seller
is in all material respects in full compliance with, and has at all times fully
complied, or has fully corrected any past non-compliance, in all material
respects with, all Governmental Rules and Governmental Approvals applicable to
the Seller, the Facility and the Site, including all Environmental Laws;
provided, however, that the Seller's and McCormick's representations with
respect to Environmental Laws relating to Hazardous Materials are given to the
Seller's and McCormick's knowledge. All offsets legally required under the
Federal Clean Air Act (42 U.S.C. Sec. 7401 et seq.) or Bay Area Air Quality
Management District Rules for the construction and operation (including any
modification) of Gilroy Foods prior to the Closing Date have been obtained by
Gilroy Foods or its predecessor owners or operators.
4.18 Hazardous Materials. Except as set forth on Schedule 4.18 and as
disclosed in that certain Phase I Environmental Site Assessment, Gilroy Energy
Company, Gilroy, California, dated June, 18, 1996, prepared by EMCON, to the
Seller's and McCormick's knowledge, (i) there are no Hazardous Materials present
on the Site that exceed the levels or amounts permitted by applicable law; (ii)
there has been no sudden or non- sudden, accidental or non-accidental release,
discharge, spillage, uncontrolled loss, seepage or filtration of any Hazardous
Material or any petroleum product or by-product into the environment which
exceeds the levels or amounts permitted by applicable law, (iii) the Seller has
not engaged in, or is not engaged in, the generation, manufacture, treatment,
storage or disposal of Hazardous Materials which exceeds the levels or amounts
permitted by applicable law, (iv) the Site does not contain and has not
contained any underground or above-ground tanks for the storage of fuel oil,
gasoline and/or other petroleum products or by-products or Hazardous Materials,
and (v) the Seller is in compliance with all federal, state and local
environmental laws now in effect relating to Hazardous Materials. The Seller has
received no notice of any violation that, as of the date hereof, remains uncured
of any environmental laws now in effect relating to Hazardous Materials, and
there are no writs, injunctions,
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decrees, orders or judgments outstanding, no suits, claims, actions, proceedings
or investigations have been instituted or filed, and none are pending or, to the
Seller's knowledge, threatened, under any environmental laws with respect to the
ownership, use, maintenance or operation of the Assets. No asbestos or similar
substances are contained in the Facility that pose any current health hazard and
no asbestos is "friable."
4.19 Disclosure. In connection with the transactions contemplated by
this Agreement, neither the Seller nor McCormick has made any untrue written
statement of a material fact or omitted to disclose any material fact necessary
in order to make the written statements made not misleading in light of the
circumstances in which they were made. There is no material fact or circumstance
known to either the Seller or McCormick which materially adversely affects the
Facility or the Assets or the Seller's ownership, management, operation and
maintenance of the Facility, or the ability of the Seller or McCormick to
perform its respective obligations under this Agreement and the other Closing
Documents to which any of them is a party, provided that the foregoing
representation shall not extend to predictions of future economic conditions or
matters of a general economic or similar nature. The Seller has given the Buyer
full and complete access to the Books and Records prior to execution of this
Agreement.
4.20 Condition of Acquired Assets. The Assets are in good operating
condition and repair and are adequate for the uses to which they are being put.
None of the Assets is in need of maintenance or repairs, except for ordinary
routine maintenance and repairs, and there do not exist any condition which
interferes with the economic value or use thereof in a material way. The Assets
include all assets and properties of the Seller relating to the Seller's
ownership, management, operation and maintenance of the Facility reasonably
required for the continued operation of the Facility in the manner as is
presently being operated.
4.21 Tax Matters. The Seller has duly and timely filed all federal,
state, and local tax reports and returns required to be filed by it in
connection with the Facility and has duly paid, or made adequate provision for
the payment of, all taxes, assessments and other charges due or claimed to be
due in a writing delivered to the Seller, or any Affiliate thereof by federal,
state or local taxing authorities, which, if not filed or paid, would have a
material adverse impact on the Facility or the Sellers' ownership or operation
of the Facility.
4.22 Brokers. Neither the Seller nor McCormick has retained, utilized
or been represented by any broker or finder in connection with the transactions
contemplated by this Agreement.
4.23 O&M Agreement Termination. The Seller has terminated the O&M
Agreement, effective as of the Closing Date.
Wherever in this Article 4, the Seller's and McCormick's
representations are limited to knowledge, such reference is intended to refer to
(i) the knowledge of the principal officers of the Seller and McCormick with
responsibility for oversight of the Seller and the Facility and the operations
thereof, which officers have a duty of inquiry, including inquiry of
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Dave Pearson and Brian Martin of Bechtel North American, and (ii) the knowledge
of George Pendergast, Robert Kramer, Steve Brinkman, Sam Mason and Dave Lewis.
ARTICLE 5
Buyer's Representations and Warranties
The Buyer hereby represents and warrants to the Seller and McCormick as
follows, effective as of the Effective Date:
5.1 Due Organization. The Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws of jurisdiction
of its formation, and will be qualified to transact business in all
jurisdictions where the ownership of its properties or its operations require
such qualification, except where the failure to so qualify would not have a
material adverse effect on its financial condition, its ability to own its
properties or transact its business, or to carry out the transactions
contemplated hereby.
5.2 Power and Authority. The Buyer has full partnership power and
authority to assume and perform its obligations hereunder and under the other
Closing Documents to which it is or will be a party and to consummate the
transactions herein and therein contemplated in accordance with the terms,
provisions and conditions hereof and thereof, and all partnership proceedings
required to be taken by the Buyer to authorize it to assume and perform the
terms of this Agreement and the other Closing Documents to which it is or will
be a party will have been duly and validly taken.
5.3 Valid, Binding and Enforceable Obligations. Each of this Agreement
and the other Closing Documents to which the Buyer is or will be a party has
been, or will be on the Closing Date, as the case may be, duly and validly
executed by the Buyer and constitutes, or will constitute when executed and
delivered, a valid, binding, and enforceable obligation, enforceable against the
Buyer in accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights and the enforcement of debtors' obligations
generally and by general principles of equity, regardless of whether enforcement
is pursuant to a proceeding in equity or at law, or by application of laws
limiting the scope or breadth of covenants therein relating to restraint of
trade.
5.4 No Violations. The execution and delivery by the Buyer of this
Agreement and the other Closing Documents to which it is or will be a party, and
the Buyer's consummation of the transactions contemplated hereby and thereby
will not (i) violate or be in conflict with any charter documents, if any, of
the Buyer, (ii) violate, be in conflict with, or constitute a Default or Event
of Default under, or cause or permit the acceleration of the maturity of, or
give rise to any right of termination, cancellation, imposition of fees or
penalties under, any agreement or commitment under which the Buyer is bound or
(iii) result in the creation or imposition of any Lien upon any of the Assets,
or under any debt, obligation, contract, commitment or other agreement to which
the Buyer is a party or by which any of the Buyer's properties or assets is or
may be bound.
