Exhibit 10.2

 
 
MEMBERSHIP INTERESTS PURCHASE AGREEMENT
By and Between
GOLDENDALE ENERGY CENTER, LLC,
AS SELLER
And
PUGET SOUND ENERGY, INC.,
AS BUYER
Dated as of November 3, 2006
 
 

 

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TABLE OF CONTENTS

                      Page
 
         
ARTICLE 1
  PURCHASE AND SALE OF THE PURCHASED INTERESTS     1
 
         
1.1
  Transfer of Purchased Interests     1
1.2
  Excluded Assets     3
1.3
  Assumption of Liabilities     5
1.4
  Excluded Liabilities     5
1.5
  Non-Assignment of Assigned Contracts     6
 
         
ARTICLE 2
  CONSIDERATION     6
 
         
2.1
  Consideration     6
2.2
  Deposits     6
 
         
ARTICLE 3
  CLOSING AND DELIVERIES     7
 
         
3.1
  Closing     7
3.2
  Seller’s Deliveries     7
3.3
  Buyer’s Deliveries     8
3.4
  Proration     8
 
         
ARTICLE 4
  REPRESENTATIONS AND WARRANTIES OF SELLER     9
 
         
4.1
  Organization     9
4.2
  Authorization and Validity     9
4.3
  No Conflict or Violation     9
4.4
  Consents, Approvals and Notifications     10
4.5
  Compliance with Law     10
4.6
  Litigation     10
4.7
  Material Contracts     10
4.8
  Permits     11
4.9
  Environmental Matters     11
4.10
  Employee Benefits     12
4.11
  Real Property     13
4.12
  Personal Property     13
4.13
  Regulatory Status     13
4.14
  Taxes     13
4.15
  Condition of Acquired Assets     13
4.16
  New LLC     14
4.17
  Capitalization     14
 
         
ARTICLE 5
  REPRESENTATIONS AND WARRANTIES OF BUYER     14
 
         
5.1
  Corporate Organization     14
5.2
  Authorization and Validity     14
5.3
  No Conflict or Violation     14
5.4
  Consents, Approvals and Notifications     15
5.5
  Availability of Funds     15

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                      Page
5.6
  Adequate Assurances Regarding Assigned Contracts     15
5.7
  Licenses, Permits, etc     15
5.8
  Investigation by Buyer     16
 
         
ARTICLE 6
  COVENANTS OF SELLER     16
 
         
6.1
  Actions Before Closing     16
6.2
  Conduct of Business Before the Closing Date.     16
6.3
  Sale Order and Bidding Procedures Order     17
6.4
  Consents and Approvals     17
6.5
  Access to Properties and Records; Confidentiality     17
6.6
  Rejection of Assigned Contracts     18
6.7
  Further Assurances     18
6.8
  Cure Costs and Cure of Non-Monetary Defaults     18
6.9
  Notices     18
6.10
  Additional Real Property     18
6.11
  Provision of Data; Transfer of Software     19
6.12
  Revocation of Gas Transportation Agency Arrangement     19
 
         
ARTICLE 7
  COVENANTS OF BUYER     19
 
         
7.1
  Actions Before Closing Date     19
7.2
  Consents, Approvals and Notifications     19
7.3
  Adequate Assurances Regarding Assigned Contracts     20
7.4
  Cure Costs Other than Seller’s Cure Costs     20
7.5
  Support Obligations.     20
7.6
  Availability of Business Records     22
7.7
  Calpine Marks     22
7.8
  Casualty Loss     22
 
         
ARTICLE 8
  BANKRUPTCY PROCEDURES     23
 
         
8.1
  Bankruptcy Actions.     23
8.2
  Bidding Procedures     23
 
         
ARTICLE 9
  EMPLOYEE MATTERS     24
 
         
9.1
  Possible Employment Offers     24
9.2
  WARN Act Obligations     24
9.3
  Key Employee Retention Plan     24
9.4
  Employment Agreements     24
 
         
ARTICLE 10
  REGULATORY MATTERS     24
 
         
10.1
  Regulatory Filings     25
10.2
  Cooperation; Confidentiality Agreement     25
10.3
  Objections or Other Challenges     25
 
         
ARTICLE 11
  TAXES     26
 
         
11.1
  Taxes Related to Purchase of Assets     26
11.2
  Proration of Real and Personal Property Taxes     27
11.3
  Cooperation on Tax Matters     27

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                      Page
11.4
  Retention of Tax Records     28
11.5
  Allocation of Purchase Price and Purchase Price Allocation Forms     28
11.6
  Unbilled Transactional Taxes     29
11.7
  Washington Tax Ruling     29
 
         
ARTICLE 12
  CONDITIONS PRECEDENT TO PERFORMANCE BY PARTIES     30
 
         
12.1
  Conditions Precedent to Performance by Seller and Buyer     30
12.2
  Conditions Precedent to Performance by Seller     30
12.3
  Conditions Precedent to the Performance by Buyer     31
 
         
ARTICLE 13
  TERMINATION AND EFFECT OF TERMINATION     33
 
         
13.1
  Right of Termination     33
13.2
  Termination Without Default     33
13.3
  Effect of Failure of Seller’s Conditions to Closing     35
13.4
  Effect of Failure of Buyer’s Conditions to Closing     35
13.5
  Termination on Alternative Transaction     36
 
         
ARTICLE 14
  MISCELLANEOUS     37
 
         
14.1
  LIMITATION ON DAMAGES     37
14.2
  Successors and Assigns     37
14.3
  Dispute Resolution     37
14.4
  Governing Law; Jurisdiction     38
14.5
  Disclosure Schedule Supplements     38
14.6
  Warranties Exclusive     38
14.7
  Survival of Representations and Warranties     38
14.8
  No Recourse Against Third Parties     38
14.9
  Mutual Drafting     39
14.10
  Expenses     39
14.11
  Broker’s and Finder’s Fees     39
14.12
  Severability     39
14.13
  Notices     40
14.14
  Amendments; Waivers     41
14.15
  Schedules     41
14.16
  Public Announcements     41
14.17
  Entire Agreement     41
14.18
  Parties in Interest     42
14.19
  Headings     42
14.20
  Construction     42
14.21
  Currency     42
14.22
  Time of Essence     42
14.23
  Counterparts     42
 
         
ARTICLE 15
  DEFINITIONS     42
 
         
15.1
  Certain Terms Defined     42
15.2
  All Terms Cross-Referenced     48

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EXHIBITS

         
Exhibit A
  Form of Assignment Agreement
Exhibit B
  Form of Sale Order
Exhibit C
  Form of Bidding Procedures Order
Exhibit D
  Form of Transfer and Contribution Agreement
Exhibit E
  Form of Special Warranty Deed

DISCLOSURE SCHEDULES

     
Schedule 1.1(a)
  Owned Real Property
Schedule 1.1(c)
  Equipment
Schedule 1.1(d)
  Customer Contracts
Schedule 1.1(e)
  Supplier Contracts
Schedule 1.1(f)
  Other Contracts
Schedule 1.1(i)
  Permits
Schedule 1.1(l)
  Software Licenses
Schedule 1.2(m)
  Calpine Marks
Schedule 1.2(q)
  Excluded Assets
Schedule 1.4
  Excluded Liabilities
Schedule 4.4
  Seller’s Required Consents
Schedule 4.5
  Compliance with Law
Schedule 4.6
  Litigation
Schedule 4.7
  Material Contracts and Related Exceptions
Schedule 4.8
  Material Permits and Related Exceptions
Schedule 4.9
  Environmental Matters
Schedule 4.10
  Employee Benefit Plans; Business Employees
Schedule 4.15
  Condition of Acquired Assets
Schedule 5.4
  Buyer’s Required Consents
Schedule 7.5(a)
  Credit Support Obligations
Schedule 11.5
  Real Property Allocation Schedule for REET
Schedule 15.1
  Permitted Liens

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MEMBERSHIP INTERESTS PURCHASE AGREEMENT
     THIS MEMBERSHIP INTERESTS PURCHASE AGREEMENT (this “Agreement”), dated as
of November 3, 2006 (“Execution Date”), is made by and between Goldendale Energy
Center, LLC (the “Seller”), a Delaware limited liability company, and Puget
Sound Energy, Inc., a Washington corporation (the “Buyer”) (each a “Party” and
together the “Parties”). Capitalized terms used in this Agreement are defined or
cross-referenced in Article 15.
BACKGROUND INFORMATION
     WHEREAS, Seller is an indirect wholly owned subsidiary of Calpine
Corporation (“Calpine”), a Delaware corporation;
     WHEREAS, on December 20, 2005, Calpine and its debtor Affiliates, including
Seller, filed voluntary petitions for relief under the Bankruptcy Code in the
Bankruptcy Court;
     WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, the Purchased Interests, in a sale authorized by the Bankruptcy Court
pursuant to, inter alia, sections 105, 363, and 365 of the Bankruptcy Code;
     WHEREAS, it is intended that the acquisition of the Purchased Interests
would be accomplished through the sale, transfer and assignment of the Purchased
Interests by Seller to Buyer;
     WHEREAS, Buyer also desires to assume, and Seller desires to assign and
transfer to Buyer, the Assumed Liabilities;
     NOW, THEREFORE, in consideration of the foregoing and their respective
representations, warranties, covenants and undertakings herein contained, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Seller and Buyer hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF THE PURCHASED INTERESTS
     1.1 Transfer of Purchased Interests. At the Closing, and upon the terms and
conditions herein set forth, Seller shall sell to Buyer, and Buyer shall acquire
from Seller, all of Seller’s right, title and interest in, to and under one
hundred percent (100%) of the membership interests (the “Purchased Interests”)
in a single member Delaware limited liability company (“New LLC”), free and
clear of Liens, claims and other interests (except for Permitted Liens and
Assumed Liabilities) pursuant to sections 105, 363 and 365 of the Bankruptcy
Code, after Seller has, immediately prior to the Closing, organized New LLC and
contributed, conveyed, assigned and transferred to New LLC pursuant to the terms
of a transfer and contribution agreement (the “Transfer and Contribution
Agreement”) in the form attached hereto as Exhibit D, all of Seller’s right,
title and interest in, to and under the Acquired Assets free and clear of Liens,
claims and other interests (except for Permitted Liens and Assumed Liabilities)
pursuant to

 

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sections 105, 363 and 365 of the Bankruptcy Code. “Acquired Assets” shall mean
solely the following property, but shall exclude the Excluded Assets:
     (a) all real property owned or to be owned (as contemplated by
Section 6.10) by Seller and listed on Schedule 1.1(a) of the disclosure
schedules accompanying this Agreement (the “Disclosure Schedules”), together
with all improvements, structures and fixtures thereon (the “Owned Real
Property”);
     (b) all of Seller’s rights (including the Additional Real Property
Entitlements to be transferred to Seller as contemplated by Section 6.10) under
the easements, rights of way, real property licenses, and other real property
entitlements related to its Owned Real Property (the “Entitled Real Property”
and, together with the Owned Real Property, the “Real Property”);
     (c) all of (i) Seller’s owned equipment, spare parts, machinery, furniture,
fixtures, and other personal property that is either (A) used exclusively or
substantially on an exclusive basis in the Business and not listed on
Schedule 1.2(q), (B) located on, or in transit to, the Real Property or
(C) listed on Schedule 1.1(c) (the “Equipment”); and (ii) any rights of Seller
to the warranties and licenses received from manufacturers and sellers of the
Equipment or otherwise relating to the Power Plant;
     (d) all of Seller’s rights under sales orders, service agreements, customer
contracts or other similar Contracts entered into by Seller with the customers
that are listed on Schedule 1.1(d) of the Disclosure Schedules or (ii) pursuant
to Contracts otherwise listed on Schedule 1.1(d) of the Disclosure Schedules
(“Customer Contracts”);
     (e) all of Seller’s rights under outstanding purchase orders, service
agreements, transmission agreements, leases of personal property or other
similar Contracts to the extent pertaining to the Business (“Supplier
Contracts”), including those entered into by Seller with any supplier that are
listed on Schedule 1.1(e) of the Disclosure Schedules;
     (f) all of Seller’s rights under the Contracts that are listed on Schedule
1.1(f) of the Disclosure Schedules, including the Additional Real Property
Farming Lease to be transferred by Calpine to Seller as contemplated by
Section 6.10 (the “Other Contracts” and, together with the Customer Contracts,
the Supplier Contracts and any licenses transferred pursuant to Section 1.1(l)
below, the “Assigned Contracts”);
     (g) all inventories of fuel, chemical and gas inventories, supplies and
materials located at or in transit to the Real Property and owned by Seller on
the Closing Date (the “Inventory”).
     (h) any rights of Seller to the warranties received from third parties with
respect to any Acquired Assets, including Equipment, Intangible Property and
Inventory;
     (i) to the extent transferable under applicable Law, all rights of Seller
under the permits, authorizations, approvals, registrations, Emission Allowances
and licenses (and pending applications for the foregoing) issued by any
Government and related to the

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Business or the Power Plant (collectively, the “Permits”), including those
listed on Schedule 1.1(i) of the Disclosure Schedules;
     (j) copies of all Business Records;
     (k) all of Seller’s right, title and interest in and to the Power Plant;
     (l) any computer software or systems, inventions, proprietary processes,
patents and patent rights, copyrights and copyright rights, trade secrets,
know-how, source and object codes and all other intellectual property and
intellectual property rights owned or licensed by Seller and used exclusively or
substantially on an exclusive basis in the Business, including (A) computer data
relating to the operation and maintenance of the Power Plant, (B) rights to, and
goodwill represented by, the names “Goldendale Energy Center,” “Goldendale
Power” and “Goldendale Power Project” and (C) subject to Section 6.11, all of
the software listed on Schedule 1.1(l) (collectively, the “Intangible
Property”); provided, that nothing in this Section 1.1(l) will give Buyer any
rights to any name that includes a Calpine Mark; and
     (m) except as set forth in Section 1.2(g) below, all rights to Claims,
refunds or adjustments, and all rights to insurance proceeds or other insurance
recoveries, of Seller or any Affiliate of Seller with respect to the Acquired
Assets, to the extent relating to the Assumed Liabilities.
     1.2 Excluded Assets. Notwithstanding anything to the contrary in this
Agreement, the Purchased Interests (and thereby the Acquired Assets) are the
only properties and assets transferred to Buyer under this Agreement. Without
limiting the generality of the foregoing, the Acquired Assets do not include
(i) any right, title or interest of any Person other than Seller in any property
or asset (except for the Additional Real Property and the Additional Real
Property Farming Lease to be transferred by Calpine to Seller as contemplated by
Section 6.10) and (ii) the properties and assets of Seller listed or described
in this Section 1.2 as follows (all properties and assets not being acquired by
Buyer are herein referred to as the “Excluded Assets”):
     (a) all of Seller’s cash and cash equivalents, marketable securities,
prepaid expenses, advance payments, surety accounts, deposits and other similar
prepaid items (including for the purchase of natural gas), checks in transit and
undeposited checks;
     (b) all of Seller’s accounts and notes receivable as of 11:59 p.m. on the
Closing Date (the “Accounts Receivable”);
     (c) assets, property and other rights held or owned by Calpine and its
Affiliates not used exclusively or substantially on an exclusive basis by Seller
in the operation of the Business, except to the extent included in the Acquired
Assets pursuant to Section 1.1 above;
     (d) forecasts, financial information or financial statements and
proprietary manuals (except rights to use manuals specific to and necessary for
the operation of the Business) prepared by or used by Seller or its Affiliates
to the extent not relating exclusively to the Business;

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     (e) all of Seller’s rights under Contracts that are not Assigned Contracts,
including the Intracompany Service Contracts;
     (f) all assets to be retained by Seller pursuant to Article 9;
     (g) all rights to (I) Claims, refunds or adjustments with respect to the
Excluded Assets relating to any proceeding before any Government and
(II) insurance proceeds or other insurance recoveries (A) that relate to, or are
reimbursement for, Seller’s or Seller’s Affiliate’s expenditures made prior to
the Closing Date for which insurance proceeds are available or due to Seller or
Seller’s Affiliates or (B) to the extent relating to Excluded Assets or Excluded
Liabilities;
     (h) any asset of Seller that would constitute an Acquired Asset (if owned
by Seller on the Closing Date) that is conveyed or otherwise disposed of during
the period from the date hereof until the Closing Date as permitted by the terms
of this Agreement;
     (i) all losses, loss carry forwards and rights to receive refunds, credits
and loss carry forwards with respect to any and all Taxes of Seller incurred or
accrued on or prior to the Closing Date, including interest receivable with
respect thereto;
     (j) any and all rights, demands, claims, credits, allowances, rebates,
causes of action, known or unknown, pending or threatened (including all causes
of action arising under sections 510, 544 through 551 and 553 of the Bankruptcy
Code or under similar state Laws including fraudulent conveyance claims, and all
other causes of action of a trustee and debtor-in-possession under the
Bankruptcy Code) or rights of set-off (collectively, “Claims”), of Seller or any
Affiliate of Seller arising out of or relating to events prior to the Closing
Date (except to the extent relating to the Assumed Liabilities) or arising out
of or relating in any way to the Chapter 11 Case or any of the transactions
contemplated thereby or entered into as a consequence thereof, including any
claims (as defined in section 101(5) of the Bankruptcy Code) filed, scheduled or
otherwise arising in the Chapter 11 Case;
     (k) except for the Purchased Interests, all shares of capital stock,
partnership interests or other equity interests of Seller and all Affiliates of
Seller;
     (l) all rights of Seller arising under this Agreement and under any other
agreement between Seller and Buyer entered into in connection with this
Agreement;
     (m) all rights to or goodwill represented by or pertaining to all names,
marks, trade names, trademarks and service marks incorporating the name Calpine
or any other name set forth on Schedule 1.2(m) (the “Calpine Marks”) and any
brand names or derivatives thereof no matter how used, whether as a corporate
name, domain name or otherwise and including the corporate design logo
associated with any Calpine Mark or variant of any Calpine Mark other than the
Goldendale Energy Center, Goldendale Power or Goldendale Power Project;
     (n) all Retained Books and Records;