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5.5 No Litigation. Except as listed on Schedule 5.5, to the Buyer's
knowledge, there are no actions, suits or proceedings of any type pending or
threatened, against the Buyer or any of its properties or business, whether at
law or in equity, before or by any Governmental Person. The Buyer has no
knowledge of any state of facts or contemplated event which may reasonably be
expected to give rise to any such action, suit or proceeding. The Buyer is not
operating under, or subject to, or in default with respect to, any order, writ,
injunction or decree of any Governmental Person.
5.6 Brokers. The Buyer has not retained, utilized or been represented
by any broker or finder in connection with the transactions contemplated by this
Agreement.
Wherever in this Article 5, the Buyer's representations are limited to
knowledge, such reference is intended to refer to the knowledge of the principal
officers of the Buyer and its partners with responsibility for oversight of the
Buyer, which officers have a duty of inquiry.
ARTICLE 6
Conditions Precedent to Buyer's Obligations
The obligation of the Buyer to consummate the transactions contemplated
hereby shall be subject to the fulfillment to the satisfaction of, or waiver by,
the Buyer, in its sole discretion, of each of the following conditions on or
prior to the Closing:
6.1 Representations True and Correct. The representations and
warranties of the Seller and McCormick contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
6.2 Compliance with Covenants. The Seller and McCormick shall have
performed and complied with all covenants, agreements and conditions required by
this Agreement to be performed or complied in all material respects with by it
prior to or on the Closing Date, and, if the Closing Date is different than the
date of this Agreement, the Seller and McCormick shall have executed and
delivered to the Buyer an officer's certificate confirming the same.
6.3 Closing Actions. Each of the actions required to be taken by the
parties pursuant to Section 3.2 (other than by the Buyer) or otherwise to effect
the transactions contemplated hereby, including the execution and delivery of
each of the Closing Documents, shall have been duly performed and complied with,
and the Buyer shall have received satisfactory evidence of any and all such
actions.
6.4 Consents and Governmental Approvals. All consents, approvals,
notices and filings with, from or to any Person, including any Governmental
Person, which are required on or prior to the Closing Date for the consummation
of the transactions contemplated hereby and by the other Closing Documents,
shall have been obtained, given,
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or made and such consents, approvals, notices and filings shall be in form and
substance reasonably satisfactory to the Buyer. Each of the Governmental
Approvals necessary for the ownership, management, operation and/or maintenance
of the Facility by the Buyer has been assigned or reissued to the Buyer or
otherwise obtained by the Buyer.
6.5 Seller and McCormick Opinion of Counsel. The Buyer shall have
received (i) the Opinion of Robert W. Skelton, General Counsel of McCormick,
substantially in the form of Exhibit U-1 hereto, and (ii) the opinion of Baker &
McKenzie, counsel for the Seller and McCormick, substantially in the form of
Exhibit U-2 hereto, each dated as of the Effective Date.
6.6 Proceedings Satisfactory. All corporate proceedings to be taken by
McCormick and/or the Seller in connection with the consummation of the
transactions contemplated by this Agreement and all documents incident thereto,
shall be reasonably satisfactory in form and substance to the Buyer and its
counsel, and the Buyer and its counsel shall have received copies of such
documents as the Buyer and its counsel may reasonably request in connection
therewith and the Facility.
6.7 ConAgra Acquisition. The ConAgra Acquisition shall have been
consummated as of the Closing Date.
6.8 ConAgra Actions. Each of the actions required to be taken by
ConAgra, including all corporate proceedings, (i) pursuant to Section 3.2 or
otherwise to effect the transactions contemplated hereby, including the
execution and delivery of each of the Closing Documents to which ConAgra is a
party and (ii) pursuant to the ConAgra Acquisition or otherwise to effect the
transactions contemplated by the ConAgra Acquisition to vest in ConAgra good and
valid title to the assets comprising the Food Processing Facility and all of the
right, title, interest, duties and obligations of Gilroy Foods in and to the
Ground Lease and the Steam Agreement, shall have been duly performed and
complied with, and the Buyer shall have received satisfactory evidence of any
and all such actions.
6.9 ConAgra Assignment Agreement. The ConAgra Assignment Agreement
shall have been duly and validly executed and delivered by the parties thereto
and shall constitute a valid, binding and enforceable obligation, enforceable
against each of the parties thereto in accordance with its terms. ConAgra shall
have fully and unconditionally assumed pursuant to the ConAgra Assignment
Agreement all of the duties and obligations of Gilroy Foods under the Steam
Agreement, and all properties, rights, and Governmental Approvals necessary for
the ownership and operation of the Food Processing Facility by ConAgra shall
have been duly and validly assigned or reissued to ConAgra or otherwise duly and
validly obtained by ConAgra as of the Closing Date.
6.10 ConAgra Opinion of Counsel. The Buyer shall have received the
opinions of McGrath, North, Mullin & Kratz, P.C., counsel for ConAgra, and Piper
& Marbury, counsel for Gilroy Foods, regarding the transactions contemplated by
this Agreement which relate to ConAgra and the ConAgra Acquisition, in form and
substance reasonably satisfactory to the Buyer, dated as of the Effective Date.
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6.11 Severance of Facilities. Except as set forth on Schedule 6.11, all
agreements among the Buyer, the Seller and ConAgra regarding the common permits,
facilities and utilities currently shared between the Facility and the Food
Processing Facility shall be either severed or otherwise agreed upon among the
parties.
ARTICLE 7
Conditions Precedent to The Seller's and McCormick's Obligations
The obligation of the Seller and McCormick to consummate the
transactions contemplated hereby shall be subject to the fulfillment to the
satisfaction of, or waiver by, the Seller and McCormick, in its sole discretion,
of each of the following conditions on or prior to the Closing:
7.1 Representations True and Correct. The representations and
warranties of the Buyer contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
7.2 Compliance with Covenants. The Buyer shall have performed and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by it prior to or on
the Closing Date, and, if the Closing Date is different than the date of this
Agreement, the Buyer shall have executed and delivered to the Seller and
McCormick an officer's certificate confirming the same.
7.3 Closing Actions. Each of the actions required to be taken pursuant
to Section 3.2 or otherwise to effect the transactions contemplated hereby,
including the execution and delivery of each of the Closing Documents, shall
have been duly performed and complied with, and the Seller and McCormick shall
have received satisfactory evidence of any and all such actions.
7.4 Opinion of Counsel. The Seller and McCormick shall have received
(i) the opinion of Joseph E. Ronan, Jr., General Counsel of the Buyer,
substantially in the form of Exhibit V-1 hereto, and (ii) the opinion of Thelen,
Marrin, Johnson & Bridges, counsel for the Buyer, substantially in the form of
Exhibit V-2 hereto, each dated as of the Effective Date.
7.5 Proceedings Satisfactory. All partnership proceedings of the Buyer
to be taken in connection with the consummation of the transactions contemplated
by this Agreement and all documents incident thereto, shall be reasonably
satisfactory in form and substance to the Seller and McCormick and their
counsel, and the Seller and McCormick and their counsel shall have received
copies of such documents as the Seller and McCormick and their counsel may
reasonably request in connection therewith.
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7.6 ConAgra Acquisition. The ConAgra Acquisition shall have been
consummated as of the Closing Date.
7.7 Consents and Government Approvals. All consents, approvals, notices
and filings with, from or to any Person, including any Governmental Person,
which are required on or prior to the Effective Date for the consummation of the
transactions contemplated hereby and by the other Closing Documents, shall have
been obtained, given, or made and such consents, approvals, notices and filings
shall be in form and substance reasonably satisfactory to the Seller; provided,
however, that the Seller agrees that the failure to obtain a release of the
Seller's liabilities will not make any such consent or approval otherwise
available unsatisfactory.
ARTICLE 8
Indemnification
8.1 Indemnification by the Seller and McCormick. Subject to the
limitations of Section 8.3 below, the Seller and McCormick shall jointly and
severally to the maximum extent not prohibited by law, indemnify, defend and
hold harmless the Buyer and all of its Affiliates, and each of their respective
shareholders, partners, members, investors, directors, officers, employees,
agents and assignees, from and against any and all losses, liabilities, damages,
claims, judgments, costs or expenses (including reasonable attorneys' fees and
expenses) suffered or incurred by any such party by reason of or resulting from
(i) the inaccuracy of any representation or warranty of the Seller or McCormick
under this Agreement or any other Closing Document, (ii) the nonfulfillment or
nonperformance of any covenant or agreement of either the Seller or McCormick
under this Agreement or any other Closing Document, or (iii) any events,
occurrences or conditions relating to the Facility, any Project Document or the
Site, in respect of all periods prior to the Closing Date, except as caused by
the negligence, gross negligence or willful misconduct of the Buyer or its
agents, employees, or contractors, or as otherwise covered in Section 8.2 below.
8.2 Indemnification by the Buyer. Subject to the limitations of Section
8.3 below, the Buyer shall to the maximum extent not prohibited by law,
indemnify, defend and hold harmless the Seller, McCormick and all of their
respective Affiliates, shareholders, partners, members, investors, directors,
officers, employees, agents and assignees, from and against any and all losses,
liabilities, damages, claims, judgments, costs or expenses (including reasonable
attorneys' fees and expenses) suffered or incurred by any such party by reason
of or resulting from (i) the inaccuracy of any representation or warranty of the
Buyer under this Agreement or any other Closing Document, (ii) the
nonfulfillment or nonperformance of any covenant or agreement of the Buyer under
this Agreement or any other Closing Document, or (iii) any events, occurrences
or conditions relating to the Facility, any Project Document or the Site, in
respect of all periods after the Closing Date; provided, however, that the
foregoing shall not apply to any of the Excluded Liabilities or any losses,
liabilities, damages, claims, judgments, costs or expenses caused by the
negligence, gross negligence or willful misconduct of the Seller or McCormick or
their respective agents, employees or contractors.
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All costs, expenses, liabilities or charges incurred or relating to the
performance of the Buyer's inspections or inquiries relating to the acquisition
of the Assets shall be borne by the Buyer. The Buyer agrees to indemnify the
Seller and ConAgra and hold the Seller and ConAgra and the Facility and the Site
harmless from and mechanic's and materialmen's liens and any claims, demands,
damages, costs, liabilities or expenses arising from the entry on the Facility
and the Site by the Buyer pursuant to this Agreement, except as caused by the
negligence, gross negligence or willful misconduct of the Seller or McCormick or
their respective agents, employees or contractors. Any entry on the Facility and
the Site by the Buyer shall be at reasonable times and shall be conducted in the
manner most calculated to minimize, to as great an extent as reasonably
possible, any disruption to the Seller's operations on the Site.
8.3 Threshold and Limits for Indemnity. Notwithstanding anything in
Sections 8.1 or 8.2 herein, the parties' indemnity obligations under Sections
8.1(a) and 8.2(a) shall be shall be limited to after tax losses and subject to a
threshold of $500,000, after tax (the "Threshold"), whereby the aggregate claims
for indemnity by the party(ies) to be indemnified (the "Indemnitee") must exceed
the Threshold before a claim shall be payable to the Indemnitee, and whereupon
the indemnifying party(ies) (the "Indemnitor") shall become immediately liable
for the payment of the Threshold amount, plus any excess, as applicable. If the
Indemnitee's aggregate claims do not exceed the Threshold, then no amount shall
be payable under Sections 8.1 and 8.2 herein. Notwithstanding anything to the
contrary in this Section 8.3, if Buyer or any other Indemnitee under Section 8.1
has an indemnification claim relating to (i) the items referenced in the
Notification Letter, as defined in Section 2.5(b) of the Amended and Restated
Lease Agreement, or (ii) the O&M Agreement or the inaccuracy of the
representation in Section 4.23, any such indemnification claim shall not be
subject to the $500,000 limitation contained in the Threshold.
8.4 Bulk Sales Indemnity. After the Closing, the Seller shall
indemnify, defend and hold the Buyer harmless from all claims, liabilities,
obligations, damages, penalties, fines, costs and expenses (including,
reasonable attorneys' fees and costs) that arise out of or relate to
noncompliance with bulk transfer laws of any jurisdiction that are applicable or
alleged to be applicable to the sale of assets contemplated in this Agreement.
8.5 Procedure for Indemnification with Respect to Third-Party Claims.
8.5.1 Notice of Claim. If any legal proceedings shall be instituted or
any claim or demand shall be asserted by any third party in respect of which
indemnification may be sought by any party or parties from any other party or
parties under the provisions of this Article 8, the Indemnitee shall, within
forty-five (45) days of the receipt thereof, cause written notice of the legal
proceedings or the assertion of any claim or demand of which it has knowledge
that is covered by the indemnity under this Article 8 to be forwarded to the
Indemnitor, specifying the nature of and specific basis for such legal
proceedings, claim or demand and the amount or the estimated amount thereof to
the extent then feasible, which estimate shall not be binding upon the
Indemnitee, in its effort to collect the final amount arising out of such legal
proceedings, claim or demand; provided, that the
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failure of an Indemnitee to give timely notice shall not affect rights to
indemnification under this Article 8 except to the extent that the Indemnitor
has been damaged by such failure.
8.5.2 Conduct of Claim. The Indemnitor shall have the right, at its
option and at its own expense, to be represented by counsel of its choice and to
participate in, or to take exclusive control of, the defense, negotiation and/or
settlement of any proceeding, claim or demand which relates to any amounts
indemnifiable or potentially indemnifiable under this Article 8; provided,
however, that the Indemnitee may participate in any such proceeding with counsel
of its choice, which shall be at its own expense unless (i) the Indemnitor
chooses counsel not reasonably acceptable to the Indemnitee or (ii) the
Indemnitor does not pursue with reasonable diligence such defense, negotiation
or settlement, in which case, the Indemnitee's participation shall be at the
Indemnitor's expense. The Indemnitee shall have a right to notice of any
settlement, and the Indemnitor shall not execute or otherwise agree to any
consent decree which provides for other than monetary payment without the
Indemnitee's prior written consent, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, the Indemnitee shall have the right to
pay or settle any such claim, provided that in such event it shall waive any
right to indemnity therefor by the Indemnitor. If the Indemnitor elects not to
defend or settle such proceeding, claim or demand and the Indemnitee defends,
settles or otherwise deals with any such proceeding, claim or demand, which
settlement may be without the consent of the Indemnitor, the Indemnitee shall
provide fifteen (15) days' advance written notice of any property settlement to
the Indemnitor and will act reasonably and in accordance with its good faith
business judgment. The parties shall cooperate fully with each other in
connection with the defense, negotiation or settlement of any such legal
proceeding, claim or demand.