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     (o) all of Seller’s rights to recovery of collateral given to obtain
letters of credit and rights to recover amounts drawn or paid on letters of
credit;
     (p) all accounts receivable and other amounts due to Seller from any
Affiliate of Seller and all rights and Claims of Seller against any Affiliate of
Seller, including all Claims of Seller against Calpine; and
     (q) any assets set forth on Schedule 1.2(q) of the Disclosure Schedules;
and
     1.3 Assumption of Liabilities.
     (a) Effective immediately prior to the Closing, New LLC shall assume, and
New LLC shall thereafter pay, perform and discharge when due, the following
liabilities and obligations of Seller, and no others (collectively, the “Assumed
Liabilities”):
     (i) all liabilities and obligations of Seller under the Assigned Contracts
arising after Closing;
     (ii) all liabilities and obligations of Seller under the Permits;
     (iii) to the extent provided in Article 11, all liabilities and obligations
for real and personal property Taxes and assessments that are not yet due and
payable and all liabilities and obligations for any Taxes relating to the
Acquired Assets for periods after the Closing Date;
     (iv) all liabilities and obligations of Seller arising under any
Environmental Law, to the extent, and only to the extent, relating to the
ownership or operation of the Acquired Assets prior to the Closing; and
     (v) all liabilities and obligations relating to or arising from the
operation of the Business or the ownership of the Purchased Interests and the
Acquired Assets after the Closing Date.
     (b) At the Closing, as a result of the purchase by Buyer of the Purchased
Interests, Buyer shall assume, and Buyer shall thereafter pay, perform and
discharge, or cause to be paid, performed and discharged, when due, the Assumed
Liabilities.
     1.4 Excluded Liabilities. Seller shall retain all liabilities and
obligations not expressly identified herein as Assumed Liabilities (the
“Excluded Liabilities”), including the following liabilities and obligations:
(i) except as specifically provided in Section 1.3 above, all liabilities and
obligations relating to the operation of the Business or the ownership of the
Purchased Interests and the Acquired Assets and arising on or prior to the
Closing Date, including all liabilities and obligations with respect to accounts
payable arising in connection with the Business or the Acquired Assets on or
prior to the Closing Date (which shall include, for the avoidance of doubt,
invoiced accounts payable and accrued expenses for which an invoice has not yet
been rendered) (the “Accounts Payable”); (ii) liabilities and obligations
related to the Excluded Assets; (iii) any liability or obligation for Taxes
relating to the transactions contemplated by this Agreement, including
(A) Transaction Taxes (except to the extent Buyer is

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responsible to reimburse Seller for fifty percent (50%) of the REET imposed as a
result of the transactions contemplated by this Agreement pursuant to
Section 11.1 below) and (B) Taxes of a Related Person imposed on Seller;
(iv) all liabilities and obligations with respect to all Employee Benefit Plans
of Seller or any of its ERISA Affiliates; (v) all liabilities and obligations
under any employment agreement that is in effect with respect to any Business
Employee; (vi) reimbursement liabilities and obligations in respect of credit
support furnished by or on behalf of Seller or its Affiliates relating to the
Acquired Assets, except to the extent Buyer is obligated to indemnify Seller for
certain liabilities arising post-Closing in connection with the credit support
obligations specified in Schedule 7.5, as contemplated by Section 7.5; and (vii)
those liabilities and obligations listed on Schedule 1.4 of the Disclosure
Schedules.
     1.5 Non-Assignment of Assigned Contracts. Anything contained herein to the
contrary notwithstanding, (i) this Agreement shall not constitute an agreement
to assign any Assigned Contract if, after giving effect to the provisions of
sections 363 and 365 of the Bankruptcy Code, an attempted assignment thereof,
without obtaining a Consent, would constitute a breach thereof or in any way
negatively affect the rights of Seller or Buyer, as the assignee of such
Assigned Contract and (ii) no breach of this Agreement shall have occurred by
virtue of such nonassignment. If, after giving effect to the provisions of
sections 363 and 365 of the Bankruptcy Code, such Consent is required but not
obtained, Seller shall, at Buyer’s sole cost and expense, cooperate with Buyer
in any reasonable arrangement, including Buyer’s provision of credit support,
designed to provide for Buyer the benefits and obligations of or under any such
Assigned Contract, including enforcement for the benefit of Buyer of any and all
rights of Seller against a third party thereto arising out of the breach or
cancellation thereof by such third party; provided, that nothing in this
Section 1.5 shall (x) require Seller to make any significant expenditure or
incur any significant obligation on its own or on Buyer’s behalf or (y) prohibit
Seller from ceasing operations or winding up its affairs following the Closing.
Any assignment to Buyer of any Assigned Contract that shall, after giving effect
to the provisions of sections 363 and 365 of the Bankruptcy Code, require the
Consent of any third party for such assignment as aforesaid shall be made
subject to such Consent being obtained. Any contract that would be an Assigned
Contract but is not assigned in accordance with the terms of this Section 1.5
shall not be considered an “Assigned Contract” for purposes hereof unless and
until such contract is assigned to Buyer following the Closing Date upon receipt
of the requisite consents to assignment and Bankruptcy Court approval.
ARTICLE 2
CONSIDERATION
     2.1 Consideration. The aggregate consideration for the sale and transfer of
the Purchased Interests shall be (a) One Hundred Million Dollars ($100,000,000)
in cash (the “Purchase Price”), which price is payable and deliverable at the
Closing in accordance with Section 3.3 and (b) the assumption by Buyer of the
Assumed Liabilities.
     2.2 Deposits. On the date hereof, Buyer and Calpine have executed and
delivered the Purchase Notice and no later than one (1) Business Day after the
date hereof Buyer shall deposit with the Escrow Agent Three Million Seven
Hundred Fifty Thousand Dollars ($3,750,000) (the “Initial Deposit”). No later
than five (5) Business Days following the Bankruptcy Court’s entry of the Sale
Order or, if a qualifying bid (including a deposit) has been received in
accordance

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with the Bidding Procedures, no later than the Business Day prior to the
Auction, Buyer shall deposit with the Escrow Agent an additional Three Million
Seven Hundred Fifty Thousand Dollars ($3,750,000) (the "Additional Deposit,” and
together with the Initial Deposit, and interest thereon, the “Deposits”). The
Deposits shall be held and disbursed pursuant to the terms of the Master Escrow
Agreement, the Purchase Notice and this Agreement.
ARTICLE 3
CLOSING AND DELIVERIES
     3.1 Closing. The consummation of the transactions contemplated hereby (the
“Closing”) shall take place at the offices of Kirkland & Ellis LLP, 153 East
53rd Street, New York, New York at 9:00 a.m. on the third Business Day following
the satisfaction or waiver by the appropriate Party of all the conditions
contained in Article 12 hereof, or on such other date or at such other place and
time as may be agreed to by the Parties hereto (the “Closing Date”). The Parties
currently anticipate that certain of the deliverables described below, including
documents to be recorded in the local real estate records and all funds to be
disbursed at the Closing (other than the Deposits), would be delivered into
escrow with the Title Company and that the Closing would occur through the use
of joint closing instructions mutually acceptable to the Parties and issued to
the Title Company in its capacity as the escrow agent for the Closing.
     3.2 Seller’s Deliveries. On the Closing Date, Seller shall deliver to Buyer
the following items:
     (a) a certificate of an officer of Seller certifying that the closing
conditions set forth in Sections 12.3(a) and 12.3(b) have been satisfied;
     (b) the Assignment Agreement, duly executed by Seller;
     (c) the Business Records (it being understood that any Business Records
located at the Power Plant need not be physically delivered, but shall be deemed
delivered upon the occurrence of the Closing);
     (d) documentation evidencing the contribution to New LLC of all of the
Acquired Assets, including (A) the Transfer and Contribution Agreement in the
form of Exhibit D and (B) the special warranty deed with respect to the Owned
Real Property and Entitled Real Property in the form of Exhibit E, each duly
executed by Seller in form and substance satisfactory to Buyer;
     (e) a certificate of a secretary, assistant secretary or other similar
officer of Seller certifying as to (i) the resolutions of the board of directors
and members of Seller approving and authorizing this Agreement, the Transfer and
Contribution Agreement and the transactions contemplated by this Agreement and
the Transfer and Contribution Agreement, (ii) the certificate of formation of
Seller and (iii) the limited liability company agreement of Seller;
     (f) an affidavit of non-foreign status that complies with section 1445 of
the Code;

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     (g) the Title Commitment;
     (h) an executed IRS Form W-9;
     (i) copies of any REET affidavits required to be filed in accordance with
RCW 82.45; and
     (j) all such other documents, certificates and instruments customarily
delivered upon consummation of transactions contemplated by this Agreement as
may reasonably be requested by Buyer.
     3.3 Buyer’s Deliveries. On the Closing Date, in payment for the Purchased
Interests:
     (a) the Escrow Agent shall pay to Seller the Deposits in accordance with
the terms of the Master Escrow Agreement and the Purchase Notice, by wire
transfer of immediately available funds to the bank account designated by Seller
therein (the “Seller’s Account”);
     (b) Buyer shall pay to Seller the Purchase Price, reduced by the amount of
the Deposits paid pursuant to Section 3.3(a), any adjustment contemplated by
Section 6.8 and any amounts retained in accordance with Section 11.1, by wire
transfer of immediately available funds to Seller’s Account;
     (c) Buyer shall execute and deliver to Seller an instrument of assumption
of liabilities with respect to the Assumed Liabilities substantially in the form
of the Assignment Agreement attached as Exhibit A hereto;
     (d) Buyer shall deliver a certificate of an officer of Buyer certifying
that the closing conditions set forth in Sections 12.2(a) and 12.2(b) have been
satisfied;
     (e) Buyer shall deliver a certificate, in form and substance reasonably
satisfactory to Seller, of a secretary, assistant secretary or other similar
officer of Buyer certifying as to (i) the resolutions of the board of directors
of Buyer approving and authorizing this Agreement and the transactions
contemplated by this Agreement, (ii) the certificate of incorporation of Buyer
and (iii) the bylaws of Buyer;
     (f) copies of any REET affidavits required to filed in accordance with RCW
82.45; and
     (g) Buyer shall deliver all such other documents, certificates and
instruments customarily delivered upon consummation of transactions contemplated
by this Agreement as may reasonably be requested by Seller.
     3.4 Proration. The Parties agree that all of the items normally prorated in
a transaction of the type contemplated by this Agreement, including the
following items listed below relating to the Business and the ownership of the
Purchased Interests and the Acquired Assets, shall be prorated as of the
Closing, with Seller liable to the extent such items relate to any period or
portion thereof ending on or prior to the Closing, and Buyer liable to the
extent such

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items relate to periods after the Closing Date: (i) rent, and other items
payable by or to Seller or Buyer under any Assigned Contract, (ii) any Permit or
other fees, (iii) sewer rents and charges for water, telephone, electricity and
other utilities, and (iv) Taxes (other than Transaction Taxes), which shall be
prorated in accordance with Section 11.2. The amount of all such prorations that
must be paid in order to convey the Purchased Interests and the Acquired Assets
to Buyer free and clear of all Liens other than Permitted Liens shall be
calculated and paid on the Closing Date; all other prorations shall be
calculated by the Party having the applicable payment obligation (or as
otherwise contemplated by this Agreement) and paid by the Parties as soon as
practicable thereafter.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
     Seller hereby represents and warrants to Buyer as follows, except in all
cases as disclosed in the Disclosure Schedules, as the same may be amended or
modified in accordance with Section 14.5 hereof:
     4.1 Organization.
     (a) Seller is duly organized and validly existing under the Laws of the
jurisdiction of its organization. Subject to any necessary authority from the
Bankruptcy Court, Seller has all requisite limited liability company power and
authority to own its properties and assets and to conduct its business as now
conducted.
     (b) New LLC shall be formed immediately prior to the Closing, and as of the
Closing, New LLC will (i) be duly organized and validly existing under the Laws
of the State of Delaware and (ii) have all requisite limited liability company
power and authority to own its properties and assets and to conduct its business
as then conducted.
     4.2 Authorization and Validity. Subject to the Bankruptcy Court’s entry of
the Sale Order and the receipt of the Consents set forth on Schedule 4.4 of the
Disclosure Schedules, Seller has all requisite limited liability company power
and authority to enter into this Agreement and to carry out its obligations
hereunder. Subject to the entry of the Sale Order, the execution and delivery of
this Agreement and the performance by Seller of its obligations hereunder have
been duly authorized by all necessary limited liability company action by the
board of directors and members of Seller, and no other proceedings on the part
of Seller are necessary to authorize such execution, delivery and performance.
This Agreement has been duly executed by Seller and, subject to the Bankruptcy
Court’s entry of the Sale Order, constitutes its valid and binding obligation,
enforceable against it in accordance with the terms herein.
     4.3 No Conflict or Violation. Subject to (a) the receipt of all Consents
set forth on Schedule 4.4 of the Disclosure Schedules, (b) the Bankruptcy
Court’s entry of the Sale Order and (c) the receipt of the Antitrust Approvals,
the execution, delivery and performance by Seller of this Agreement does not and
will not (i) violate or conflict with any provision of the certificate of
formation and limited liability company agreement (or equivalent organizational
documents) (collectively, the “Organizational Documents”) of Seller,
(ii) violate any provision of law, regulation, rule or other legal requirement
of any Government (“Law”) or any order, judgment or

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decree of any court or Government (“Order”) applicable to Seller, or
(iii) violate or result in a breach of or constitute (with due notice or lapse
of time or both) a default under any Assigned Contract, which violation,
conflict, breach or default in any such case would reasonably be expected to
have a Material Adverse Effect.
     4.4 Consents, Approvals and Notifications. The execution, delivery and
performance of this Agreement by Seller does not require the Consent of, or
filing with or notification of, any Government or any other Person except:
(a) as required under any Antitrust Law; (b) for the matters set forth on
Schedule 4.4, (c) for the entry of the Sale Order by the Bankruptcy Court; or
(d) for such Consents and filings, the failure to obtain or make which would not
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the ability of Seller to consummate the transactions contemplated
hereby.
     4.5 Compliance with Law. With respect to the conduct of the Business and
the ownership and operation of the Purchased Interests and the Acquired Assets,
Seller is not in violation of any Law (other than Environmental Law, as to which
the only representations and warranties made by Seller are those contained in
Section 4.9), except for violations that would not reasonably be expected to
have a Material Adverse Effect. No investigation or review by any Government
relating to the conduct of the Business of the ownership or operation of the
Purchased Interests or the Acquired Assets is pending or, to the Knowledge of
Seller, threatened. Except as set forth on Schedule 4.5 of the Disclosure
Schedules and as may result from the filing of the Chapter 11 Case, since
January 1, 2005, Seller has not received written notice of any violation of any
Law (other than with respect to Environmental Law, as to which the only
representations and warranties made by Seller are those contained in
Section 4.9) nor is Seller in default with respect to any Order, applicable to
the Purchased Interests, the Acquired Assets or the Business or any of its
assets, properties or operation of the Power Plant, other than violations and
defaults the consequences of which would not reasonably be expected to have a
Material Adverse Effect.
     4.6 Litigation. Except as set forth on Schedules 4.6 or 4.9 of the
Disclosure Schedules, there are no Claims, suits or proceedings pending or, to
the Knowledge of Seller, threatened in writing, before any Government brought by
or against Seller that, if adversely determined, could reasonably be expected to
have a Material Adverse Effect or materially impair the ability of Seller to
consummate the transactions contemplated by this Agreement.
     4.7 Material Contracts
     (a) Schedule 4.7 of the Disclosure Schedules sets forth a complete and
correct list of each of the Assigned Contracts that:
     (i) creates a right to lease, use or occupy real estate that is material to
the Business; or
     (ii) contemplates or involves the performance of services or sales of
products by Seller having a value in excess of $250,000 in the aggregate during
the twelve (12) month period ended June 30, 2006 or commitments for such
services or sales during the twelve (12) month period following such period,