8.5.3 Payment of Claim. After final judgment or award shall have been
rendered by a court, arbitration board or administrative agency of competent
jurisdiction and the expiration of the time in which to appeal therefrom, or a
settlement shall have been consummated, or the Indemnitee and the Indemnitor
shall have arrived at a mutually binding agreement with respect to each separate
matter indemnified by the Indemnitor, the Indemnitee shall forward to the
Indemnitor notice of any sums due and owing by the Indemnitor with respect to
such matter and the Indemnitor shall pay all of the sums so owing to the
Indemnitee in immediately available funds within thirty (30) days after the date
of such notice.
8.5.4 Access to Information. If any claim is made by a third party
against an Indemnitee, the Indemnitee shall use its best efforts to make
available to the Indemnitor those partners, officers and employees whose
assistance, testimony or presence is necessary to assist the Indemnitor in
evaluating and in defending such claims; provided, however, that any such access
shall be conducted in such a manner as not to interfere unreasonably with the
operations of the business of the Indemnitee but failure to provide necessary
witnesses or access to information will excuse Indemnitor's performance.
ARTICLE 9
The Seller's and McCormick's Covenants
Prior to Closing, Taxes and Further Assurances
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9.1 The Seller's and McCormick's Covenants Prior to Closing. The Seller
and McCormick jointly and severally covenant and agree that until the Effective
Date:
9.1.1 The Seller shall afford the Buyer and its representatives full
access during normal business hours to the Facility and the Assets and to all of
the other properties, books, records and documents of the Seller.
9.1.2 The Seller shall maintain the Assets in good condition and shall
manage and operate the Facility in the same manner as heretofore.
9.1.3 The Seller shall not waive any right of material value to its
ownership operation of the Facility, including amending or modifying any of the
Project Documents.
9.1.4 Except in the ordinary course of business, the Seller shall not
enter into any lease, sell, abandon or make any other disposition of any of the
Assets, grant or suffer any Lien on any of the Assets, enter into or amend any
contract or other agreement to which it is a party, or by to which it or the
Assets are bound or subject, or pursuant to which it agrees to indemnify any
party or to refrain from competing with any party.
9.1.5 Except in the ordinary course of business and in amounts less
than $25,000 in each case, the Seller shall not incur or assume any debt,
obligation or liability (whether absolute or contingent and whether or not
currently due and payable).
9.1.6 The Seller shall not terminate or fail to renew any of the
Project Documents, except as otherwise provided herein.
9.1.7 Except in the ordinary course of business, enter into any other
material contract or other agreement or other material transaction relative to
the Facility.
9.1.8 Except for this Agreement and discussions among the Seller,
McCormick and the Buyer relating to this Agreement, during the term of the
Agreement the Seller and McCormick shall not, and shall cause each Person acting
on their behalf and their other Affiliates not to, enter into any agreement or
commitment for the sale or transfer, directly or indirectly, of the Seller, the
Facility or the Assets, nor entertain any offers to do so or otherwise engage in
any negotiations or discussions in connection with any of the same.
9.1.9 Upon obtaining knowledge that any representation or warranty of
the Seller or McCormick hereunder is false or misleading in any material
respect, or that the Seller or McCormick is in breach or violation of any
covenant hereunder in any material respect, the Seller and or McCormick, as
applicable, shall promptly provide written notice thereof to the Buyer.
9.2 Taxes. The Seller, McCormick and the Buyer hereby agree and
acknowledge that improvements to real property, such as the Facility,
transferred in the
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manner herein contemplated, are not subject to sales, transfer, use, documentary
transfer, stamp or excise taxes or other similar taxes of any type payable in
connection with the sale and transfer of the Facility. All sales, transfer, use,
documentary transfer, stamp or excise taxes, or other similar taxes of any type
payable in connection with the sale and transfer of the Assets or otherwise in
connection with the consummation of the transactions contemplated by this
Agreement and the other Closing Documents, shall be the responsibility of and
shall be paid as follows: (i) the Buyer shall pay the first $50,000 and (ii) the
Buyer and the Seller shall each pay an equal share of any such taxes in excess
of $50,000.
9.3 Further Assurances. On and after the Closing Date, each party shall
execute and deliver such further instruments and documents, and take such
further other actions, as may be reasonably requested by the other party(ies),
in order to effectuate the provisions and purposes of this Agreement and to
secure the Buyer's financing of its purchase of the Assets hereunder.
ARTICLE 10
Miscellaneous
10.1 Transaction Costs. Except as otherwise expressly provided herein,
the Buyer, the Seller and McCormick each shall pay all of its own respective
costs and expenses (including attorneys' fees and other legal costs and expenses
and accountants' fees and other accounting costs and expenses) incurred in
connection with negotiation and preparation of this Agreement and the
transactions contemplated hereby, Buyer shall pay the costs incurred by the
Seller and McCormick with Ernest and Young in connection with the review and
audit of the Seller's books for Calpine's S-1 filing. The fees and expenses of
any third parties mutually engaged by the parties in connection with the
transactions contemplated hereby, and any filing fees required under the HSR
Act, shall be shared equally by the Buyer and the Seller. The fees and expenses
of Prudential shall be paid for by the Seller. Except as otherwise provided in
this Agreement, all real and personal property taxes and assessments relating to
the Facility and the Site or the Assets shall be prorated between the Buyer and
the Seller to the Closing Date. The Buyer shall be responsible for and pay all
costs and expenses related to any escrow, title insurance, recordation of
documents and other related activities arising out of the consummation of the
transaction contemplated herein.
10.2 Entire Agreement. This Agreement represents the entire
understanding and agreement among the parties with respect to the subject matter
hereof, and supersedes all other negotiations and understandings among the
parties.
10.3 Amendments. The provisions of this Agreement may not be amended,
supplemented, waived or changed orally, but only by a writing signed by each of
the parties hereto.
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10.4 Assignments. No party shall assign its rights and/or obligations
hereunder without the prior written consent of the other parties to this
Agreement, which consent may be withheld in the other parties' sole and
arbitrary discretion.
10.5 Binding Effect. All of the terms and provisions of this Agreement,
whether so expressed or not, shall be binding upon, inure to the benefit of, and
be enforceable by the parties and their respective administrators, executors,
legal representatives, heirs, successors and permitted assigns.
10.6 Headings. The headings contained in this Agreement are for
convenience of reference only, and shall not limit or otherwise affect in any
way the meaning or interpretation of this Agreement.
10.7 Notices. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing and shall be (as
elected by the party giving such notice) hand delivered by messenger or courier
service, telefaxed, or mailed by registered or certified mail (postage prepaid),
return receipt requested, addressed to:
To the Buyer
Calpine Gilroy Cogen, L.P.
50 West San Fernando Street
San Jose, CA 95113
Attn.: Vice President Asset Management
To the Seller
Gilroy Energy Company, Inc.
c/o McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21151
Attn.: Robert W. Skelton, General Counsel
To McCormick
McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21151
Attn.: Robert W. Skelton, General Counsel
or to such other address as any party may designate by notice complying with the
terms of this Section 10.7. Each such notice shall be deemed delivered (i) on
the date actually delivered if by messenger or courier service; (ii) on the date
of confirmed answer-back if by telefax; and (iii) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
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10.8 Severability. If any provision of this Agreement or any other
agreement entered into pursuant hereto is contrary to, prohibited by or deemed
invalid under applicable law or regulation, such provision shall be inapplicable
and deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible. If any provision of this Agreement may be
construed in two or more ways, one of which would render the provision invalid
or otherwise voidable or unenforceable and another of which would render the
provision valid and enforceable, such provision shall have the meaning which
renders it valid and enforceable.
10.9 Waivers. The failure or delay of any party at any time to require
performance by another party of any provision of this Agreement, even if known,
shall not affect the right of such party to require performance of that
provision or to exercise any right, power or remedy hereunder. Any waiver by any
party of any breach of any provision of this Agreement should not be construed
as a waiver of any continuing or succeeding breach of such provision, a waiver
of the provision itself, or a waiver of any right, power or remedy under this
Agreement. No notice to or demand on any party in any case shall, of itself,
entitle such party to any other or further notice or demand in similar or other
circumstances.
10.10 Arbitration of Disputes. Any dispute arising under this Agreement
shall be decided by binding arbitration conducted pursuant to the procedures set
forth below. For purposes of this Section 10.10, the Seller and McCormick shall
be deemed to be "a party," and the Buyer shall be deemed to be "a party."
10.10.1 Initiation of Arbitration. The party seeking arbitration
hereunder may request such arbitration in writing, which writing shall include a
clear statement of the matter(s) in dispute and shall name one arbitrator
appointed by such party. Within twenty (20) business days after receipt of such
request, the other party shall appoint one arbitrator, or in default thereof,
such arbitrator shall be named as soon as practicable by the American
Arbitration Association office in San Francisco, California, and the two
arbitrators so appointed shall name a third arbitrator within ten (10) business
days, or failing such agreement on a third arbitrator by the two arbitrators so
appointed, a third arbitrator shall be appointed by the American Arbitration
Association office in San Francisco, California. All arbitrators shall be
neutral.
10.10.2 Arbitration Procedure. The arbitration hearing shall be held in
San Francisco, California, on at least twenty (20) business days' prior written
notice to the parties. Except as otherwise provided herein, the proceedings
shall be conducted in accordance with the Commercial Arbitration Rules and
procedures of the American Arbitration Association; provided, that depositions
may be taken and discovery may be made in accordance with the Federal Rules of
Civil Procedure. Any decision of the arbitrators, including a decision regarding
an allocation of costs consistent with this Section 10.10, shall be joined in by
at least two of the arbitrators and shall be set forth in a written
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award which shall state the basis of the award and shall include both
findings of fact and conclusions of law. An award rendered pursuant to the
foregoing, which may include an award or decree of specific performance
hereunder, shall be final and binding on the parties, and judgment thereon may
be entered or enforcement thereof sought by either party in a court of competent
jurisdiction.
10.10.3 No Power to Amend. Notwithstanding the foregoing, nothing
contained herein shall be deemed to give the arbitrators appointed pursuant to
the foregoing any authority, power or right to alter, change, amend, modify,
waive, add to or delete from any of the provisions of this Agreement.
10.10.4 Costs. Each party shall bear the costs of its appointed
arbitrator and its own attorneys' fees, and the costs of the third arbitrator
incurred in accordance with the foregoing shall be shared equally by the
parties. Additional incidental costs of arbitration shall be paid for by the
non-prevailing party in the arbitration; provided, that where the final decision
of the arbitrators is not clearly in favor of either party, such incidental
costs shall be shared equally by the parties.
10.10.5 Complete Defense. Compliance by a party with the provisions of
this Section 10.10 shall be a complete defense to any suit, action or proceeding
instituted in any federal or state court, or before any administrative tribunal
by the other party with respect to any controversy or dispute arising under or
pursuant to this Agreement and which is subject to arbitration as set forth
herein, other than a suit or action alleging non-compliance with a final and
binding arbitration award rendered hereunder.
Notice: By initialing in the space below you are agreeing to have any
dispute arising out of the matters included in the "Arbitration of Disputes"
provision decided by neutral arbitration as provided by California law and you
are giving up any rights you might possess to have the dispute litigated in a
court or jury trial. By initialing in the space below you are giving up your
judicial rights to discovery and appeal, unless those rights are specifically
included in the "Arbitration of Disputes" provision. If you refuse to submit to
arbitration after agreeing to this provision, you may be compelled to arbitrate
under the authority of the California Code of Civil Procedure. Your agreement to
this arbitration provision is voluntary.
We have read and understand the foregoing and agree to submit disputes
arising out of the matters included in the "Arbitration of Disputes" provision
to neutral arbitration.
THE BUYER'S INITIALS ________ THE SELLER'S INITIALS ________
MCCORMICK'S INITIALS ________
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10.11 Remedies Cumulative. Except as otherwise expressly provided
herein, no remedy herein conferred upon any party is intended to be exclusive of
any other remedy, and each and every such remedy shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law or inequity or by statute or otherwise. No single or partial
exercise by any party of any right, power or remedy hereunder shall preclude any
other or further exercise thereof.
10.12 Overdue Interest. In the event any payment required by this
Agreement is not paid when due, the amount overdue shall bear interest from and
including the date on which such payment was due to but excluding the date of
payment at a rate per annum equal to the Prime Rate as published in the Wall
Street Journal as of the date such payment was due. Such interest shall be
calculated on the basis of a year of 365 days.
10.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Confirmation of execution
by telefax of a signature page shall be binding upon any party so confirming.
10.14 Governing Law. This Agreement and all transactions contemplated
by this Agreement shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of laws.
10.15 Preparation of Agreement. This Agreement shall not be construed
more strongly against any party regardless of who is responsible for its
preparation. The parties acknowledge each contributed and is equally responsible
for its preparation.
10.16 Survival. All representations, warranties, covenants and
agreements made herein or otherwise referenced herein shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
10.17 Materiality. As used in this Agreement the word "material" shall
refer to materiality with respect to the subject matter of the particular
representation, warranty or covenant in question, and not materiality in
relation to the Purchase Price or transactions contemplated hereby as taken as a
whole.
10.18 Inducement to Transaction. All representations and warranties
made by any party in this Agreement shall be deemed made for the purpose of
inducing the other party(ies) to enter into this Agreement.
10.19 Public Statements or Releases. Except as otherwise required by
law, no party hereto shall make any public statement or release regarding this
Agreement or the transactions contemplated hereby without the consent of the
other party(ies), which consent shall not be unreasonably withheld.
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IN WITNESS WHEREOF, the parties hereto have executed this Asset
Purchase Agreement as of the Effective Date.