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unless any such commitment is terminable by Seller without material penalty on
not more than ninety (90) days’ prior notice;
     (iii) relates to the purchase or lease of personal property with any
supplier or the furnishing of services to Seller and involves payments in excess
of $250,000 in the aggregate during the twelve (12) month period ended June 30,
2006 or commitments for such purchase or lease during the twelve (12) month
period following such period;
     (iv) pursuant to which Seller otherwise received (or was or will be
entitled to receive) or paid (or was or will be obligated to pay) more than
$250,000 in the aggregate during any twelve (12) month period; or
     (v) the consequences of a default under or termination of such Assigned
Contract would reasonably be expected to have a Material Adverse Effect ((i)-(v)
collectively, the “Material Contracts”).
     (b) Other than as set forth on Schedule 4.7 of the Disclosure Schedules (i)
Seller and New LLC have performed all material obligations required to be
performed by each of them to date under each Material Contract and neither of
them is (with or without the lapse of time or the giving of notice, or both) in
material breach or default thereunder and (ii) neither Seller nor, to Seller’s
Knowledge, any other party to any of the Material Contracts has commenced any
action against any of the parties to such Material Contracts or given or
received any written notice of any material default or violation under any
Material Contract that was not withdrawn or dismissed, except only for those
defaults that will be cured in accordance with the Sale Order (or that need not
be cured under the Bankruptcy Code to permit the assumption and assignment of
the Assigned Contracts). To Seller’s Knowledge, each of the Material Contracts
is, or will be at the Closing, valid, binding and in full force and effect
against Seller and/or New LLC, as applicable, except as otherwise set forth on
Schedule 4.7 of the Disclosure Schedules. Correct and complete copies of the
Assigned Contracts have been made available to Buyer prior to the date hereof.
Except as set forth on Schedule 4.7, to Seller’s Knowledge, as of the date
hereof there are no cure amounts owed under any of the Assigned Contracts.
     4.8 Permits. Schedule 4.8 of the Disclosure Schedules sets forth a complete
and correct list of all material Permits and all pending applications therefor
obtained by Seller in connection with the Business. As of the date of this
Agreement, except as set forth on Schedule 4.8 and as would not reasonably be
expected to have a Material Adverse Effect, each such Permit is valid and in
full force and effect, and is not subject to any pending or, to Seller’s
Knowledge, threatened administrative or judicial proceeding to revoke, cancel,
suspend or declare such Permit invalid in any respect.
     4.9 Environmental Matters. Except as set forth on Schedule 4.9 of the
Disclosure Schedules:

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     (a) Seller is, and as of the Closing New LLC will be, in compliance with
applicable Environmental Laws, except where such non-compliance would not
reasonably be expected to have a Material Adverse Effect.
     (b) Since January 1, 2005, Seller has not received a written complaint,
Order, directive, Claim, request for information, citation or notice of
violation from any Government or any other Person relating to actual or alleged
noncompliance with or liability under any Environmental Law, with respect to any
release, spill, leak, discharge or emission of any Hazardous Materials to the
air, surface water, groundwater or soil of the Real Property.
     (c) There have not been any releases or threatened releases of Hazardous
Materials on or in connection with the Real Property or the Power Plant that
would be reasonably expected to form the basis of a complaint, Order, directive,
Claim, citation or notice of violation from any Government or any other Person
(including any third parties) except where such matter could not reasonably be
expected to have a Material Adverse Effect.
     (d) Seller has delivered or made available to Buyer true and complete
copies and results of all Environmental Reports.
     (e) The representations and warranties contained in this Section 4.9 are
the only representations and warranties made by Seller with respect to matters
arising under Environmental Laws or relating to Hazardous Materials.
     4.10 Employee Benefits.
     (a) There are no Employee Benefit Plans that Seller maintains or to which
Seller contributes.
     (b) Neither Seller, New LLC nor any of their respective ERISA Affiliates
has maintained or contributed to any Employee Benefit Plan that is a
Multiemployer Plan or is subject to Title IV of ERISA (a “Title IV Plan”) within
the past five (5) years. Neither Seller, New LLC nor any of their respective
ERISA Affiliates have incurred (i) any liability to the Pension Benefit Guaranty
Corporation or otherwise under Title IV of ERISA with respect to any Title IV
Plan that has not been satisfied in full or (ii) any liability (including
withdrawal liability as defined in Section 4201 of ERISA) under or with respect
to any Multiemployer Plan.
     (c) None of the Business Employees’ employment is subject to a collective
bargaining agreement.
     (d) Schedule 4.10 lists all employees and secondees who are employed or
seconded primarily in or with respect to the Business as of the Execution Date
(the “Business Employees”) and as to each such Business Employee describes his
or her position with the Business in sufficient detail to enable Buyer to comply
with the covenant described in Section 9.1 of this Agreement.

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     4.11 Real Property.
     (a) Schedule 1.1(a) of the Disclosure Schedules sets forth a complete and
correct list of the Owned Real Property and any material Entitled Real Property
(and states the ownership percentage of all partially owned real property). As
of the Execution Date, Seller has good and marketable title to the Real Property
(other than the Additional Real Property and related entitlements, which will be
transferred to Seller prior to Closing in accordance with Section 6.10), free
and clear of all Liens or other title encumbrances, other than (i) Permitted
Liens, and (ii) Liens that shall be released at or prior to the Closing pursuant
to the Sale Order. As of the Closing, New LLC will have good and marketable
title to the Real Property, free and clear of all Liens or other title
encumbrances, other than Permitted Liens. Seller has made available to Buyer, to
the extent within Seller’s possession or control, a copy of all certificates of
occupancy for the Owned Real Property and a copy of any variance granted with
respect to the Owned Real Property pursuant to applicable zoning laws or
ordinances, all of which documents are true and complete copies thereof. Seller
has made available to Buyer all material existing surveys (including the
Existing Survey) or topographical maps for the Real Property, title policies
(including the Existing Title Policy), engineering reports and Environmental
Reports in Seller’s possession or control.
     (b) Seller has not received written notice of, and to Seller’s Knowledge,
there is not any pending, threatened or contemplated action to change the zoning
status of the Real Property or eminent domain proceedings which would reasonably
be expected to have individually or, in the aggregate a Material Adverse Effect
on the use or possession of the Real Property.
     4.12 Personal Property. Seller has good title to all of the owned personal
property and assets, tangible or intangible, that are included in the Acquired
Assets, free and clear of all Liens, except for (i) Permitted Liens and
(ii) Liens that shall be released at or prior to the Closing pursuant to the
Sale Order provided, however, that Seller makes no representation or warranty in
this Section 4.12 with respect to Real Property, which is specifically addressed
in Section 4.11.
     4.13 Regulatory Status. Seller has authorization from the FERC to sell
power at market based rates and such authorization is in full force and effect,
subject to proceedings of general applicability relating to sellers of power in
the geographic location where the Power Plant is located.
     4.14 Taxes. There are no unpaid Taxes of Seller or New LLC that will become
a liability of Buyer, except for any prorated Taxes contemplated by Section 3.4
above (it being understood that Buyer is responsible to reimburse Seller for
fifty percent (50%) of the REET imposed as a result of the transactions
contemplated by this Agreement pursuant to Section 11.1 below).
     4.15 Condition of Acquired Assets. Except as set forth on Schedule 4.15,
the Acquired Assets are in good operating condition, in all material respects,
subject to normal wear and tear.

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     4.16 New LLC. At all times, (i) the sole business of New LLC will be the
ownership and operation of the Acquired Assets and activities related thereto,
(ii) New LLC will have no assets other than the Acquired Assets and (iii) New
LLC will have no liabilities other than the Assumed Liabilities. As of the
Closing, New LLC will own and control all of the Acquired Assets free and clear
of all Liens, other than Permitted Liens. New LLC will at all times be a
disregarded entity for U.S. federal tax purposes under Treasury
Regulation Section 301.7701-3.
     4.17 Capitalization. From and after its formation and until the Closing,
all of the issued and outstanding membership interests of New LLC shall be held
by Seller. There are not now, and will not as of the Closing be, any other units
or membership interests or any other securities issued or outstanding for New
LLC. Seller will on the Closing Date be the record and beneficial owner and
holder of one hundred percent (100%) of the Purchased Interests. Immediately
following the Closing, Buyer will own one hundred percent (100%) of the
membership interests in New LLC free and clear of all Liens except for Permitted
Liens. All of the Purchased Interests shall be duly authorized, validly issued
and fully paid and nonassessable. There are not now, and will not as of the
Closing be, any options, warrants, purchase rights, preemptive rights,
convertible securities or other agreements or commitments, other than this
Agreement, relating to the issuance, sale or transfer of the Purchased Interests
or any equity securities or other interests in New LLC. None of the Purchased
Interests was or will be issued in violation of applicable Laws, it being
understood that the approval of the Bankruptcy Court shall be required prior to
the issuance thereof.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
     Buyer hereby represents and warrants to Seller as follows, except in all
cases as disclosed in the Disclosure Schedules.
     5.1 Corporate Organization. Buyer is a corporation duly incorporated,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation, and has all requisite corporate power and authority to own its
properties and assets and to conduct its business as now conducted.
     5.2 Authorization and Validity. Buyer has all requisite corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the performance of
Buyer’s obligations hereunder have been duly authorized by all necessary
corporate action by the board of directors of Buyer, no other corporate
proceedings on the part of Buyer are necessary to authorize such execution,
delivery and performance. This Agreement has been duly executed by Buyer and
constitutes its valid and binding obligation, enforceable against it in
accordance with the terms herein, subject to applicable bankruptcy,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally, and subject, as to enforceability, to general principles of
equity.
     5.3 No Conflict or Violation. The execution, delivery and performance by
Buyer of this Agreement and the operation of the Business by Buyer as it is
constituted as of the Closing Date do not and will not violate or conflict with
any provision of the Organizational Documents of Buyer and do not and will not
violate in any material respect any provision of Law, or any

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Order applicable to Buyer, nor will they result in a breach of or constitute
(with due notice or lapse of time or both) a default under any material Contract
to which Buyer is a party or by which it is bound or to which any of its
properties or assets is subject.
     5.4 Consents, Approvals and Notifications. The execution, delivery and
performance of this Agreement and the operation of the Business by Buyer as it
is constituted as of the Closing Date by Buyer do not require the Consent of, or
filing with or notification of, any Government or any other Person except:
(a) as required under any Antitrust Law; (b) for the matters set forth on
Schedule 5.4, (c) for the entry of the Sale Order by the Bankruptcy Court; or
(d) for such Consents and filings, the failure to obtain or make which would not
reasonably be expected to have a material adverse effect on the ability of Buyer
to consummate the transactions contemplated hereby.
     5.5 Availability of Funds. Buyer has, and on the Closing Date will have,
sufficient funds available to finance and consummate the transactions
contemplated by this Agreement.
     5.6 Adequate Assurances Regarding Assigned Contracts. Buyer is and will be
capable of satisfying the conditions contained in sections 365(b)(1)(C) and
365(f) of the Bankruptcy Code with respect to the Assigned Contracts.
     5.7 Licenses, Permits, etc. Upon receipt of the Consents and approvals set
forth on Schedules 4.4 and 5.4, Buyer will have as of the Closing Date, all
licenses, permits, franchises and authority, whether from a Government or
otherwise, and will have provided any requisite notice to customers necessary to
purchase the Purchased Interests and to assume the Assumed Liabilities and to
operate the Business as it is constituted as of the Closing Date.
     5.8 Investigation by Buyer. Buyer has conducted its own independent review
and analysis of the Acquired Assets and the Assumed Liabilities, of the value of
such Acquired Assets and of the business, operations, technology, assets,
liabilities, financial condition and prospects of the Business and Buyer
acknowledges that Seller has provided Buyer with access to the personnel,
properties, premises and records of the Business for this purpose. Buyer has
conducted its own independent review of all Orders of, and all motions,
pleadings, and other submissions to, the Bankruptcy Court in connection with the
Chapter 11 Case to the extent that such Orders, motions, pleadings or
submissions can be determined through an electronic search of the record to be
related to the Power Plant without unreasonable effort or expense. Buyer
acknowledges that the price being paid under this Agreement for the Purchased
Interests is the fair value for acquiring the Acquired Assets under the
circumstances and that such value, rather than replacement cost, is the
appropriate measure of damages if and to the extent Buyer may have any recourse
for any failure to deliver the Purchased Interests in accordance with the terms
of this Agreement. In entering into this Agreement, Buyer has relied solely upon
its own investigation and analysis, and the representations and warranties made
by Seller in this Agreement, and Buyer acknowledges that (a) neither Seller nor
any of its Related Persons or Affiliates makes or has made any representation or
warranty, either express or implied, as to the accuracy or completeness of any
of the information provided or made available to Buyer or any of its Related
Persons or Affiliates, except as and only to the extent expressly set forth in
Article 4 (which are subject to the limitations and restrictions contained in
this Agreement), and (b) to the fullest extent permitted by Law, neither Seller
nor any of its Related Persons or Affiliates

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shall have any liability or responsibility whatsoever to Buyer or its Related
Persons or Affiliates on any basis (including in contract or tort, under
securities Laws or otherwise) based upon any information provided or made
available, or statements made, to Buyer or Related Persons or Affiliates (or any
omissions therefrom), including in respect of the specific representations and
warranties of Seller set forth in this Agreement, except, with regard to Seller,
as and only to the extent expressly set forth in Article 4 (which are subject to
the limitations and restrictions contained in this Agreement). Buyer has no
actual knowledge of any condition, event or circumstance that constitutes a
breach of any representation, warranty or covenant of Seller in this Agreement.
ARTICLE 6
COVENANTS OF SELLER
     Seller hereby covenants to Buyer as follows:
     6.1 Actions Before Closing. Seller shall use commercially reasonable
efforts to perform and satisfy all conditions to Buyer’s obligations to
consummate the transactions contemplated by this Agreement that are to be
performed or satisfied by Seller under this Agreement.
     6.2 Conduct of Business Before the Closing Date.
     (a) Without the prior written consent of Buyer or the authorization of the
Bankruptcy Court, after notice and a hearing, between the date hereof and the
Closing Date, Seller shall not, nor shall Seller permit New LLC to, except as
required or expressly permitted pursuant to the terms hereof (i) make any
material change in the Acquired Assets, taken as a whole, (ii) increase the
salary or wage level, benefits, severance or termination pay of any Business
Employee, or change any Business Employee’s job description or position except
in the Ordinary Course of Business, (iii) transfer any Business Employee to a
location other than the Power Plant, (iv) enter into any agreement or
understanding with respect to the Business or the Acquired Assets that would be
required to be disclosed under Schedule 4.7 of the Disclosure Schedules,
(v) enter into power sales, tolling, fuel supply or other agreement with respect
to the Business or the Acquired Assets that would not be required to be
disclosed under Schedule 4.7 of the Disclosure Schedules unless such agreement
is terminable at any time without penalty or (vi) enter into any material
transaction other than an Alternative Transaction, in each case other than in
the Ordinary Course of Business. Without limitation of the foregoing, except as
may be required by the Bankruptcy Court, from the date hereof until the Closing,
Seller shall (A) use commercially reasonable efforts to operate the Power Plant
and conduct the Business in substantially the same manner as conducted by Seller
in the Ordinary Course of Business, taking into account business exigencies
arising as a result of Seller’s financial condition and status as a filer under
Chapter 11 of the Bankruptcy Code, and (B) keep all Business Employees current
with respect to wage and salary payments.
     (b) Seller shall maintain at the Power Plant the spare parts located at, or
in transit to, the Power Plant as of the date of execution of this Agreement,
subject to use for the operation of the Power Plant in the Ordinary Course of
Business; and Seller shall not

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use at any other facility owned by Calpine or its Affiliates any of the spare
parts located at, or in transit to, the Power Plant.
     (c) Without limiting the generality of Section 6.2(a), prior to the
Closing, Seller shall not, and shall not permit New LLC or their respective
Affiliates to, without the prior written consent of Buyer: (i) sell, lease or
transfer any assets relating to or forming part of the Business or the Acquired
Assets (except for the depletion of Inventory (including spare parts Inventory)
in the Ordinary Course of Business), (ii) amend, modify, or change in any
material respect any Assigned Contract, (iii) fail to maintain in full force and
effect insurance policies covering the Acquired Assets, in form and amount
consistent with past practice or (iv) permit any Lien (other than a Permitted
Lien or a Lien that will be released at or prior to Closing pursuant to the Sale
Order) to be placed on the Purchased Interests or the Acquired Assets.
     6.3 Sale Order and Bidding Procedures Order. Seller shall use commercially
reasonable efforts to obtain entry by the Bankruptcy Court of Orders in the
forms of Exhibit B (the "Sale Order”) and Exhibit C (the “Bidding Procedures
Order”) attached hereto.
     6.4 Consents and Approvals. Seller shall use commercially reasonable
efforts to obtain all necessary material consents, waivers, authorizations and
approvals of all Governments, and of all other Persons, required to be obtained
by Seller in connection with the execution, delivery and performance by it of
this Agreement. Seller shall use commercially reasonable efforts to assist Buyer
in obtaining all necessary consents, waivers, authorizations and approvals of
all Governments, and of all other Persons, required to be obtained by Buyer in
connection with the execution, delivery and performance by Buyer of this
Agreement.
     6.5 Access to Properties and Records; Confidentiality. Seller shall afford
to Buyer and its Representatives reasonable access during normal business hours
throughout the period prior to the Closing Date (or the earlier termination of
this Agreement pursuant to Article 13) to all books and records of Seller
relating to the Business if: (w) permitted under Law; (x) such books and records
are not subject to confidentiality agreements that would be breached as a result
of such disclosure; provided that Seller shall use its commercially reasonable
efforts to obtain a waiver of any such confidentiality restrictions in order to
permit such disclosure; (y) disclosing such books and records would not
adversely affect any attorney client, work product or like privilege; and
(z) such books and records do not relate to any confidential proprietary models
or other information of Seller or any of its Affiliates pertaining to energy
project evaluation, energy or natural gas price curves or projections or other
economic or other predictive models. Upon reasonable prior notice, Seller shall
also afford Buyer reasonable access, during normal business hours, to the
Business, all operations of the Business and to all Acquired Assets throughout
the period prior to the Closing Date. The rights of access contained in this
Section 6.5 are granted subject to, and on, the following terms and conditions:
(A) any such investigation shall not include physical testing or samplings, and
shall be exercised in such a manner as not to interfere unreasonably with the
operation of the Business; (B) during the period from the date hereof to the
Closing Date, all information provided to Buyer or its agents or representatives
by or on behalf of Seller or their agents or representatives (whether pursuant
to this Section 6.5 or otherwise) shall be governed by and subject to the
Confidentiality Agreement, dated as of June 24, 2005, by and among Buyer,
Calpine and Seller (the “Confidentiality

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Agreement”); (C) such rights of access shall not affect or modify the conditions
set forth in Article 12 in any way; and (D) all such rights of access shall be
at Buyer’s sole cost, expense and risk; and Buyer shall indemnify Seller for any
damages, suits, claims, proceedings, fines, judgments, costs or expenses
(including attorneys’ fees and third party incidental, consequential or punitive
damages that constitute direct damages of Seller (collectively, "Losses”)) that
Seller or any third party may suffer as a result of Buyer’s exercise of its
rights under this Section 6.5; and (E) Buyer shall comply with and adhere to all
of Seller’s safety policies and procedures.
     6.6 Rejection of Assigned Contracts. Seller shall not reject any Assigned
Contracts pursuant to the Chapter 11 Case without the prior written consent of
Buyer.
     6.7 Further Assurances. Upon the request and at the sole expense of Buyer
at any time after the Closing Date, Seller shall execute and deliver such
documents as Buyer or its counsel may reasonably request to effectuate the
purposes of this Agreement.
     6.8 Cure Costs and Cure of Non-Monetary Defaults. Notwithstanding anything
else to the contrary contained in this Agreement, Seller shall, on or prior to
the Closing, cure any and all defaults and pay any and all cure costs payable to
(i) the U.S. Department of Energy, Bonneville Power Administration (“BPA”), in
respect of Assigned Contracts to which the BPA is a counterparty and (ii) Public
Utility District No. 1, Klickitat County, Washington (“KPUD”) in respect of that
certain Station Service Power Purchase and Sale Agreement between KPUD and
Seller, dated March 28, 2005, as amended (collectively, “Seller’s Cure Costs”),
or otherwise reserve sufficient funds necessary to satisfy any such cure
obligations in respect of Seller’s Cure Costs, in either such case so that the
Assigned Contracts which relate to Seller’s Cure Costs may be assumed by Seller
and assigned to New LLC in accordance with the provisions of section 365 of the
Bankruptcy Code. In addition, Seller shall, on or prior to the Closing, cure any
and all defaults under the Assigned Contracts that cannot be cured through the
payment of money and that are required to be cured under the Bankruptcy Code so
that such Assigned Contracts may be assumed by Seller and assigned to New LLC in
accordance with the provisions of section 365 of the Bankruptcy Code, it being
understood that Buyer shall be responsible for the payment of all cure costs
(other than Seller’s Cure Costs), as more particularly described in Section 7.4
below. If and to the extent that the cure costs associated with the Assigned
Contracts (other than Seller’s Cure Costs) exceed the aggregate amount of such
cure costs set forth on Schedule 4.7 (excluding any of Seller’s Cure Costs),
Buyer and Seller shall share equally in the payment of such additional costs,
with Seller’s portion of such costs being paid through a reduction of the
Purchase Price equal to fifty percent (50%) of such excess up to a maximum
adjustment of One Hundred and Fifty Thousand Dollars ($150,000).
     6.9 Notices. Seller shall provide Buyer with prompt written notice of
Seller’s Knowledge of (i) any material breach of any representation or warranty
by Seller or (ii) any other material failure by Seller to comply with the
obligations of this Agreement.
     6.10 Additional Real Property. Pursuant to the transactions contemplated by
the Transfer and Contribution Agreement, Seller shall cause Calpine to
(i) transfer to Seller title to the real property identified on Schedule 1.1(a)
as being owned by Calpine as of the Execution Date (the “Additional Real
Property”), (ii) transfer to Seller all of Calpine’s rights under the easements,
rights of way, real property licenses, and other real property entitlements
related to

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the Additional Real Property (the “Additional Real Property Entitlements”) and
(iii) assume and assign to Seller, in accordance with the provisions of section
365 of the Bankruptcy Code, all rights and obligations as lessor under that
certain farming lease identified on Schedule 1.1(f) relating to the Additional
Real Property (the “Additional Real Property Farming Lease”), such that the
Additional Real Property shall be included in the Owned Real Property, the
Additional Real Property Entitlements shall be included in the Entitled Real
Property and the Additional Real Property Farming Lease shall be included in the
Other Contracts, respectively, and thereby included in the Acquired Assets
transferred to New LLC pursuant to the Transfer and Contribution Agreement.
Prior to the Closing, Seller shall cause the Additional Real Property Survey to
be completed and furnished to Buyer, with the cost of such survey being shared
equally between Buyer and Seller.
     6.11 Provision of Data; Transfer of Software. Seller agrees to cooperate
with such reasonable requests during normal business hours as Buyer may make
prior to and following the Closing (which requests shall not interfere in any
material respect with the responsibilities of Seller’s employees) so as to
assist Buyer with the integration from and after the Closing of the existing
operational data, software and systems relating to the Power Plant into Buyer’s
software and systems (and in furtherance of the foregoing, at or prior to the
Closing Seller agrees to furnish Buyer with an electronic copy (which may be a
scanned pdf file) of Seller’s maintenance plan and schedule for the one year
period following the Closing). The Parties agree that the software listed on
Schedule 1.1(l) shall only be included in the Acquired Assets to the extent that
Buyer shall have obtained any necessary licenses or rights to use such software
from and after the Closing. Seller agrees to cooperate with such reasonable
requests during normal business hours as Buyer may make in order to facilitate
Buyer’s acquisition of such licenses or rights.
     6.12 Revocation of Gas Transportation Agency Arrangement. Effective prior
to the Closing, Seller shall terminate its designation of Calpine Energy
Services, L.P. as agent for the purpose of the Transportation Agreement (Rate
Schedule TF-1, Contract No. 127115) identified on Schedule 1.1(e).
ARTICLE 7
COVENANTS OF BUYER
     Buyer hereby covenants to Seller as follows:
     7.1 Actions Before Closing Date. Buyer shall use commercially reasonable
efforts to perform and satisfy all conditions to Seller’s obligations to
consummate the transactions contemplated by this Agreement that are to be
performed or satisfied by Buyer under this Agreement.
     7.2 Consents, Approvals and Notifications. Buyer shall use commercially
reasonable efforts to obtain all consents and approvals of all Governments, and
all other Persons, required to be obtained by Buyer and provide notifications to
all Persons required to be notified by Buyer to effect the transactions
contemplated by this Agreement. Buyer shall promptly take all actions as are
reasonably requested by Seller to assist in obtaining the Bankruptcy Court’s
entry of the Sale Order, including furnishing affidavits, financial information
or other documents or information for filing with the Bankruptcy Court and
making Buyer’s employees and representatives

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available (upon reasonable advance notice) to testify before the Bankruptcy
Court, subject to appropriate protective orders.
     7.3 Adequate Assurances Regarding Assigned Contracts. With respect to each
Assigned Contract, Buyer shall use commercially reasonable efforts to provide
the Bankruptcy Court, Seller or the applicable counterparty to such Assigned
Contract, as the case may be, adequate assurance of the future performance of
such Assigned Contract by Buyer to the extent required under Section 365 of the
Bankruptcy Code.
     7.4 Cure Costs Other than Seller’s Cure Costs. Buyer shall, on or prior to
the Closing, pay any and all cure costs related to the Assigned Contracts (other
than Seller’s Cure Costs, which shall be paid by Seller or otherwise reserved
for, as set forth in Section 6.8) that are required to be paid under Section 365
of the Bankruptcy Code so that, assuming the performance by Seller of its
obligations under Section 6.8, the Assigned Contracts may be assumed by Seller
and assigned to New LLC in accordance with the provisions of Section 365 of the
Bankruptcy Code.
     7.5 Support Obligations.
     (a) Buyer recognizes that Seller has provided credit support with respect
to the Acquired Assets pursuant to certain credit support obligations set forth
on Schedule 7.5(a) (the “Support Obligations”). Prior to the Closing, Buyer
shall use commercially reasonable efforts to effect the full and unconditional
release of Seller from all Support Obligations, in so far as they relate to the
Acquired Assets, by:
     (i) furnishing letters of credit containing terms and conditions that are
substantially identical to the terms and conditions of existing letters of
credit and from lending institutions that are either investment grade
institutions or have a credit rating commensurate with or better than that of
lending institutions for existing letters of credit;
     (ii) instituting escrow arrangements with terms equal to or more favorable
to the counterparty than the terms of existing escrow arrangements;
     (iii) posting surety or performance bonds issued by an investment grade
institution having a credit rating at least equal to those of the issuer of
existing surety or performance bonds, and which replacement surety or
performance bond contains terms and conditions that are substantially identical
to the terms and conditions of existing surety or performance bonds; or
     (iv) providing substitute guaranties.
     (b) Buyer and Seller shall use commercially reasonable efforts to cause the
beneficiary or beneficiaries of the Support Obligations to terminate and
redeliver to Seller, prior to the Closing, each original copy of each guaranty,
letter of credit or other instrument constituting or evidencing such Support
Obligations as well as to redeliver to Seller any cash collateral in respect of
the Support Obligations and, as to any Support Obligations terminated after the
Closing, promptly to redeliver such originals or cash to

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Seller, and in each case, to take such other actions as may be required to
terminate such Support Obligations.
     (c) If Buyer is not successful in obtaining the complete and unconditional
release of Seller from the Support Obligations prior to the Closing, then Buyer
shall indemnify, defend and hold harmless Seller from and against any and all
costs, expenses, reimbursements or performance incurred by Seller and arising
after the Closing Date in connection with the Support Obligations. Buyer shall,
for so long as any Support Obligation remains outstanding, not effect any
amendments or modifications or any other changes to the agreement to which such
Support Obligation relates that would reasonably be expected to materially
increase such Support Obligation, without Seller’s prior written consent, which
shall not be unreasonably withheld, delayed or conditioned. Notwithstanding
anything in this Agreement to the contrary, prior to Closing, Buyer shall have
the right to contact and have discussions with each beneficiary of a Support
Obligation in order to satisfy its obligations under this Section 7.5; provided,
that (i) Buyer shall give Seller prior notice before making any such contact,
(ii) Seller shall have the right to have one of its representatives present on
the telephone line or in person, as applicable, during any such contact or
discussion, (iii) Buyer shall only contact and hold discussions with such
beneficiaries through representatives of Buyer previously reasonably approved by
Seller and (iv) Buyer shall cause such representatives to comply with all
reasonable procedures and protocols regarding such contacts and discussions that
may be established by Seller.
     (d) Prior to the Release Date, Buyer agrees not to assign, sell, transfer
or convey all or any portion of the Acquired Assets in a single transaction or
series of related transactions, in each case without the assignment to the
transferee of the rights of Buyer under this Agreement and the assumption in
writing by the transferee (which assumption shall be enforceable by Seller) of
the obligations of Buyer under this Agreement (including the obligations of
Buyer pursuant to Section 7.5(c)); provided that, for the avoidance of doubt,
neither the dissolution of New LLC (or the merger of New LLC into Buyer) nor the
sale, transfer or conveyance of equity interests of Buyer, its parent company or
any of their respective Affiliates (whether accomplished by merger, exchange or
otherwise) shall be deemed a sale, transfer, conveyance or assignment for
purposes of this Section 7.5. Any assignment, sale, transfer or conveyance in
contravention of the preceding sentence shall be null and void ab initio. Buyer
agrees to provide Seller with a copy of such assignment and assumption agreement
prior to execution and prior to the assignment, sale, transfer or conveyance and
a copy of the executed assignment and assumption agreement which shall be in the
same form with such changes as Seller may reasonably request. Upon such an
assignment, sale, transfer or conveyance pursuant to which the transferee
assumes all of Buyer’s rights and obligations under this Agreement, Buyer shall
have no further rights or obligations under this Agreement (except for
obligations relating to breaches by Buyer occurring prior to the date of the
assignment, sale, transfer or conveyance). The “Release Date” shall be the date
on which Seller has been fully and unconditionally released in respect of all
matters arising after the Closing Date in respect of the Support Obligations.

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     (e) In furtherance of the foregoing, Seller agrees to use commercially
reasonable efforts to amend the letter of credit issued in favor of Northwest
Pipeline Corporation and identified on Schedule 7.5(a) prior to Closing so as to
clarify that such letter of credit serves as collateral only for that certain
Transportation Agreement (Rate Schedule TF-1, Contract No. 127115), by and
between Northwest Pipeline Corporation and Seller.
     7.6 Availability of Business Records. After the Closing Date, each of
Seller and Buyer shall provide to the other party (after reasonable notice and
during normal business hours and without charge) access to all Business Records
for periods prior to the Closing and shall preserve such Business Records until
the later of (a) six (6) years after the Closing Date or (b) the required
retention period for all government contact information, records or documents.
Such access shall include access to any computerized information systems that
contain data regarding the Purchased Interests or the Acquired Assets. Buyer
acknowledges that Seller has the right to retain originals or copies of Business
Records for periods prior to the Closing. Prior to destroying any Business
Records relating to periods prior to the Closing, each party shall notify the
other party thirty (30) days in advance of any such proposed destruction of its
intent to destroy such Business Records, provided, however, that failure to
provide such notification shall not constitute a basis for any liability or
claim for damages. With respect to any litigation and claims that are Excluded
Liabilities, Buyer shall render all reasonable assistance that Seller may
request in defending such litigation or claim and shall make available to
Seller’s personnel most knowledgeable about the matter in question at Seller’s
cost. If after the Closing Buyer (or any Affiliate or creditor of Buyer) shall
receive any payment or revenue that belongs to Seller pursuant to this Agreement
or Seller (or any Affiliate or creditor of Seller) shall receive any payment or
revenue that belongs to Buyer pursuant to this Agreement, Buyer or Seller, as
applicable shall promptly remit or caused to be remitted the same to the other
Party, without set-off or deduction of any kind or nature.
     7.7 Calpine Marks. The Calpine Marks may appear on some of the Acquired
Assets, including on signage. Buyer acknowledges and agrees that it does not
have and, upon consummation of the transactions contemplated by this Agreement,
will not have, any right, title, interest, license or other right to use the
Calpine Marks. Buyer will promptly after the Closing Date use its commercially
reasonable efforts to remove within ninety (90) days following the Closing Date
the Calpine Marks from, or cover or conceal the Calpine Marks on, the Acquired
Assets, or otherwise refrain from the use and display of the Acquired Assets on
which the Calpine Marks are affixed.
     7.8 Casualty Loss. Notwithstanding any provision hereof to the contrary,
if, before the Closing Date, all or any portion of the Acquired Assets is
(a) condemned or taken by eminent domain or is the subject of a pending or
threatened condemnation or taking which has not been consummated, or
(b) materially damaged or destroyed by fire or other casualty, Seller shall
notify Buyer promptly in writing of such fact, and (i) in the case of a
condemnation or taking, Seller shall assign or pay, as the case may be, any
proceeds thereof to Buyer at the Closing and (ii) in the case of a fire or other
casualty, Seller shall either restore such damage or assign the insurance
proceeds therefrom to Buyer at Closing. Notwithstanding the foregoing, if such
condemnation, taking, damage or destruction has or would reasonably be expected
to result in a Material Adverse Effect, either Seller or Buyer may terminate
this Agreement.