THE BUYER: Calpine Gilroy Cogen, L.P.,
a Delaware limited partnership
By: Calpine Gilroy 1, Inc.,
a Delaware corporation,
its General Partner
By: _________________
Name: _________________
Title:_________________
THE SELLER: Gilroy Energy Company, Inc.,
a California corporation
By: _________________
Name: _________________
Title: _________________
MCCORMICK: McCormick & Company, Incorporated,
a Maryland corporation
By: _________________
Name: _________________
Title: _________________
By: _________________
Name: _________________
Title: _________________
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ASSET PURCHASE AGREEMENT
Among
Gilroy Energy Company, Inc.,
McCormick & Company, Incorporated
and
Calpine Gilroy Cogen, L.P.
Dated as of August 28, 1996
Gilroy Cogeneration Facility
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TABLE OF CONTENTS
PAGE
ARTICLE 1 Definitions and Interpretation 25
1.1 Defined Terms 25
1.2 Interpretation 33
ARTICLE 2 Sale and Purchase of Assets, Liabilities, and Purchase Price,
Manner of Payment 33
2.1 Sale of Assets 33
2.1.1 Fixed Assets 34
2.1.2 Inventory and Spare Parts 34
2.1.3 Agreements and Contracts 34
2.1.4 Intangibles 34
2.1.5 Books and Records 34
2.1.6 Governmental Approvals 34
2.1.7 Improvements and Real Estate Rights 34
2.1.8 All Property Not Elsewhere Described 34
2.2 Liabilities 34
2.3 Purchase Price 35
2.3.1 Allocation Statement 35
2.3.2 Reporting 35
2.4 Purchase Price Post-Closing Adjustment 35
2.4.1 Preparation of Net Trade Amount 35
2.4.2 Post-Closing Review 36
2.4.3 Access to Books and Records 36
2.4.4 Determination of Purchase Price Post-Closing
Adjustment 36
2.4.5 Payment of Purchase Price Post-Closing Adjustment 36
ARTICLE 3 Closing Date, Actions at Pre-Closing, Closing and Termination
Prior to Closing 37
3.1 Closing Date 37
3.2 Actions at Pre-Closing or Closing 37
3.2.1 Purchase Price 37
3.2.2 Bill of Sale 37
3.2.3 General Assignment and Assumption Agreement 37
3.2.4 Assignment of Agreements and Contracts 37
3.2.5 ConAgra's Consents and Agreements 37
3.2.6 Noncompete Agreement 38
3.2.7 Books and Records 38
3.2.8 Final Schedules 38
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TABLE OF CONTENTS
PAGE
3.2.9 Senior Loan Documents 38
3.2.10 ConAgra Option Agreements 38
3.2.11 Stock Purchase Letter Agreement 38
3.2.12 Escrow Instructions 38
3.3 Additional Actions 38
3.4 Termination Prior to Closing 39
3.4.1 Termination by the Seller/McCormick 39
3.4.2 Termination by the Buyer 39
3.4.3 Termination Due to Failure of Condition 39
3.4.4 Termination by Mutual Consent 39
ARTICLE 4 Representations and Warranties of the Seller and McCormick 40
4.1 Due Organization 40
4.2 Power and Authority 41
4.3 Valid, Binding and Enforceable Obligations 41
4.4 No Violations 41
4.5 Governmental Approvals 41
4.6 Third Party Consents and Notices 42
4.7 No Litigation 42
4.8 Agreements and Contracts; Project Documents 42
4.9 Utility Regulatory Matters 42
4.10 Qualifying Facility Matters 43
4.11 No Undisclosed Liabilities 43
4.12 Fixed Assets and Inventory 43
4.13 Title to Assets 44
4.14 Governmental Approvals for Business 44
4.15 ERISA 44
4.16 Labor Matters 44
4.17 Legal Compliance 45
4.18 Hazardous Materials 45
4.19 Disclosure 45
4.20 Condition of Acquired Assets 46
4.21 Tax Matters 46
4.22 Brokers 46
4.23 O&M Agreement Termination 46
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TABLE OF CONTENTS
PAGE
ARTICLE 5 Buyer's Representations and Warranties 46
5.1 Due Organization 46
5.2 Power and Authority 47
5.3 Valid, Binding and Enforceable Obligations 47
5.4 No Violations 47
5.5 No Litigation 47
5.6 Brokers 47
ARTICLE 6 Conditions Precedent to Buyer's Obligations 48
6.1 Representations True and Correct 48
6.2 Compliance with Covenants 48
6.3 Closing Actions 48
6.4 Consents and Governmental Approvals 48
6.5 Seller and McCormick Opinion of Counsel 48
6.6 Proceedings Satisfactory 48
6.7 ConAgra Acquisition 49
6.8 ConAgra Actions 49
6.9 ConAgra Assignment Agreement 49
6.10 ConAgra Opinion of Counsel 49
6.11 Severance of Facilities 49
ARTICLE 7 Conditions Precedent to The Seller's and McCormick's
Obligations 49
7.1 Representations True and Correct 50
7.2 Compliance with Covenants 50
7.3 Closing Actions 50
7.4 Opinion of Counsel 50
7.5 Proceedings Satisfactory 50
7.6 ConAgra Acquisition 50
7.7 Consents and Government Approvals 50
ARTICLE 8 Indemnification 51
8.1 Indemnification by the Seller and McCormick 51
8.2 Indemnification by the Buyer 51
8.3 Threshold and Limits for Indemnity 52
8.4 Bulk Sales Indemnity 52
8.5 Procedure for Indemnification with Respect to
Third-Party Claims 52
8.5.1 Notice of Claim 52
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TABLE OF CONTENTS
PAGE
8.5.2 Conduct of Claim 52
8.5.3 Payment of Claim 53
8.5.4 Access to Information 53
ARTICLE 9 The Seller's and McCormick's Covenants Prior to Closing,
Taxes and Further Assurances 53
9.1 The Seller's and McCormick's Covenants Prior to Closing 53
9.2 Taxes 54
9.3 Further Assurances 54
ARTICLE 10 Miscellaneous 55
10.1 Transaction Costs 55
10.2 Entire Agreement 55
10.3 Amendments 55
10.4 Assignments 55
10.5 Binding Effect 55
10.6 Headings 55
10.7 Notices 56
10.8 Severability 56
10.9 Waivers 57
10.10 Arbitration of Disputes 57
10.10.1 Initiation of Arbitration 57
10.10.2 Arbitration Procedure 57
10.10.3 No Power to Amend 57
10.10.4 Costs 59
10.10.5 Complete Defense 59
10.11 Remedies Cumulative 59
10.12 Overdue Interest 59
10.13 Counterparts 59
10.14 Governing Law 59
10.15 Preparation of Agreement 59
10.16 Survival 59
10.17 Materiality 59
10.18 Inducement to Transaction 59
10.19 Public Statements or Releases 59
EXHIBITS
EXHIBIT A - Intentionally Omitted
EXHIBIT B - Amended and Restated Lease Agreement
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TABLE OF CONTENTS
EXHIBIT C - Amended and Restated Natural Gas Sales Agreement
EXHIBIT D - Assignment of Lease Agreement
EXHIBIT E - Assignment of Natural Gas Sales Agreement
EXHIBIT F - Assignment of Power Purchase Agreement
EXHIBIT G - Assignment of Steam Sales Agreement
EXHIBIT H - Assignment in Part of Waste Discharge and Water
Reclamation Requirements
EXHIBIT I-1 - QF Site Option Agreement
EXHIBIT I-2 - Wastewater Discharge Option Agreement
EXHIBIT I-3 - Facility Site Option Agreement
EXHIBIT J - Lessor Consent and Agreement
EXHIBIT K - Memorandum of Amended and Restated Lease
Agreement
EXHIBIT L - Memorandum of QF Site Option
EXHIBIT M - Memorandum of Facility Site Option
EXHIBIT M-1 - Memorandum of Wastewater discharge Option
Agreement
EXHIBIT N - Consent and Agreement (Natural Gas Sales Agreement)
EXHIBIT O - Noncompetition Earnings Contingency Agreement
EXHIBIT P - Consent and Agreement (Power Purchase Agreement)
EXHIBIT Q - Purchaser's Consent