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ARTICLE 8
BANKRUPTCY PROCEDURES
     8.1 Bankruptcy Actions.
     (a) As soon as reasonably practicable after execution of this Agreement
(but not later than as is necessary to permit twenty (20) days regular notice of
a hearing on December 6, 2006), Seller shall file with the Bankruptcy Court
motions seeking entry of the Bidding Procedures Order and the Sale Order. Seller
shall furnish Buyer with drafts of such motions no later than November 10, 2006
so as to permit Buyer sufficient time to review and comment upon such motions.
Seller shall be permitted, but not required, to include in the motion seeking
entry of the Sale Order a request for exemption from stamp taxes pursuant to
Section 1146(a) of the Bankruptcy Code, it being understood that, if requested,
the failure of Seller to obtain such an exemption or Seller’s withdrawal of such
request shall not result in the failure of any Seller closing condition set
forth herein (it being understood that Seller shall be entitled to withdraw the
proposed request for relief under Section 1146(a) of the Bankruptcy Code in its
sole and exclusive judgment). Seller shall also include in the Sale Order a
request for authorization to pay to the DOR Seller’s Washington state sales and
use tax liability related to Seller’s 2001 fiscal year, it being understood,
however, that the issuance of the Sale Order with an authorization to pay an
amount different than that originally requested by Seller (but acceptable to the
DOR) or with an alternative arrangement (for example, requiring a portion of the
Purchase Price to be escrowed during the pendency of any dispute between Seller,
DOR or any other Person with respect to such tax liability and the satisfaction
thereof) shall not result in the failure of any Seller closing condition set
forth herein. Seller shall use its reasonable best efforts to obtain the entry
of the Bidding Procedures Order and Sale Order as Final Orders on the Bankruptcy
Court’s docket. Seller shall file all pleadings with the Bankruptcy Court as are
necessary or appropriate to secure entry of the Bidding Procedures Order and the
Sale Order, shall serve all creditors and all other parties entitled to notice
of such pleadings under applicable provisions of the Bankruptcy Code and Rules,
including all parties to the Assigned Contracts and all Governmental Authorities
having or asserting jurisdiction over Seller, New LLC, the Purchased Interests
or the Acquired Assets and shall diligently pursue the obtaining of such orders.
Buyer covenants and agrees that it shall cooperate with Seller in connection
with furnishing information or documents to Seller to satisfy the requirements
of adequate assurance of future performance under section 365(f)(2)(B) of the
Bankruptcy Code.
     (b) In the event an appeal or other proceeding is filed seeking review of
the Bidding Procedures Order or the Sale Order, or if a motion to reconsider,
vacate, modify, amend or stay either of such Orders is filed, Seller shall
immediately notify Buyer of such appeal, other proceeding or motion and shall
provide to the Buyer within three (3) Business Days after the Seller’s receipt
thereof a copy of the notice of appeal or motion.
     8.2 Bidding Procedures. The bidding procedures (the “Bidding Procedures”)
to be employed with respect to this Agreement shall be those reflected in the
Bidding Procedures Order. Buyer acknowledges that the Bidding Procedures may be
supplemented by other customary procedures not inconsistent with the matters
otherwise set forth herein and the terms

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of this Agreement. Seller will use its reasonable best efforts to schedule a
sale hearing before the Bankruptcy Court to approve the sale of the Purchased
Interests and the Acquired Assets and related transactions contemplated hereby
to be held no later than ninety (90) days after the date on which the Bidding
Procedures Order is entered.
ARTICLE 9
EMPLOYEE MATTERS
     9.1 Possible Employment Offers. Prior to Closing, Buyer expects to take
such actions as may be reasonably necessary to offer employment at the Power
Plant to existing qualified employees of Buyer, in a manner consistent with
Buyer’s past practices and any labor requirements (including any union
agreements) applicable to Buyer and its operations. Following the satisfaction
of the foregoing, as determined by Buyer, Buyer expects to consider for and
make, prior to the Closing, offers of employment to those Business Employees
meeting Buyer’s standard hiring criteria (subject to the occurrence of the
Closing and satisfaction of any other conditions imposed by Buyer (including
with respect to the satisfaction of any requirements of union agreements
applicable to Buyer and its operations)). If and to the extent any Business
Employee is offered employment with Buyer, such employment will include welfare
and retirement benefits that are consistent with Buyer’s existing plans and
practices. Buyer intends to conduct, with Seller’s consent, one or more general
employee meetings prior to the Closing to address employment related matters,
including: employment opportunities that may be available; transition;
compensation practices; health and wellness benefits; retirement plan
transitions; and other matters that may be of general concern to prospective
employees of Buyer. Notwithstanding anything to the contrary contained herein,
nothing in this Agreement shall be construed as an employment agreement or
contract with any Business Employee, and Buyer shall not be required to offer
employment to any of the Business Employees.
     9.2 WARN Act Obligations. Seller agrees to timely perform and discharge, or
cause to be timely performed and discharged, all requirements under the WARN Act
to the extent applicable and under applicable state and local laws and
regulations for the notification of Seller’s or any of Seller’s Affiliates’
employees arising from the sale of the Purchased Interests and the Business.
     9.3 Key Employee Retention Plan. Buyer shall not be responsible for any
amounts due and owing or that may arise under the key employee retention plan
approved by the Bankruptcy Court. Buyer shall not be responsible for any other
compensation due to the Business Employees for services to Seller.
     9.4 Employment Agreements. Seller shall not assign and Buyer shall not
assume any employment agreement that is in effect with respect to any Business
Employee immediately prior to the Closing.
ARTICLE 10
REGULATORY MATTERS
     Buyer hereby covenants to Seller, and Seller hereby covenants to Buyer, as
follows:

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     10.1 Regulatory Filings. Subject to the terms and conditions of this
Agreement, each Party shall use its reasonable best efforts to: (a) take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary under applicable Laws to consummate the transactions contemplated by
this Agreement, which shall include each Party’s reasonable best efforts to
obtain any consents required pursuant to Section 203 of the FPA, including
filing the Section 203 FERC application within thirty (30) days after the date
hereof; (b) file a Notification and Report Form pursuant to the HSR Act with
respect to the transactions contemplated hereby within ten (10) Business Days
after the date hereof; (c) supply as promptly as practicable any additional
information and documentary material that may be requested or required pursuant
to any Antitrust Law, including the HSR Act; and (d) cause the expiration or
termination of the applicable waiting periods under the HSR Act or any other
Antitrust Law as soon as practicable.
     10.2 Cooperation; Confidentiality Agreement. In connection with the efforts
referenced in Section 10.1 to obtain all requisite approvals and authorizations
for the transactions contemplated by this Agreement under the FPA, the HSR Act,
any other Antitrust Law, or any state law, each of the Parties shall use
reasonable best efforts to: (a) cooperate with each other in connection with any
filing or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party; (b) keep the other
Parties informed in all material respects of any material communication received
by such Party from, or given by such Party to, any Government and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby; and (c) permit the other Party to review any material communication
given to it by, and consult with each other in advance of any meeting or
conference with, or making any filing or other submission with or to any
Government, including in connection with any proceeding by a private party. The
foregoing obligations in this Section 10.2 shall be subject to the
Confidentiality Agreement and any attorney-client, work product or other
privilege, and each of the Parties hereto shall coordinate and cooperate fully
with the other Parties hereto in exchanging such information and providing such
assistance as such other Parties may reasonably request in connection with the
foregoing and in seeking early termination of any applicable waiting periods
under Antitrust Law, it being understood, however, that the foregoing shall not
require a Party to disclose competitive information of a commercially sensitive
nature to the other Party. The Parties will not take any action that will have
the effect of delaying, impairing or impeding the receipt of any required
authorizations, consents, Orders or approvals. “Antitrust Law” means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other Laws and Orders that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade or lessening of competition through
merger or acquisition. “Antitrust Approval” means any approval or consent of any
Government required under any applicable Antitrust Law or the expiration or
termination of any applicable waiting period under any applicable Antitrust Law.
     10.3 Objections or Other Challenges. If any objections are asserted with
respect to the transactions contemplated hereby under any Antitrust Law or if
any suit is instituted by any Government or any private party challenging any of
the transactions contemplated hereby as violative of any Antitrust Law or if the
filing pursuant to Section 10.1 is reasonably likely to be rejected or
conditioned by the FERC or a state Government, each of the Parties shall use
reasonable best efforts to resolve such objections or challenge as such
Government or private

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party may have to such transactions, including to vacate, lift, reverse or
overturn any Order, whether temporary, preliminary or permanent, so as to permit
consummation of the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, Buyer shall use its reasonable best
efforts to promptly take and diligently pursue any or all of the following
actions to the extent necessary to eliminate any concerns on the part of, or to
satisfy any conditions imposed by, any Government with jurisdiction over the
enforcement of any applicable Law, including any Antitrust Law, the FPA and
applicable state Law, regarding the legality of Buyer’s acquisition of the
Purchased Interests and the Business or any portion thereof, the Acquired Assets
or the Assumed Liabilities: (a) using its reasonable best efforts to prevent the
entry in a judicial or administrative proceeding brought under any Law,
including any Antitrust Law, the FPA or applicable state Law, by any Government
or any other Person of any permanent, temporary or preliminary injunction or
other Order that would make consummation of the acquisition of the Purchased
Interests, the Business or any portion thereof, the Acquired Assets or the
Assumed Liabilities in accordance with the terms of this Agreement unlawful or
that would prevent or delay such consummation; (b) taking promptly and
diligently pursuing, in the event that an injunction or Order of the kind
referred to in the foregoing clause (a) of this Section 10.3, any and all steps,
including the appeal thereof, the posting of a bond and/or the steps
contemplated by this Section 10.3, necessary to vacate, modify or suspend such
injunction or Order so as to permit such consummation as promptly as possible;
and (c) promptly taking and diligently pursuing all other actions and doing all
other things reasonably necessary and proper to avoid or eliminate each and
every impediment under any Law, including any Antitrust Law and the FPA, that
may be asserted by any Government or any other Person to the consummation of the
acquisition of the Purchased Interests, the Business or any portion thereof, the
Acquired Assets or the Assumed Liabilities by Buyer in accordance with the terms
of this Agreement; provided, however, that in no event shall Buyer be under any
obligation to (i) submit to conditions or Orders that would materially and
adversely affect Buyer, including any condition or Order requiring Buyer to
incur any material expense relating to Buyer’s infrastructure (whether related
to the Power Plant or not), or (ii) sell or otherwise dispose of, or hold
separate (through the establishment of a trust or otherwise), particular assets
or categories of assets (including, after the Closing, any of the Purchased
Interests or the Acquired Assets) or operations (including, after the Closing,
the Business or any portion thereof) of Buyer or any of its Affiliates.
ARTICLE 11
TAXES
     11.1 Taxes Related to Purchase of Assets. All state and local sales, use,
gross receipts, transfer, business occupation, gains, excise, value-added or
other similar Taxes in connection with the sale, transfer, assignment and
delivery of the Purchased Interests and Acquired Assets and the assumption of
the Assumed Liabilities, and all recording and filing fees that may be imposed
by reason of the sale, transfer, assignment and delivery of the Purchased
Interests and the Acquired Assets, and that are not exempt under section 1146 of
the Bankruptcy Code (collectively, “Transaction Taxes”), shall be paid by Seller
on or prior to their due date, provided that Buyer shall reimburse Seller for
fifty percent (50%) of the cost of any Washington State real estate excise taxes
imposed pursuant to RCW 82.45 in connection with the sale, transfer, assignment
and delivery of the Purchased Interests and Acquired Assets and the assumption
of the Assumed Liabilities (“REET”). In furtherance of the foregoing, the
Parties

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shall cooperate in good faith to file any REET affidavits required in accordance
with RCW 82.45 on or prior to the Closing (and Seller shall pay any applicable
REET upon the filing of any such affidavits with Buyer reimbursing Seller for
fifty percent (50%) of such amounts at the Closing); provided, that if any such
affidavits and Taxes have not been filed and paid, as applicable, prior to the
Closing, then, notwithstanding Section 3.3(b), Buyer shall be permitted to
retain out of the Purchase Price payment otherwise due at Closing an amount
equal to fifty percent (50%) of Buyer’s reasonable, good faith estimate of the
amount of any REET payable in connection with the sale, transfer, assignment and
delivery of the Purchased Interests and the Acquired Assets and Buyer shall
cause such taxes to be paid directly on Seller’s behalf to the appropriate
Taxing authority upon filing of the appropriate affidavit(s), it being agreed
that (i) if the amount retained by Buyer is not sufficient to pay Seller’s fifty
percent (50%) share of such liability, Seller shall promptly remit the
deficiency to Buyer, (ii) any excess amount withheld from the Purchase Price
pursuant to this Section 11.1 in order to satisfy Seller’s share of such Tax
liability shall be promptly returned to Seller upon the payment by Buyer of such
Taxes and (iii) fifty percent (50%) of any refund of such Taxes shall be
remitted to Seller promptly after receipt by Buyer thereof.
     11.2 Proration of Real and Personal Property Taxes. All real and personal
property taxes and assessments on the Purchased Interests and the Acquired
Assets for any taxable period commencing prior to the Closing Date and ending
after the Closing Date (a “Straddle Period”) shall be prorated between Buyer and
Seller as of the close of business on the Closing Date based on the best
information then available, with (a) Seller being liable for such Taxes
attributable to any portion of a Straddle Period ending on the Closing Date and
(b) Buyer being liable for such Taxes attributable to any portion of a Straddle
Period beginning after the Closing Date. Due to the fact that real and personal
property taxes in Washington may become payable in the tax years subsequent to
the year in which such taxes are accrued, Seller acknowledges that Buyer may
treat its payment of such taxes after the Closing that relate to such
pre-Closing period as additional purchase price payments for the Acquired Assets
and may capitalize same for utility ratemaking purposes. Information available
after the Closing Date that alters the amount of Taxes due with respect to the
Straddle Period will be taken into account and any change in the amount of such
Taxes shall be prorated between Buyer and Seller as set forth in the next
sentence. All such prorations shall be allocated so that items relating to the
portion of a Straddle Period ending on the Closing Date shall be allocated to
Seller based upon the number of days in the Straddle Period on and prior to the
Closing Date and items related to the portion of a Straddle Period beginning
after the Closing Date shall be allocated to Buyer based upon the number of days
in the Straddle Period after the Closing Date; provided, however, that the
Parties shall allocate any real property Tax in accordance with Section 164(d)
of the Code. The amount of all such prorations that must be paid in order to
convey the Purchased Interests and the Acquired Assets to Buyer free and clear
of all Liens other than Permitted Liens shall be calculated and paid on the
Closing Date; all other prorations shall be calculated and paid as contemplated
by Section 3.4.
     11.3 Cooperation on Tax Matters. Seller and Buyer shall (and shall cause
their respective Affiliates to) cooperate fully with each other and make
available or cause to be made available to each other for consultation,
inspection and copying (at such other Party’s expense) in a timely fashion such
personnel, Tax data, relevant Tax Returns or portions thereof and filings,
files, books, records, documents, financial, technical and operating data,
computer records and

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other information as may be reasonably required (a) for the preparation by such
other Party of any Tax Returns or (b) in connection with any Tax audit or
proceeding including one Party (or an Affiliate thereof) to the extent such Tax
audit or proceeding relates to or arises from the transactions contemplated by
this Agreement, including the sale, transfer, assignment and delivery of the
Purchased Interests and the Acquired Assets.
     11.4 Retention of Tax Records. After the Closing Date and until the
expiration of all statutes of limitation applicable to Seller’s liabilities for
Taxes, Buyer shall retain possession of all accounting, business, financial and
Tax records and information that (a) relate to the Purchased Interests or the
Acquired Assets and are in existence on the Closing Date and (b) come into
existence after the Closing Date but relate to the Purchased Interests or
Acquired Assets before the Closing Date, and Buyer shall give Seller notice and
a reasonable opportunity to retain any such records in the event that Buyer
determines to destroy or dispose of them during such period. In addition, from
and after the Closing Date, Buyer shall provide to Seller and their Related
Persons (after reasonable notice and during normal business hours and without
charge to Seller) access to the books, records, documents and other information
relating to the Purchased Interests or the Acquired Assets as may be reasonably
necessary to (i) properly prepare for, file, prove, answer, prosecute and defend
any Tax Return, claim, filing, tax audit, tax protest, suit, proceeding or
answer or (ii) administer or complete any cases under chapter 11 of the
Bankruptcy Code of or including Seller. Such access shall include access to
computer generated data regarding the Purchased Interests or the Acquired Assets
to the extent it does not contain confidential or proprietary information of
Buyer, including data that is unrelated to the Purchased Interests or the
Acquired Assets.
     11.5 Allocation of Purchase Price and Purchase Price Allocation Forms.
     (a) The Purchase Price (and any other relevant items for tax purposes,
including certain Assumed Liabilities) shall be allocated among the Acquired
Assets in accordance with Section 1060 of the Code. Set forth on Schedule 11.5
hereof is an allocation setting forth the tentative allocation to “real
property” (as defined in RCW 82.45) of New LLC (the “Real Property Allocation
Schedule”). The REET payable in accordance with Section 11.1 above shall be
calculated on a basis substantially consistent with the Real Property Allocation
Schedule, subject to the refinement and finalization of the calculation prior to
the Closing.
     (b) Within forty-five (45) days after the Execution Date, Seller shall
prepare and deliver to Buyer a proposed allocation schedule setting forth
Seller’s good faith estimation of the allocation of the Purchase Price (and any
other relevant items for tax purposes, including certain Assumed Liabilities)
among the Acquired Assets in accordance with Section 1060 of the Code and Treas.
Reg. Section 1.1060-1 (the “Preliminary Allocation Schedule”), which Preliminary
Allocation Schedule shall be subject to the reasonable approval of Buyer.
     (c) Within sixty (60) days after the Closing, Seller shall prepare and
deliver to Buyer a final allocation schedule setting forth Seller’s allocation
of the Purchase Price (and any other relevant items for tax purposes, including
certain Assumed Liabilities) among the Acquired Assets in accordance with
Section 1060 of the Code and Treas. Reg.

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Section 1.1060-1 and substantially consistent with the Preliminary Allocation
Schedule (the “Final Allocation Schedule”), which Final Allocation Schedule
shall be subject to the reasonable approval of Buyer.
     (d) The Parties agree that they will report the federal, state, local and
other Tax consequences of the purchase and sale hereunder (including in filings
on IRS Form 8594) in a manner consistent with the Final Allocation Schedule and
that they will not take any position inconsistent therewith in connection with
any Tax Return, refund claim, litigation or otherwise, unless and to the extent
required to do so pursuant to applicable law. Seller and Buyer shall cooperate
in the filing of any forms (including Form 8594) with respect to such
allocation. Notwithstanding any other provision of this Agreement, this
Section 11.5 shall survive any termination or expiration of this Agreement.
     (e) If Seller and Buyer are unable to agree upon the Final Allocation
Schedule within thirty (30) days after the delivery thereof to Buyer, Seller and
Buyer shall refer the matter to a national accounting firm that is independent
as to both Buyer and Seller and their respective Affiliates as of the date of
selection, as mutually agreed to by Buyer and Seller (the “Independent
Accounting Firm”), which shall determine the Final Allocation Schedule
(including any valuations). The Independent Accounting Firm shall be instructed
to deliver to Seller and Buyer a written determination of the Final Allocation
Schedule within thirty (30) days from the date of referral thereof to the
Independent Accounting Firm. For purposes of this Section and whenever the
Independent Accounting Firm is retained to resolve a dispute between the
Parties, the Independent Accounting Firm may determine the issues in dispute
following such procedures, consistent with the provisions of this Agreement, as
it deems appropriate in the circumstances and with reference to the amounts in
issue. The Parties do not intend to impose any particular procedures upon the
Independent Accounting Firm, it being the desire of the Parties that any such
disagreement shall be resolved as expeditiously and inexpensively as reasonably
practicable. Except in the case of manifest error, the finding of such
Independent Accounting Firm shall be final and binding on the Parties hereto and
shall not be subject to the Dispute resolution proceedings set forth in
Section 14.3. Seller and Buyer shall share equally the fees and disbursements of
the Independent Accounting Firm.
     11.6 Unbilled Transactional Taxes. If a Tax assessment is levied upon any
Party by an authorized tax jurisdiction for unbilled transactional Taxes that
are the obligation of the other Party under this Agreement, then the
non-assessed Party shall reimburse the assessed Party for those taxes including
any interest and penalty.
     11.7 Washington Tax Ruling. Neither Seller nor Buyer shall take any action
that is intended to, or reasonably might, cause the consummation of the
transactions contemplated by this Agreement, including the sale, transfer,
assignment and delivery of the Purchased Interests and the Acquired Assets and
the subsequent dissolution of New LLC, to fail to be made in the manner
described in the request for the Washington Tax Ruling.

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ARTICLE 12
CONDITIONS PRECEDENT TO PERFORMANCE BY PARTIES
     12.1 Conditions Precedent to Performance by Seller and Buyer. The
respective obligations of Seller and Buyer to consummate the transactions
contemplated by this Agreement are subject to the satisfaction or waiver (other
than the condition relating to entry of the Sale Order contained in
Section 12.1(a), the satisfaction of which cannot be waived), on or prior to the
Closing Date, of the following conditions:
     (a) Bankruptcy Matters. The Bidding Procedures Order and the Sale Order,
substantially in the form attached hereto (which includes a finding of good
faith under section 363 of the Bankruptcy Code and which may include
non-substantive changes necessary to comply with the Guidelines for the Conduct
of Asset Sales adopted by the Bankruptcy Court on September 5, 2006), shall have
been entered by the Bankruptcy Court and shall have become Final Orders. On the
Closing Date, the Bidding Procedures Order and the Sale Order shall each be in
effect, and shall not have been reversed, stayed, modified or amended without
the prior written consent of Buyer.
     (b) Antitrust Approvals. The applicable waiting periods for the
transactions contemplated under this Agreement under the HSR Act, and any other
Antitrust Law shall have expired or terminated.
     (c) Consents, Approvals and Notifications. The Consents, approvals and
notifications set forth on Schedules 4.4 and 5.4 of the Disclosure Schedules
shall have been obtained or made, as appropriate, and each such Consent,
approval and notification shall be in form and substance reasonably satisfactory
to the Parties, including without the imposition of any conditions that would
reasonably be expected to materially and adversely impact the applicable Party.
     (d) No Violation of Orders. No preliminary or permanent injunction or other
Order that declares this Agreement, the Purchase Notice or the Master Escrow
Agreement invalid or unenforceable in any respect or that would prevent the
consummation of the transactions contemplated hereby or thereby shall be in
effect.
     (e) Washington Tax Ruling. The Washington Tax Ruling shall be in full force
and effect and shall not have been reversed, stayed, modified or amended.
     12.2 Conditions Precedent to Performance by Seller. The obligations of
Seller to consummate the transactions contemplated by this Agreement are subject
to the satisfaction, on or before the Closing Date, of the following conditions,
any one or more of which may be waived by Seller in its sole discretion:
     (a) Representations and Warranties of Buyer. All representations and
warranties made by Buyer in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as if again made by Buyer on and
as of such date (or, if made as of a specific date, at and as of such date),
except that those representations and warranties made by Buyer that contain
materiality, Material Adverse Effect or other similar qualifiers shall be true
and correct in all respects, and Seller shall have received a

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certificate dated as of the Closing Date and signed by the President or a Vice
President of Buyer to that effect.
     (b) Performance of the Obligations of Buyer. Buyer shall have performed in
all material respects all obligations required under this Agreement to be
performed by it on or before the Closing Date (except with respect to the
obligation to pay the Purchase Price in accordance with the terms of this
Agreement, which obligation shall be performed in all respects as required under
this Agreement), and Seller shall have received a certificate dated the Closing
Date and signed by the President or a Vice President of Buyer to that effect.
     (c) Assurance of Future Performance. Buyer shall, on or prior to the
Closing, have provided all assurances of future performance required to be
provided under Section 365 of the Bankruptcy Code so that, assuming the
performance by Seller of its obligations under Section 6.8, the Assigned
Contracts may be assumed by Seller and assigned to New LLC in accordance with
the provisions of Section 365 of the Bankruptcy Code.
     (d) Cure Costs Other than Seller’s Cure Costs. Buyer shall, on or prior to
the Closing, have paid any and all cure costs related to the Assigned Contracts
(other than Seller’s Cure Costs, which shall be Seller’s responsibility as set
forth in Section 6.8) that are required to be paid under Section 365 of the
Bankruptcy Code so that, assuming the performance by Seller of its obligations
under Section 6.8, the Assigned Contracts may be assumed by Seller and assigned
to New LLC in accordance with the provisions of Section 365 of the Bankruptcy
Code.
     (e) Buyer’s Deliveries. Buyer shall have delivered, and Seller shall have
received, all of the items set forth in Section 3.3 of this Agreement.
     12.3 Conditions Precedent to the Performance by Buyer. The obligations of
Buyer to consummate the transactions contemplated by this Agreement are subject
to the satisfaction, on or before the Closing Date, of the following conditions,
any one or more of which may be waived by Buyer in its sole discretion:
     (a) Representations and Warranties of Seller. The representations and
warranties made by Seller in Article 4 of this Agreement shall be true and
correct in all material respects as of the Closing, in each case as though made
at and as of such time (or, if made as of a specific date, at and as of such
date), except that those representations and warranties made by Seller that
contain materiality, Material Adverse Effect or other similar qualifiers shall
be true and correct in all respects and Buyer shall have received a certificate
dated the Closing Date and signed by the President or a Vice President of Seller
to that effect.
     (b) Performance of the Obligations of Seller. Seller shall have performed
in all respects all obligations required under this Agreement to be performed by
them on or before the Closing Date, except for such failures to perform do not
constitute a Material Adverse Effect, and Buyer shall have received a
certificate dated the Closing Date and signed by the President or a Vice
President of Seller to that effect.

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     (c) Seller’s Cure Costs; Cure of Non-Monetary Defaults. Seller shall, on or
prior to the Closing, have (i) paid any and all Seller’s Cure Costs in respect
of the Assigned Contracts or otherwise have reserved sufficient funds necessary
to satisfy any such cure obligations in respect of Seller’s Cure Costs and
(ii) cured any and all defaults under the Assigned Contracts that cannot be
cured through the payment of money, in each case so that, assuming the
performance by Buyer of its obligations under Section 7.4, the Assigned
Contracts may be assumed by Seller and assigned to New LLC in accordance with
the provisions of section 365 of the Bankruptcy Code.
     (d) Excess Cure Costs Other than Seller’s Cure Costs. The aggregate amount
required to be paid by Buyer pursuant to Section 7.4 or otherwise to overcome
any objections to the assignment and assumption of the Assigned Contracts, after
taking into account any reduction to the Purchase Price contemplated by
Section 6.8, shall not exceed the aggregate amount of the cure costs set forth
on Schedule 4.7 (not including Seller’s Cure Costs) by greater than One Hundred
and Fifty Thousand Dollars ($150,000).
     (e) Assigned Contracts. The Bankruptcy Court shall have entered an Order on
the docket (which may be the Sale Order) approving the assumption of the
Assigned Contracts by Seller and the assignment of such Assigned Contracts to
New LLC, and no Order staying, reversing, modifying or amending such Order shall
be in effect on the Closing Date.
     (f) FERC Approvals. Buyer shall have received all authorizations, in form
and substance reasonably satisfactory to Buyer, as contemplated by
Section 12.1(c), from the FERC under the FPA to acquire, own and operate the
Acquired Assets.
     (g) Material Adverse Effect. No Material Adverse Effect shall have occurred
and be continuing.
     (h) Title Commitment. Seller shall have furnished Buyer with a preliminary
commitment from the Title Company to issue the Title Policy, which shall be in
form and substance reasonably satisfactory to Buyer.
     (i) Additional Real Property. Calpine shall have transferred title to the
Additional Real Property to Seller, such that the Additional Real Property shall
be included in the Real Property and transferred to New LLC pursuant to the
Transfer and Contribution Agreement.
     (j) Additional Real Property Survey. Seller shall have furnished Buyer with
the Additional Real Property Survey, which shall be in form and substance
reasonably satisfactory to Buyer.
     (k) Termination of Existing Intracompany Service Contracts. Effective no
later than the Closing, Seller shall have terminated, in so far as they relate
to the Power Plant and without liability to Buyer in any manner, (i) that
certain Master Maintenance Services Agreement Base Contract, dated March 23,
2004, between Seller and certain of its Affiliates and Calpine Operating
Services Company, Inc., (ii) that certain Master Administrative Services
Agreement, dated March 23, 2004, between Seller and certain of

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its Affiliates and Calpine Administrative Services Company, Inc., (iii) that
certain Master Operation and Maintenance Agreement, dated March 23, 2004,
between Seller and certain of its Affiliates and Calpine Operating Services
Company, Inc., (iv) that certain Master Construction Management Agreement, dated
March 23, 2004, among Seller and certain of its Affiliates, Calpine Generating
Company and Calpine Construction Management Company, Inc. and (v) that certain
Index Based Gas Sale and Power Purchase Agreement, dated March 23, 2004, among
Calpine Energy Services, L.P., Calpine Generating Company, LLC and certain of
its Affiliates, including Seller (collectively, the “Intracompany Service
Contracts”).
ARTICLE 13
TERMINATION AND EFFECT OF TERMINATION
     13.1 Right of Termination. Notwithstanding anything to the contrary
contained herein, this Agreement may be terminated only as provided in this
Article 13. In the case of any such termination, the terminating Party shall
give notice to the other Party specifying the provision pursuant to which the
Agreement is being terminated.
     13.2 Termination Without Default.
     (a) This Agreement may be terminated at any time before Closing:
     (i) by mutual written consent of Seller and Buyer;
     (ii) by Buyer if the Bidding Procedures Order has not been entered and
become a Final Order within sixty (60) days of the Execution Date;
     (iii) by Buyer if a Sale Order has not been entered and become a Final
Order within ninety (90) days of the entry of the Bidding Procedures Order;
     (iv) by Buyer, on any date that is more than 270 days after the date hereof
(the “Termination Date”), if any condition contained in Section 12.1 has not
been satisfied or waived as of such time; provided, however, that Buyer shall
not have the right to terminate this Agreement under this Section 13.2(a)(iv) if
Buyer’s failure to fulfill any of its obligations under this Agreement is the
reason that the Closing has not occurred on or before said date; provided,
further, however, that if the Closing shall not have occurred on or before the
Termination Date due to the failure to obtain the FERC approval under the FPA
and (x) FERC has not denied or terminated its review of the Section 203
application, and (y) all other conditions to the respective obligations of the
Parties to close hereunder that are capable of being fulfilled by the
Termination Date shall have been so fulfilled or waived (other than those
conditions that, by their terms, cannot be satisfied until the Closing), then
the Termination Date shall be automatically extended for an additional ninety
(90) days or such earlier date as FERC denies or terminates its review of the
Section 203 application.
     (v) by Seller, on any date that is after the Termination Date, if any
condition contained in Section 12.1 has not been satisfied or waived as of such

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time; provided, however, that Seller shall not have the right to terminate this
Agreement under this Section 13.2(a)(v) if Seller’s failure to fulfill any of
their obligations under this Agreement is the reason that the Closing has not
occurred on or before said date; provided, further, however, that if the Closing
shall not have occurred on or before the Termination Date due to the failure to
obtain the FERC approval under the FPA and (x) FERC has not denied or terminated
its review of the Section 203 application, and (y) all other conditions to the
respective obligations of the parties to close hereunder that are capable of
being fulfilled by the Termination Date shall have been so fulfilled or waived
(other than those conditions that, by their terms, cannot be satisfied until the
Closing), then the Termination Date shall be automatically extended for an
additional ninety (90) days or such earlier date as FERC denies or terminates
its review of the Section 203 application.
     (vi) by either Buyer or Seller, immediately upon an Order becoming final
and non-appealable that declares this Agreement, the Purchase Notice or the
Master Escrow Agreement invalid or unenforceable in any material respect or that
would prevent the consummation of the transactions contemplated hereby or
thereby (a “Termination Order”); provided, however, that neither Seller nor
Buyer shall have the right to terminate this Agreement pursuant to this Section
13.2(a)(vi) if such Party or any of its Affiliates has sought entry of, or has
failed to use all commercially reasonable efforts to oppose entry of, such
Termination Order;
     (vii) by Buyer, if there shall be a breach by Seller of any representation,
warranty, covenant or agreement contained in this Agreement, which would result
in a failure of a condition set forth in Sections 12.1 or 12.3 and which breach
is not reasonably capable of being cured such that the applicable condition is
not capable of being satisfied prior to the Termination Date;
     (viii) by Seller, if there shall be a breach by Buyer of any
representation, warranty, covenant or agreement contained in this Agreement,
which would result in a failure of a condition set forth in Sections 12.1 or
12.2 and which breach is not reasonably capable of being cured such that the
applicable condition is not capable of being satisfied prior to the Termination
Date;
     (ix) by Buyer at any time after the Bankruptcy Court approves an
Alternative Transaction, unless Buyer is a Back-Up Bidder (as that term is
defined in the Bidding Procedures attached to the Bidding Procedures Order), in
which case Buyer may terminate this Agreement only in accordance with the
Bidding Procedures Order.
     (b) If this Agreement is terminated pursuant to Section 13.2(a), (i) the
Deposits, together with any interest accrued thereon less Buyer’s share of any
fees and expenses of the Escrow Agent, as set forth in the Purchase Notice,
shall be returned to Buyer, (ii) this Agreement shall become null and void and
have no effect (other than this Article 13, Article 14 and Article 15, which
shall survive termination) and (iii) none of

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Seller, Buyer or any of their respective Related Persons shall have any
liability or obligation arising under or in connection with this Agreement,
except for fraud, intentional breach or willful misconduct of either Party.
     13.3 Effect of Failure of Seller’s Conditions to Closing.
     (a) Seller may terminate this Agreement at any time after the Termination
Date and before Closing if any condition contained in Section 12.2(a) or Section
12.2(b) has not been satisfied or waived by Seller as of such time; provided,
however, that Seller shall not have the right to terminate this Agreement under
this Section 13.3 if Seller’s failure to fulfill any of its obligations under
this Agreement has been the reason that the Closing has not been consummated on
or before such date.
     (b) If this Agreement is terminated pursuant to this Section 13.3, Buyer
acknowledges that a monetary remedy may be inadequate or impracticable and that
Seller may have been caused irreparable harm and, if Seller so determines,
Seller shall have the right, subject to the waiver by Seller or satisfaction of
the conditions contained in Section 12.1, to obtain an Order requiring Buyer to
specifically perform all of its obligations under this Agreement.
     (c) If Seller determines that a monetary remedy is adequate and
practicable, Seller may terminate this Agreement, retain the Deposits (together
with any interest accrued thereon), to the extent of any damages Seller may have
incurred, and pursue any other remedies available to Seller at Law.
     13.4 Effect of Failure of Buyer’s Conditions to Closing.
     (a) Buyer may terminate this Agreement at any time after the Termination
Date and before Closing if any condition contained in Section 12.3 has not been
satisfied or waived as of such time; provided, however, that Buyer shall not
have the right to terminate this Agreement under this Section 13.4 if Buyer’s
failure to fulfill any of its obligations under this Agreement has been the
reason that the Closing has not been consummated on or before said date.
     (b) If this Agreement is terminated pursuant to this Section 13.4: (i) the
Deposits, together with any interest accrued thereon less Buyer’s share of any
fees and expenses of the Escrow Agent, as set forth in the Purchase Notice,
shall be returned to Buyer, (ii) this Agreement shall become null and void and
have no effect (other than this Article 13, Article 14 and Article 15, which
shall survive termination) and (iii) except as provided in this Section 13.4,
none of Seller, Buyer or any of their respective Related Persons shall have any
liability or obligation arising under or in connection with this Agreement
except for fraud, intentional breach or willful misconduct of Seller.
     (c) If this Agreement is terminated pursuant to this Section 13.4, Seller
acknowledges that a monetary remedy may be inadequate or impracticable and that
Buyer may have been caused irreparable harm and, if Buyer so determines, Buyer
shall have the right, subject to the waiver by Buyer or satisfaction of the
conditions contained in Section 12.1, to obtain an Order requiring Seller to
specifically perform all of its

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obligations under this Agreement; provided, however, that it is understood that
Seller shall not be obligated to proceed with the Closing absent appropriate
authorization from the Bankruptcy Court (whether pursuant to the Sale Order or
otherwise) but that, in exercising its remedies hereunder Buyer shall be
permitted, among other things, to compel Seller to seek such authorization.
     13.5 Termination on Alternative Transaction.
     (a) This Agreement may be terminated at any time before Closing by either
Buyer or Seller, upon Seller’s entering into any Alternative Transaction.
     (b) If this Agreement is terminated pursuant to Section 13.5(a): (i) the
Deposits, together with any interest accrued thereon less Buyer’s share of any
fees and expenses of the Escrow Agent, as set forth in the Purchase Notice,
shall be returned to Buyer, (ii) Seller shall pay Buyer the Break-Up Fee in
accordance with Section 13.5(c), (iii) this Agreement shall become null and void
and of no effect (except for this Article 13, Article 14 and Article 15 which
shall survive termination), and (iv) except as provided in this Section 13.5(b)
and 13.5(c), none of Buyer, Seller or their respective Related Persons shall
have any liability or obligation arising under or in connection with this
Agreement.
     (c) Break-Up Fee
     (i) If this Agreement is terminated pursuant to Section 13.5(a) Seller
shall pay to Buyer in immediately available funds a fee equal to 2.5% of the
Purchase Price (the “Break-Up Fee”), such fee to be paid upon the closing of the
Alternative Transaction and from the sales proceeds of such Alternative
Transaction.
     (ii) Seller’s obligation to pay the Break-Up Fee pursuant to this Section
13.5(c) shall survive termination of this Agreement and shall constitute an
allowed administrative expense of Seller under sections 503(b) and 507(a)(2) of
the Bankruptcy Code without further Order of the Bankruptcy Court.
     (iii) The Break-Up Fee, payable under the circumstances provided in Section
13.5(c)(i) shall be the exclusive remedy of Buyer and its Affiliates for any
termination of this Agreement pursuant to Section 13.5. In no event shall Seller
or any of its respective Affiliates or Related Persons have any liability with
respect to Buyer or any other Person hereunder in excess of the applicable
Break-Up Fee in the event that this Agreement terminates for any reason
permitted by Section 13.5, except for fraud, intentional breach or willful
misconduct of Seller, and any claim, right or cause of action by Buyer or any
other Person against Seller or their respective Affiliates or Related Persons in
excess of the applicable Break-Up Fee is hereby fully waived, released and
forever discharged.