EXHIBIT R - Shutdown Agreement
EXHIBIT R-1 - Shutdown Consent
EXHIBIT S - First Amendment to Steam Purchase and Sale Contract
EXHIBIT T - Substation Operating Agreement
EXHIBIT U-1 - Opinion of Robert W. Skelton, General Counsel of
McCormick
EXHIBIT U-2 - Opinion of Baker & McKenzie, Counsel for the Seller
and McCormick
EXHIBIT V-1 - Opinion of Joseph E. Ronan, Jr., General Counsel of
the Buyer
EXHIBIT V-2 - Opinion of Thelen, Marrin, Johnson & Bridges Counsel
for the Buyer
SCHEDULES
SCHEDULE A-1 - Description of the Facility
SCHEDULE A-2 - PROPERTY DESCRIPTION OF THE SITE
SCHEDULE B - SAMPLE CALCULATION OF NET TRADE AMOUNT
SCHEDULE 2.1.1 - FIXED ASSETS
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TABLE OF CONTENTS
SCHEDULE 2.1.2 - INVENTORY
SCHEDULE 2.1.3 - ASSIGNED CONTRACTS
SCHEDULE 2.2 - EXCLUDED LIABILITIES
SCHEDULE 4.5 - GOVERNMENTAL APPROVALS
SCHEDULE 4.6 - THIRD PARTY CONSENTS AND NOTICES
SCHEDULE 4.7 - LITIGATION (SELLER AND MCCORMICK)
SCHEDULE 4.8 - PROJECT DOCUMENTS
SCHEDULE 4.11 - LIABILITIES
SCHEDULE 4.14.1 - ALL GOVERNMENTAL APPROVALS
SCHEDULE 4.14.2 - GOVERNMENTAL APPROVALS NOT VALIDLY
ISSUED/TRANSFERRED
SCHEDULE 4.17 - LEGAL COMPLIANCE
SCHEDULE 4.18 - HAZARDOUS MATERIALS
SCHEDULE 5.5 - LITIGATION (BUYER)
sCHEDULE 6.11 - SEVERANCE OF FACILITIES ITEMS
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NONCOMPETITION/EARNINGS CONTINGENCY AGREEMENT
This NONCOMPETITION/EARNINGS CONTINGENCY AGREEMENT (the "Agreement") is
entered into on this 28th day of August, 1996, by and among Calpine Gilroy
Cogen, L.P., a Delaware limited partnership ("Calpine"), McCormick & Company,
Incorporated, a Maryland corporation ("McCormick"), and Gilroy Energy Company,
Inc., a California corporation ("Gilroy").
RECITALS
WHEREAS, Gilroy (as Seller), Calpine (as Buyer), and McCormick have
entered into an Asset Purchase Agreement dated as of August ___, 1996, (the
"Purchase Agreement"), pursuant to which Calpine will acquire all of Gilroy's
interest in and to the Gilroy Cogeneration Facility, a 120 megawatt (nominal
net) gas-fired combined cycle cogeneration facility located in Gilroy,
California (the "Facility"), and certain other assets of Gilroy (the "Purchased
Assets"), as more fully described in the Purchase Agreement; and
WHEREAS, McCormick is the indirect parent company of Gilroy as Gilroy
is a wholly-owned subsidiary of Gilroy Foods, Incorporated, a California
corporation, and Gilroy Foods, Incorporated is a wholly-owned subsidiary of
McCormick; and
WHEREAS, pursuant to the Purchase Agreement, Gilroy will receive
valuable consideration in exchange for its interest in the Purchased Assets, and
McCormick will receive valuable consideration in exchange for the agreements
contained herein including the payments hereinafter described; and
WHEREAS, Gilroy and McCormick each further acknowledges that this
Agreement is a separately bargained for consideration and is a material
inducement to Calpine to proceed with the transaction described in the Purchase
Agreement; and
WHEREAS, Calpine acknowledges that this Agreement is a separately
bargained for consideration and is material inducement to McCormick and Gilroy
to proceed with the transaction described in the Purchase Agreement.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Noncompetition Covenant. In connection with the transfer and sale of
the Purchased Assets pursuant to the Purchase Agreement and for good and
valuable consideration, receipt of which is hereby acknowledged by each of
Gilroy, McCormick and Calpine, and pursuant to the other terms and conditions
set forth in this Agreement, McCormick hereby agrees with Calpine that McCormick
will not, without the prior written consent of Calpine, at any time within the
three and one-fourth (3 1/4) year period from and after the date hereof, and
Gilroy hereby agrees with Calpine that Gilroy (so long as it is owned, directly
or indirectly, by McCormick or any of McCormick's affiliates) will not, without
the prior written consent of Calpine, at any time within the three and
one-fourth (3 1/4) year period from and after the date hereof, engage in the
business of cogeneration of energy in northern California or have more than an
aggregate of a five percent (5%) interest in any business, firm, corporation or
other entity (whether as a principal, partner, director,
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officer, employee, consultant, agent, security holder or otherwise) principally
involved in the business of cogeneration of energy in northern California.
2. Earnings Contingency. If neither McCormick nor Gilroy has breached
its respective obligations pursuant to Section 1 of this Agreement, and the
Facility has total revenues as reported in the income statement of Calpine
(including, but not limited to, revenues from the sale of electricity to Pacific
Gas & Electric Company or others, revenues from the sale of steam, business
interruption insurance proceeds, and the equivalent dollar value of any credits
resulting from shutting down or starting up the Facility) of at least $2,500,000
in the period from and after the date hereof through November 30, 1996 and
$10,000,000 in each fiscal year (ending on November 30th) thereafter or,
alternatively, the Facility has, on a cumulative basis, total revenues in an
amount equal to $10,000,000 multiplied by the number of years or partial years
(partial years to be measured by the actual number of days elapsed divided by
the actual number of days in such year) that have elapsed between the
commencement date of this Agreement and the required payment date, with a
maximum cumulative total of $32,500,000, Calpine shall pay to McCormick the
amounts at the times set forth in Section 4. Subject to Section 3 hereof, in the
event that the Facility fails to obtain the required minimum revenues, payments
to McCormick under Section 4 shall be suspended and deferred until such payment
date as the Facility does satisfy the minimum revenue requirements. Except as
provided herein, the payments set forth in Section 4 are absolutely due and
payable by Calpine to McCormick, without offset, on or prior to the dates set
forth in Section 4, and shall in no event be construed to constitute option
payments payable only in the event Calpine wishes to bind McCormick to the
covenants made in Section 1 hereof. Calpine has obtained and delivered to
McCormick, the receipt of which is hereby acknowledged, irrevocable letters of
credit issued by Banque National de Paris, Los Angeles Branch, to secure the
payment of the amounts required to be paid to McCormick by Calpine, in form and
substance equivalent to the letters of credit attached hereto and made a part
hereof as Exhibit A.