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ARTICLE 14
MISCELLANEOUS
     14.1 LIMITATION ON DAMAGES. IN NO EVENT SHALL EITHER PARTY OR THEIR
RESPECTIVE AFFILIATES HAVE ANY LIABILITY TO THE OTHER PARTY OR ANY OTHER PERSON
FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, EXEMPLARY OR PUNITIVE DAMAGES
(INCLUDING ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES OR BUSINESS
INTERRUPTION AND THE LIKE), WHETHER BY STATUTE, IN TORT OR UNDER CONTRACT, AND
ANY SUCH CLAIM, RIGHT OR CAUSE OF ACTION FOR ANY SUCH DAMAGES IS HEREBY FULLY
WAIVED, RELEASED AND FOREVER DISCHARGED.
     14.2 Successors and Assigns. Except as otherwise provided in this Agreement
and except for an assignment by Buyer to an Affiliate of Buyer (it being
understood that any such assignment by Buyer to an Affiliate shall not relieve
Buyer of its obligations hereunder), no Party hereto shall assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
other Party hereto, and any such attempted assignment without such prior written
consent shall be void and of no force and effect. This Agreement shall inure to
the benefit of and shall be binding upon the successors and permitted assigns of
the Parties hereto.
     14.3 Dispute Resolution.
     (a) In the event of any action, dispute or controversy arising out of or
relating to this Agreement (each, a “Dispute”), the Parties shall promptly seek
to resolve any such Dispute by negotiations between senior executives of the
Parties who have the authority to settle the Dispute. When a Party believes
there is a Dispute, that Party shall give the other Party written notice of the
Dispute. Within fifteen (15) days after receipt of such notice, the other Party
shall submit to the first Party a written response. Both the notice and response
shall include (i) a statement of each Party’s position and a summary of the
evidence and arguments supporting such position; and (ii) the name, title, fax
number and telephone number of the executive or executives who shall represent
the Party. In the event that the Dispute involves a claim arising out of the
actions of any Person not a signatory to this Agreement, the receiving Party
shall have such additional time as necessary, not to exceed an additional
fifteen (15) days, to investigate the Dispute before submitting a written
response. The executives shall meet at a mutually agreeable time and place
within seven (7) days after the date of the response and thereafter as often as
they reasonably deem necessary to exchange relevant information and to attempt
to resolve the Dispute. If one of the executives intends to be accompanied at a
meeting by an attorney, the other executive shall be given a least five
(5) Business Days’ notice of such intention and may also be accompanied by an
attorney.
     (b) If the Dispute has not been resolved within thirty (30) days after the
date of the response given pursuant to Section 14.3(a), or such additional time,
if any, that the Parties mutually agree to in writing, or if any Party receiving
a Dispute notice denies the applicability of the provisions of this Section 14.3
or otherwise refuses to participate under the provisions hereof, either Party
may pursue such remedies as are available to it at Law or in equity.

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     14.4 Governing Law; Jurisdiction. This Agreement shall be construed,
performed and enforced in accordance with, and governed by, the Laws of the
State of New York (without giving effect to the principles of conflicts of Laws
thereof), except to the extent that the Laws of such State are superseded by the
Bankruptcy Code; provided that, the validity and enforceability of all
conveyance documents or instruments executed and delivered pursuant to this
Agreement insofar as they affect title to real property shall be governed by and
construed in accordance with the Laws of the jurisdiction in which such property
is located. For so long as Seller is subject to the jurisdiction of the
Bankruptcy Court, the Parties hereto irrevocably elect as the sole judicial
forum for the adjudication of any matters arising under or in connection with
the Agreement, and consent to the exclusive jurisdiction of, the Bankruptcy
Court. After Seller is no longer subject to the jurisdiction of the Bankruptcy
Court, any legal action or proceeding with respect to this Agreement or the
transactions contemplated hereby may be brought in the courts of the State of
New York sitting in Manhattan or of the United States for the Southern District
of New York, and by execution and delivery of this Agreement, each of the
Parties consents to the non-exclusive jurisdiction of those courts. Each of the
Parties irrevocably waives any objection, including any objection to the laying
of venue or based on the grounds of forum non conveniens, which it may now or
hereafter have to the bringing of any action or proceeding in such jurisdiction
in respect of this Agreement or the transactions contemplated hereby.
     14.5 Disclosure Schedule Supplements. From time to time prior to the
Closing, Seller shall supplement or amend the Disclosure Schedules to this
Agreement with respect to any matter that, if existing, occurring or known at
the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedules. The Disclosure Schedules shall be deemed
amended by all such supplements and amendments except for purposes of
determining whether the conditions set forth in Section 12.3(a) of the Agreement
have been satisfied.
     14.6 Warranties Exclusive. The representations and warranties contained
herein are the only representations or warranties given by Seller and all other
express or implied warranties are disclaimed. Without limiting the foregoing,
except as provided in this Agreement, Buyer acknowledges that the Purchased
Interests and the Acquired Assets are conveyed “AS IS,” “WHERE IS” and “WITH ALL
FAULTS” and that all warranties of merchantability, usage or suitability or
fitness for a particular purpose are disclaimed. Without limiting the foregoing,
except as provided in this Agreement, Buyer further acknowledges that no
material or information provided by or communications made by Seller or its
agents will create any representation or warranty of any kind, whether express
or implied, with respect to the Purchased Interests or the Acquired Assets and
the title thereto, the operation of the Acquired Assets, or the prospects
(financial and otherwise), risks and other incidents of the Business, including
the actual or rated generating capability of the Power Plant or the ability of
Buyer to generate or sell electrical energy.
     14.7 Survival of Representations and Warranties. None of the
representations or warranties of Seller set forth in this Agreement or in any
certificate delivered pursuant to Section 12.3(a) or Section 12.3(b) shall
survive the Closing.
     14.8 No Recourse Against Third Parties. Buyer agrees for itself and for all
of its officers, directors, shareholders, Affiliates, attorneys, agents and any
other parties making any

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claim by, through or under the rights of such persons (collectively, the “Buyer
Group”) that no member of Buyer Group shall have any rights against any officer,
director, shareholder, Affiliate (including Calpine), attorney or agent of
Seller (each, individually, a “Non-Recourse Person”) for any Losses that any
member of Buyer Group may suffer in connection with this Agreement, except to
the extent arising out of fraud, intentional breach or willful misconduct. Buyer
and all members of Buyer Group hereby waive any rights, recourse or remedy
against Seller under any Environmental Laws, including any arising under the
Comprehensive Environmental Response, Compensation and Liability Act, any
analogous state law, or the common law, with respect to any environmental matter
relating to the Acquired Assets, the Power Plant or the Business. If any member
of Buyer Group makes a claim against any person or entity that is not a
Non-Recourse Person (a “Third Person”) that in any way gives rise to a claim by
such Third Person against any Non-Recourse Person asserting that such
Non-Recourse Person is or may be liable to such Third Person with respect to any
Losses arising in connection with this Agreement (whether by way of
indemnification, contribution, or otherwise on any theory whatever) (a “Claim
Over”), such member of Buyer Group shall reduce or credit against any judgment
or settlement such member of Buyer Group may obtain against such Third Person
the full amount of any judgment or settlement such Third Person may obtain
against the Non-Recourse Person on such Claim Over, and shall, as part of any
settlement with such Third Person, obtain from such Third Person for the benefit
of such Non-Recourse Person a satisfaction in full of such Third Person’s Claim
Over against the Non-Recourse Person.
     14.9 Mutual Drafting. This Agreement is the result of the joint efforts of
Buyer and Seller, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of the Parties and there is to be no
construction against either Party based on any presumption of that Party’s
involvement in the drafting thereof.
     14.10 Expenses. Except as otherwise provided herein, each of the Parties
hereto shall pay its own expenses in connection with this Agreement and the
transactions contemplated hereby, including any legal and accounting fees,
whether or not the transactions contemplated hereby are consummated. Buyer and
Seller shall share equally the cost of all surveys and title reports obtained in
connection with this Agreement and the transactions contemplated hereby.
Transaction Taxes shall be the responsibility of Seller in accordance with
Section 11.1 (except to the extent Buyer is responsible to reimburse Seller for
fifty percent (50%) of the REET imposed as a result of the transactions
contemplated by this Agreement pursuant to Section 11.1). The Parties shall
share equally the cost of the Title Policy and all filing fees required to be
paid in connection with any filings made or notices given pursuant to any
Antitrust Law.
     14.11 Broker’s and Finder’s Fees. Each of the Parties represents and
warrants that it has not dealt with any broker or finder in connection with any
of the transactions contemplated by this Agreement in a manner so as to give
rise to any claims against the other Party for any brokerage commission,
finder’s fees or other similar payout.
     14.12 Severability. In the event that any part of this Agreement is
declared by any court or other judicial or administrative body to be null, void
or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Agreement shall remain in full
force and effect only if, after excluding the portion deemed to be
unenforceable, the remaining terms shall provide for the consummation of the
transactions contemplated hereby

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in substantially the same manner as originally set forth at the later of the
date this Agreement was executed or last amended.
     14.13 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given: (a) on the date of service if served personally on the Party to whom
notice is to be given; (b) on the day of transmission if sent via facsimile
transmission to the facsimile number given below, and telephonic confirmation of
receipt is obtained promptly after completion of transmission; (c) on the day
after delivery to Federal Express or similar overnight courier or the Express
Mail service maintained by the United States Postal Service or (d) on the fifth
day after mailing, if mailed to the Party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid and properly
addressed, to the Party as follows:
If to Seller:
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: General Counsel
Facsimile: (408) 794-2434
Copy to:
Kirkland & Ellis LLP
153 E. 53rd Street
Citicorp Center
New York, NY 10022-4611
Attention: Adam D. Phillips
Facsimile: (212) 446-4900
Kirkland & Ellis LLP
777 South Figueroa Street
Los Angeles, CA 90017
Attention: Bennett Spiegel
Facsimile: (213) 680-8500
If to Buyer:
c/o Puget Sound Energy, Inc.
10885 NE 4th Street (98004-5591)
P.O. Box 97034
Bellevue, WA 98009-9734
Facsimile No: (425) 462-3300
Attention: Senior Vice President Energy Resources

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with a copy to:
Puget Sound Energy, Inc.
10885 NE 4th Street (98004-5591)
P.O. Box 97034
Bellevue, WA 98009-9734
Facsimile No: (425) 462-3300
Attention: General Counsel
Any Party may change its address for the purpose of this Section 14.13 by giving
the other Party written notice of its new address in the manner set forth above.
     14.14 Amendments; Waivers. This Agreement may be amended or modified, and
any of the terms, covenants, representations, warranties or conditions hereof
may be waived, only by a written instrument executed by the Parties hereto, or
in the case of a waiver, by the Party waiving compliance. Any waiver by any
Party of any condition, or of the breach of any provision, term, covenant,
representation or warranty contained in this Agreement, in any one or more
instances, shall not be deemed to be nor construed as a furthering or continuing
waiver of any such condition, or of the breach of any other provision, term,
covenant, representation or warranty of this Agreement.
     14.15 Schedules. Seller may, at its option, include in the Disclosure
Schedules items that are not material, and any such inclusion, or any references
to dollar amounts, shall not be deemed to be an acknowledgment or representation
that such items are material or would cause a Material Adverse Effect, to
establish any standard of materiality or to define further the meaning of such
terms for purposes of this Agreement.
     14.16 Public Announcements. At all times prior to or in connection with the
Closing, no Party shall make any press release or public announcement concerning
the transactions contemplated by this Agreement without the prior written
approval of the other Party (which approval shall not be unreasonably withheld,
conditioned or delayed), unless a press release or public announcement is
required by Law or Order of the Bankruptcy Court. If any such press release or
announcement or other disclosure is required by Law or Order of the Bankruptcy
Court, the disclosing Party may make such press release, announcement or other
disclosure and shall promptly furnish the other Party with a copy thereof. The
Parties acknowledge that Seller shall file this Agreement with the Bankruptcy
Court in connection with obtaining the Sale Order and Bidding Procedures Order.
     14.17 Entire Agreement. This Agreement, the Master Escrow Agreement (in so
far as it applies to the transactions contemplated by this Agreement, as set
forth in the Purchase Notice), the Purchase Notice and the Confidentiality
Agreement contain the entire understanding among the Parties hereto (including,
for this purpose, Calpine with respect to the Purchase Notice and the Master
Escrow Agreement) with respect to the transactions contemplated hereby and
supersede and replace all prior and contemporaneous agreements and
understandings, oral or written, with regard to such transactions. All Schedules
hereto and any documents and instruments delivered pursuant to any provision
hereof are expressly made a part of this Agreement as fully as though completely
set forth herein.

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     14.18 Parties in Interest. Nothing in this Agreement is intended to confer
any rights or remedies under or by reason of this Agreement on any Persons other
than Seller and Buyer and their respective successors and permitted assigns.
Nothing in this Agreement is intended to relieve or discharge the obligations or
liability of any third Persons to Seller or Buyer. No provision of this
Agreement shall give any third Persons any right of subrogation or action over
or against Seller or Buyer.
     14.19 Headings. The article and section headings in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
     14.20 Construction. Unless the context of this Agreement otherwise
requires, (i) words of any gender include the other gender, (ii) words using the
singular or plural number also include the plural or singular number,
respectively, (iii) the terms “hereof,” “herein,” “hereby,” and derivative or
similar words refer to this entire Agreement as a whole and not to any other
particular Article, Section or other subdivision, (iv) the words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation,” (v) “shall,” “will,” or “agrees” are mandatory, and “may” is
permissive, and (vi) “or” is not exclusive.
     14.21 Currency. Except where otherwise expressly provided, all amounts in
this Agreement are stated and shall be paid in United States currency.
     14.22 Time of Essence. Time is of the essence of this Agreement.
     14.23 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
agreement.
ARTICLE 15
DEFINITIONS
     15.1 Certain Terms Defined. As used in this Agreement, the following terms
shall have the following meanings:
     “Additional Real Property Survey” means that certain ALTA/ASCM survey to be
completed by Taylor Engineering, Inc. prior to the Closing, covering all of the
Additional Real Property.
     “Affiliate” means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person where “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of a person, through the ownership of voting securities, by contract,
as trustee, executor or otherwise.
     “Alternative Transaction” means a transaction involving a sale of all or
substantially all of the Purchased Interests, the Business or the Acquired
Assets by Seller to a purchaser or purchasers other than Buyer, following an
Auction in which Buyer is the stalking horse bidder, or, the filing by Seller
with the Bankruptcy Court of a plan of reorganization or liquidation that does
not contemplate the sale of the Purchased Interests by Seller to Buyer in
accordance with the terms of this Agreement.

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     “Assignment Agreement” means the agreement substantially in the form of
Exhibit A hereto.
     “Auction” means the auction conducted by Seller pursuant to the Bidding
Procedures Order.
     “Bankruptcy Code” means Title 11 of the United States Code.
     “Bankruptcy Court” means the United States Bankruptcy Court for the
Southern District of New York or such other court having jurisdiction over the
Chapter 11 Case originally administered in the United States Bankruptcy Court of
the Southern District of New York.
     “Business” means the business of generating and selling electric power,
capacity and ancillary services from the Power Plant, as managed and operated by
Seller on the date hereof, to Seller’s customers and any business activities of
Seller incidental to the foregoing.
     “Business Day” means any day other than Saturday, Sunday and any day that
is a legal holiday or a day on which banking institutions in New York, New York
are authorized by Law or other Governmental action to close.
     “Business Records” means all books, files and records (whether existing in
paper or electronic format) to the extent they apply primarily to the Purchased
Interests, the Acquired Assets or the Business, including customer lists,
historical customer files, reports, plans, data, accounting and tax records,
test results, product specifications, drawings, diagrams, construction plans and
records, training manuals, engineering data, safety and Environmental Reports
and documents, maintenance schedules, operating and production records,
inventory records, business plans, and marketing and all other studies,
documents and records but excluding any Retained Books and Records.
     “Chapter 11 Case” means, collectively, the cases commenced and to be
commenced by Seller under chapter 11 of the Bankruptcy Code in the Bankruptcy
Court.
     “Clayton Act” means Title 15 of the United States Code §§ 12-27 and Title
29 of the United States Code §§ 52-53, as amended.
     “Code” means the Internal Revenue Code of 1986, as amended.
     “Consent” means any consent, approval, authorization, qualification, waiver
or notification of a Government.
     “Contract” means any written or oral contract, agreement, license,
sublicense, lease, sublease, mortgage, instruments, guaranties, commitment,
undertaking or other similar arrangement, whether express or implied.
     “DOR” means the Department of Revenue of the State of Washington.
     “Emission Allowances” means authorizations to emit specified units of
sulfur dioxide (SO2) pursuant to Title IV of the U.S. Clean Air Act and nitrogen
oxides (NOx) pursuant to the

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22 State SIP Call in amounts equal to the respective SO2 and NOx accounts for
the Power Plant as of May 1, 2006.
     “Employee Benefit Plan” means any “employee benefit plan” (as such term is
defined in ERISA §3(3)) and any other employee benefit plan, program or
arrangement of any kind.
     “Environmental Laws” means all Laws for protection of the environment.
     “Environmental Reports” means any environmental sampling or report
performed specifically to test compliance with any Environmental Laws and any
and all Phase I or II environmental assessments, in each case which Seller has
received from an un-Affiliated third party within the last three (3) years with
respect to the Power Plant or the Owned Real Property; provided that
Environmental Reports shall not include any safety, health and environmental
audit reports, or internal investigation reports, prepared under the direction
of Seller’s legal department and privileged under the attorney-client privilege,
attorney work-product privilege, or state or federal environmental self-auditing
privilege or policy.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.
     “ERISA Affiliate” means any entity treated as a single employer with Seller
pursuant to Section 414 of the Code.
     “Escrow Agent” means Union Bank of California, N.A., the escrow agent under
the Master Escrow Agreement.
     “Existing Survey” means that certain ALTA/ASCM survey by Taylor
Engineering, Inc., initially date October 14, 2003 and revised as of March 2,
2004, provided by Seller to Buyer and covering all of the Owned Real Property.
     “Existing Title Policy” means that certain policy of title insurance issued
by First American Title Insurance Company and dated April 24, 2001, provided by
Seller to Buyer and covering all of the Owned Real Property other than that
portion identified on Schedule 1.1(a) as being owned by Calpine as of the
Execution Date.
     “FERC” means the Federal Energy Regulatory Commission, or any successor
agency thereto.
     “Final Order” means any Order of a Government, the Bankruptcy Court or
other court of competent jurisdiction after all opportunities for rehearing,
reargument, petition for certiorari and appeal are exhausted or expired and any
requests for rehearing have been denied, and that has not been revised, stayed,
enjoined, set aside, annulled, reversed, remanded, modified or suspended, with
respect to which any required waiting period has expired, and to which all
conditions to effectiveness prescribed therein or otherwise by law or Order have
been satisfied; provided, however, that no Order shall fail to be a Final Order
solely because of the possibility that a motion pursuant to Rule 60 of the
Federal Rules of Civil Procedure or Bankruptcy Rule 9024 may be filed with
respect to such Order. In the case of the Sale Order, a Final Order shall also
consist of an Order as to which an appeal, notice of appeal or motion for
rehearing or new

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trial has been filed but as to which Buyer, in its sole and absolute discretion,
elects to proceed with Closing.
     “FPA” means the Federal Power Act (16 U.S.C. § 791a et seq.), as amended,
and the rules and regulations thereunder.
     “Government” means any agency, division, subdivision, audit group,
procuring office or governmental or regulatory authority in any event or any
adjudicatory body thereof, of the United States, any state thereof or any
foreign government.
     “Hazardous Materials” means and includes any hazardous or toxic substance
or waste or any contaminant or pollutant regulated under Environmental Laws,
including “hazardous substances” as currently defined by the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, “hazardous wastes” as currently defined by the Resource Conservation
and Recovery Act, as amended, natural gas petroleum products or byproducts and
crude oil.
     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(15 U.S.C. §§ 15c-15h, 18a), as amended.
     “Improvements” means the buildings, improvements and structures now
existing on the Real Property, but only to the extent such buildings,
improvements and structures constitute fixtures under applicable law.
     “Knowledge of Seller,” “Seller’s Knowledge” or any other similar term or
knowledge qualification means the present actual knowledge of Rick Thomas, Gevan
Reeves, Bevin Hong, Rich Downen, Gerald Klug, Wayne Milke and Bob McCaffrey.
     “Lien” means any mortgage, pledge, charge, security interest, encumbrance,
lien (statutory or other) or conditional sale agreement.
     “Master Escrow Agreement” means the Amended and Restated Master Escrow
Agreement by and between Calpine and Union Bank of California, N.A., dated as of
October 27, 2006, as amended.
     “Material Adverse Effect” means a state of facts, event, change or effect
that results, or would reasonably be expected to result, in a material adverse
effect on the combined operations of the Business but excluding any state of
facts, event, change or effect caused by events, changes or developments
relating to: (i) changes of Laws generally, including those governing national,
regional, state or local electric transmission or distribution systems,
(ii) strikes, work stoppages or other labor disturbances, (iii) increases in
costs of commodities or supplies, including fuel, (iv) effects of weather or
meteorological events other than such events that cause material physical damage
to the Power Plant or the transmission service to the plant, (v) changes or
conditions affecting the industries of which the Business is a part generally
(including any change or condition (x) generally affecting the international,
national or regional or local electric generating, transmission or distribution
industry, (y) generally affecting the international, national, regional or local
wholesale or retail markets for electric power or (z) resulting from changes in
the international, national, regional or local fuel markets for the type of fuel
used at

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the Power Plant); (vii) changes in economic, regulatory or political conditions
generally; (viii) changes resulting from any motion, application, pleading or
Order filed under or in connection with, the Chapter 11 Case or Seller’s status
as a debtor in possession or any motion, application, pleading or Order filed by
any Government applicable to providers of generation, transmission or
distribution of electricity generally; or (ix) any act(s) of war or of terrorism
other than such events or occurrences that cause material physical damage to the
Power Plant or transmission service to the plant.
     “Multiemployer Plan” has the meaning set forth in ERISA §3(37).
     “Ordinary Course of Business” means, with respect to the operation by
Seller of the Power Plant, the operation thereof consistent with prior practices
with respect to the operation thereof and prudent health, safety and
environmental practices, and taking into account the status and quality of the
Power Plant.
     “Permitted Liens” means: (i) all Liens set forth on Schedule 15.1 of the
Disclosure Schedules; (ii) Liens for Taxes, assessments and Government or other
similar charges that are not yet due and payable or that, although due and
payable, are being contested by appropriate proceedings in good faith (excluding
the Washington State sales and use tax liability related to Seller’s 2001 fiscal
year) and do not exceed $100,000 in the aggregate; (iii) mechanics’,
materialmen’s, warehouseman’s and similar Liens that secure Assumed Liabilities;
(iv) such covenants, conditions, restrictions, easements, encroachments or
encumbrances, or any other state of facts, that do not materially interfere with
the present occupancy of the Real Property or the use of such Real Property as
it has been used by Seller in the Business prior to the Closing Date;
(v) zoning, building codes and other land use laws regulating the use of
occupancy of Owned Real Property or the activities conducted thereon which are
imposed by any governmental authority having jurisdiction over Owned Real
Property and do not materially interfere with the present occupancy of the Real
Property or the use of such Real Property as it has been used by Seller in the
Business prior to the Closing Date; (vi) restrictions and regulations imposed by
any Government authority or any local, state, regional, national or
international reliability council, or any independent system operator or
regional transmission organization with jurisdiction over Seller or the Power
Plant in each case of general applicability to similarly situated facilities and
that do not materially interfere with the present occupancy of the Real Property
or the use of such Real Property as it has been used by Seller in the Business
prior to the Closing Date; and (vii) exceptions and related matters set forth in
the Title Policy.
     “Person” means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
Government.
     “Power Plant” means the approximately 245 MW (nominal) gas-fired combined
cycle electric generating facility known as the Goldendale Energy Center and
located in Klickitat County, Washington, including all equipment, electrical
transformers, pipeline and electrical interconnection facilities (including
water discharge facilities and water injection facilities) related thereto.
     “Purchase Notice” means Exhibit A of the Master Escrow Agreement, as
executed and delivered by Buyer and Seller.

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     “Related Person” means, with respect to any Person, all past, present and
future directors, officers, members, managers, stockholders, employees,
controlling persons, agents, professionals, attorneys, accountants, investment
bankers, Affiliates or representatives of any such Person.
     “Representatives” of a Person means, collectively, such Person’s Affiliates
and its and their respective directors, officers, partners, members, employees,
representatives, agents, advisors (including accountants, legal counsel,
environmental consultants and financial advisors), parent entities and other
controlling Persons.
     “Retained Books and Records” means (i) all corporate seals, minute books,
charter documents, corporate stock record books, original tax and financial
records and such other files, books and records to the extent they relate to any
of the Excluded Assets or Excluded Liabilities or the organization, existence,
capitalization or debt financing of Seller or of any Affiliate of Seller,
(ii) all books, files and records that would otherwise constitute a Business
Record but for the fact that disclosure of books, files or records could
(w) violate any legal constraints or obligations regarding the confidentiality
thereof, provided that Seller shall use its commercially reasonable efforts to
obtain a waiver of any such confidentiality restrictions in order to permit such
disclosure (x) waive any attorney client, work product or like privilege,
(y) disclose information about Seller or any of its Affiliates that is unrelated
to the Power Plant or the Business or (z) disclose information about Seller or
any of its Affiliates pertaining to energy or project evaluation, energy or
natural gas price curves or projections or other economic predictive models or
(iii) all books and records prepared in connection with or relating in any way
to the transactions contemplated by this Agreement, including bids received from
other parties and analyses relating in any way to the Purchased Interests, the
Acquired Assets and the Assumed Liabilities.
     “Rule” or “Rules” means the Federal Rules of Bankruptcy Procedure.
     “Sherman Act” means title 15 of the United States Code §§ 1-7, as amended.
     “Subsidiary” means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (a) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (b) if a partnership,
limited liability company, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more Subsidiaries
of that Person or a combination thereof. For purposes hereof, a Person or
Persons shall be deemed to have a majority ownership interest in a partnership,
limited liability company, association or other business entity if such Person
or Persons shall be allocated a majority of partnership, limited liability
company, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership, limited
liability company, association or other business entity.

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     “Tax Return” means any report, return, information return, filing or other
information, including any schedules, exhibits or attachments thereto, and any
amendments to any of the foregoing required to be filed or maintained in
connection with the calculation, determination, assessment or collection of any
Taxes (including estimated Taxes).
     “Taxes” means any and all taxes, however denominated, including any
interest, penalties or additions to tax that may become payable in respect
thereof, imposed by any Government, which taxes shall include all income taxes,
Transaction Taxes, payroll and employee withholding, unemployment insurance,
social security (or similar), sales and use, excise, franchise, gross receipts,
occupation, real and personal property, stamp, transfer, workmen’s compensation,
customs duties, registration, documentary, value added, alternative or add-on
minimum, estimated, environmental (including taxes under section 59A of the
Code) and other obligations of the same or a similar nature, whether arising
before, on or after the Closing Date.
     “Title Commitment” means a commitment for the issuance of an ALTA Owner’s
Title Insurance Policy or other form of policy reasonably acceptable to Buyer
and meeting the requirements of the Title Policy, together with a copy of all
documents referenced therein.
     “Title Company” means a title company reasonably acceptable to Buyer.
     “Title Policy” means an extended coverage title insurance policy from the
Title Company (which may be in the form of a mark-up of the Title Commitment or
of a pro forma of the Title Policy) in accordance with the Title Commitment,
insuring Buyer’s fee simple title to the Owned Real Property (including all
recorded appurtenant easements, insured as separate legal parcels) as of the
Closing Date in an amount equal to the Purchase Price, with gap coverage from
Closing through the date of recording and with exceptions limited to the
Schedule B ALTA “General Exceptions” and Permitted Liens, which policy shall
include such other endorsements as Buyer may reasonably request and shall
otherwise be reasonably acceptable to Buyer.
     “WARN Act” means the Worker Adjustment Retraining and Notification Act of
1988, as amended.
     “Washington Tax Ruling” means that certain tax ruling in respect of the tax
treatment of the transactions contemplated hereby issued by the DOR on dated
October 18, 2006.
     15.2 All Terms Cross-Referenced. Each of the following terms is defined in
the Section set forth opposite such term:

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        Term   Section
Accounts Payable
    1.4
Accounts Receivable
    1.2(b)
Acquired Assets
    1.1
Additional Deposit
    2.2
Additional Real Property
    6.10
Additional Real Property Entitlements
    6.10
Additional Real Property Farming Lease
    6.10
Additional Real Property Survey
    15.1
Adjustment Date
    11.2
Affiliate
    15.1
Agreement
  Preamble
Alternative Transaction
    15.1
Antitrust Approval
    10.2
Antitrust Law
    10.2
Assigned Contracts
    1.1(f)
Assignment Agreement
    15.1
Assumed Liabilities
    1.3
Auction
    15.1
Bankruptcy Code
    15.1
Bankruptcy Court
    15.1
Bidding Procedures
    8.2
Bidding Procedures Order
    6.3
BPA
    6.8
Break-Up Fee
    13.5(c)(i)
Business
    15.1
Business Day
    15.1
Business Employees
    4.10(d)
Business Records
    15.1
Buyer
  Preamble
Buyer Group
    14.8
Calpine
  Recitals

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        Term   Section
Calpine Marks
    1.2(m)
Chapter 11 Case
    15.1
Claim Over
    14.8
Claims
    1.2(j)
Clayton Act
    15.1
Closing
    3.1
Closing Date
    3.1
Code
    15.1
Confidentiality Agreement
    6.5
Consent
    15.1
Contract
    15.1
Customer Contracts
    1.1(d)
Deposits
    2.2
Disclosure Schedules
    1.1(a)
Dispute
    14.3(a)
Emission Allowances
    15.1
Employee Benefit Plan
    15.1
Entitled Real Property
    1.1(c)
Environmental Laws
    15.1
Environmental Reports
    15.1
Equipment
    1.1(c)
ERISA
    15.1
ERISA Affiliate
    15.1
Escrow Agent
    15.1
Excluded Assets
    1.2
Excluded Liabilities
    1.4
Execution Date
  Preamble
Existing Survey
    15.1
Existing Title Policy
    15.1
FERC
    15.1
Final Allocation Schedule
    11.5(c)
Final Order
    15.1
FPA
    15.1

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        Term   Section
Government
    15.1
Hazardous Materials
    15.1
HSR Act
    15.1
Improvements
    15.1
Independent Accounting Firm
    11.5
Initial Deposit
    2.2
Intangible Property
    1.1(l)
Intracompany Service Contracts
    12.3(k)
Inventory
    1.1(g)
Knowledge of Seller
    15.1
KPUD
    6.8
Law
    4.3
Lien
    15.1
Losses
    6.5
Master Escrow Agreement
    15.1
Material Adverse Effect
    15.1
Material Contracts
    4.7(a)(v)
Multiemployer Plan
    15.1
Non-Recourse Person
    14.8
Order
    4.3
Ordinary Course of Business
    15.1
Organizational Documents
    4.3
Other Contracts
    1.1(f)
Owned Real Property
    1.1(a)
Party or Parties
  Preamble
Permits
    1.1(i)
Permitted Liens
    15.1
Person
    15.1
Power Plant
    15.1
Preliminary Allocation Schedule
    11.5(b)
Purchase Notice
    15.1
Purchase Price
    2.1
Purchased Interests
    1.1

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        Term   Section
Real Property
    1.1(b)
Real Property Allocation Schedule
    11.5(a)
REET
    11.1
Related Person
    15.1
Release Date
    7.5(d)
Representatives
    15.1
Retained Books and Records
    15.1
Rule
    15.1
Rules
    15.1
Sale Order
    6.3
Seller
  Preamble
Seller’s Account
    3.3(a)
Seller’s Cure Costs
    6.8  
Seller’s Knowledge
    15.1
Sherman Act
    15.1
Straddle Period
    11.2
Subsidiary
    15.1
Supplier Contracts
    1.1(e)
Support Obligations
    7.5(a)
Tax Return
    15.1
Taxes
    15.1
Termination Date
  13.2(a)(iv)
Termination Order
  13.2(a)(vi)
Third Person
    14.8
Title Commitment
    15.1
Title Company
    15.1
Title IV Plan
    4.10(b)
Title Policy
    15.1
Transaction Taxes
    11.1
Transfer and Contribution Agreement
    1.1
WARN Act
    15.1
Washington Tax Ruling
    15.1

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(Signatures are on the following page.)

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     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.

            GOLDENDALE ENERGY CENTER, LLC
      By:   /s/ Richard L. Thomas         Name:   Richard L. Thomas        Its:
Authorized Signatory        PUGET SOUND ENERGY, INC.
      By:   /s/ Eric M. Markell         Name:   Eric M. Markell        Its:
Senior Vice President, Energy Resources   

Membership Interests Purchase Agreement — Signature Page