3. Unforeseen Changes in Revenues. In the event that Calpine and
Pacific Gas & Electric Company amend the Power Purchase Agreement (such term
used herein as defined in the Purchase Agreement) in such a way as to prevent
the Facility from meeting the minimum revenue requirements of Section 2 hereof,
or if there is a change in law or regulation which prevents the Facility from
satisfying said revenue requirements (other than any action by the California
Public Utility Commission or any successor agency (the "CPUC") which renders the
Power Purchase Agreement null and void or eliminates the capacity payments
thereunder and which arises without the agreement, consent or cooperation of
Calpine or despite Calpine's opposition to such action), or if Calpine ceases or
diminishes operations at the Facility during peak hours or peak periods as such
hours or periods are identified in the Power Purchase Agreement which prevents
the Facility from satisfying said revenue requirements, including without
limitation, by reason of force majeure events, or if Calpine otherwise fails or
is unable to perform its obligations hereunder or under the Power Purchase
Agreement which prevents the satisfaction of said revenue requirements, then
Calpine shall be deemed to have waived the revenue requirements of Section 2
hereof and the payments owed by Calpine to McCormick shall thereupon become
absolute and unconditional, provided that neither McCormick nor Gilroy has
breached its respective obligations under Section 1 hereof.
4. Payments. If neither McCormick nor Gilroy has breached its
respective obligations pursuant to Section 1 of this Agreement, and the Facility
has total revenues in the amounts set forth in Section 2 of this Agreement,
Calpine shall pay to McCormick, at the
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address set forth herein as McCormick's notice address, the following sums
during each of the years indicated:
Year Amount
---- ----------
1996 $4,500,000
1997 $8,000,000
1998 $7,000,000
1999 $4,640,000
each such annual payment shall be paid in four equal quarterly installments on
February 28, May 31, August 31 and November 30 of each year (each a "Quarterly
Payment Date") and any payment deferred pursuant to Section 2 hereof shall be
paid in full on the first Quarterly Payment Date thereafter on which the
Facility satisfies the minimum revenue requirement in accordance with Section 2
hereof.
5. Enforcement. Each of McCormick and Gilroy acknowledges and agrees
that, because the legal remedies of Calpine may be inadequate in the event of a
breach of, or other failure to perform, any of the covenants and obligations set
forth in Section 1, Calpine may, in addition to obtaining any other remedy or
relief available to it, enforce the provisions of Section 1 by injunction and
other equitable remedies.
6. Severability. The parties agree that the provisions with respect to
duration and geographic scope and restrictions set forth in Section 1 are
reasonable to protect the legitimate interest of Calpine. The provisions of
Section 1 are severable, and in the event that any provision hereof should, for
any reason, be held invalid or unenforceable in any respect, it shall not
invalidate, render unenforceable to the maximum extent compatible with, and
possible under, applicable law. In the event Section 1 is invalidated or
modified as provided above, no such invalidation or modification shall in any
way reduce, alter or offset Calpine's obligations to pay the sums set forth in
Section 4 to McCormick, provided that McCormick and Gilroy have not breached
their respective obligations pursuant to Section 1 hereof.
7. Successors and Assigns. This Agreement shall inure to the benefit of
McCormick, Gilroy and Calpine and their respective successors and assigns;
provided, however, that McCormick and Gilroy may not assign their rights and
obligations under this Agreement without the prior written consent of Calpine,
which consent shall not be unreasonably withheld.
8. Governing Law. The validity, interpretation, enforceability, and
performance of this Agreement shall be governed by, and construed in accordance
with, the laws of the State of California. The scope and effect of the covenants
contained in this Agreement, as governed by the laws of the State of California,
shall be as broad as may be permitted under the provisions of such laws or other
applicable law.
9. Time is of the Essence. Time is of the essence in the performance of
the parties' respective obligations stated herein.
10. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one agreement.
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11. Notices. All written notices required to be given pursuant to the
terms hereof shall be sent by (a) personal delivery, (b) a nationally recognized
overnight courier service, or (c) United States first class mail, registered or
certified return receipt requested and postage prepaid as expressly provided
herein. All notices shall be addressed as follows:
To McCormick McCormick & Company, Incorporated
and Gilroy: 18 Loveton Circle
Sparks, MD 21152-6000
Attention: Robert W. Skelton
Vice President and General Counsel
With copy to: Baker & McKenzie
Two Embarcadero Center, 24th Floor
San Francisco, CA 94111-3099
Attention: Tyrrell M. Prosser, Esq.
To Calpine: Calpine Gilroy Cogen, L.P.
50 West San Fernando Street
San Jose, CA 95113
Attention: Vice President
Asset Management
The foregoing addresses may be changed by written notice. All notices shall be
deemed received upon receipt or the date indicated on any return receipt or
other receipt of delivery.
12. Captions. None of the captions of the paragraphs of this Agreement
shall be construed as a limitation upon the language of such paragraphs, said
captions having been inserted as a guide and a partial index and not as a
complete index of the contents of such paragraphs.
13. Further Assurances. In a timely fashion, each party shall execute
and deliver such further instruments, documents or assurances, and take such
further action, as shall be required to carry out the purposes and intent of
this Agreement.
14. Attorneys' Fees. In the event of any action at law or in equity
between the parties to this Agreement to enforce any of the provisions and/or
rights hereunder, the unsuccessful party to such litigation covenants and agrees
to pay to the successful party all costs and expenses, including reasonable
attorney's fees, incurred therein by such successful party, and if such
successful party shall recover judgment in any action or proceeding, such costs,
expenses and fees shall be included in and as part of such judgment.
15. Entire Agreement. This Agreement and any exhibits which are
attached hereto and all documents in the nature of exhibits, when executed,
contain the entire understanding of the parties and supersede any and all other
written or oral understandings.
CALPINE GILROY COGEN, L.P., GILROY ENERGY COMPANY, INC.,
a Delaware limited partnership a California corporation
By: Calpine Gilroy 1, Inc.,
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a Delaware corporation, By: ___________________
its General Partner
Name: ___________________
By: ____________________ Title: ___________________
Name: ____________________
Title: ____________________
McCORMICK & COMPANY,
INCORPORATED,
a Maryland corporation
By: ____________________
Name: ____________________
Title: ____________________
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